The Proposed FAR-9 Residential Sale and Purchase Contract.  This article will comment on the numerous revisions contained in the proposed FAR9 Contract, which is scheduled to be released in mid April 2007.  The comments contained in this article are based on a draft of the proposed Contract; however, it is believed that the proposed Contract will contain only minor revisions at the time of release.  The known revisions are as follows:

Paragraph 1: Sale and Purchase: 
In connection with the Property that is being transferred the word existing is added before improvements and major appliances replaces built in appliances.  A blank has been added to denote the number of ceiling fans.  Further clarified is that these items are the items on the Property as of the Effective Date.

Paragraph 2(a): Price and Financing:
A line has been added for the address and telephone number of the Escrow Agent.  This was added to enable compliance with FREC regulations.

Paragraph 3(a): Financing:  Check boxes have been added to indicate whether Conventional, FHA or VA financing is being applied for.  A requirement has been added that the Buyer must provide the Seller with a Commitment by the earlier of 30 days after the Effective Date or 5 days prior to the Closing Date (Commitment Period) if left blank.  In the past the Commitment Period was simply 30 days after the Effective Date if left blank and could result in extending the Closing Date.  The Buyer must provide the Seller with written notice that Buyer is unable to obtain a Commitment during the Commitment Period.  Failure to provide this notice will result in a forfeiture of the Buyer’s Deposit.  A substantial revision is the fact that the

Buyer will be allowed to retain the Buyer’s Deposit, if Buyer obtains the Commitment in a timely manner, but was unable to meet the property related conditions of the Commitment.  In the FAR8, once the Buyer received the Commitment, the Buyer could only receive the return of Buyer’s Deposit in the event the Property failed to appraise for the Purchase Price or as provided for in other provisions in the Contract.

Paragraph 4: Closing Date; Occupancy:
The language has been added stating that unless the Closing Date is specifically extended by any of the provisions in the Contract, the Closing Date shall prevail over all other time periods, including, but not limited to inspection and the Commitment Period for financing.

Paragraph 5: Closing Procedure; Costs:
This paragraph has been formatted differently to indicate what expenses the Seller and Buyer are responsible for. Although, there were no differences in the responsibility of Buyer and Seller, one item that has been clarified that has caused confusion in the past is that the 1.5% limit in the event the line is left blank applies to the Repair Limit and the WDO Repair Limit.  In the past some people have been confused and thought that the 1.5% limit referred to all Seller expenses including documentary stamp taxes etc.

Paragraph 5(a) Seller Costs:  A Permit Limit has been added at the end of this paragraph in an amount as filled in the blank provided or equal to 1.5% of the Purchase Price if left blank.  This amount is to be utilized to close open permits and to obtain required permits for improvements.

Paragraph 5(b) Buyer Costs:  The costs listed are the same; however, there is a blank to indicate Other Buyer Costs.

Paragraph 5(c)(1) Title Evidence and Insurance:  Although presenting the same options it is formatted differently to eliminate confusion as to who chooses the title agent and who pays for the title insurance and related charges.  In addition, the fact that there is no specific box providing for the Buyer to pay where the Seller selects the title agent helps avoid a RESPA violation.

Paragraph 5(d) Prorations:  This Paragraph has been revised and will have substantial impact on the Buyer and Seller, in that it provides for a re-proration of taxes in the event the real property tax bill is not available at closing. The reporation be made when the tax bill is received.  There is also a provision that if improvements are made to the Property after January 1st that the proration will be based using the prior years millage at an equitable assessment to be agreed upon between the parties.  If the parties cannot agree then a request can be made to the County Property Appraiser for an informal assessment taking into consideration available exemptions.  It is also important to note that the proration and re-proration provisions contained in this Paragraph shall survive closing.

This eliminates the need to have a separate document executed at the closing since the provision automatically survives the Closing.  Normally a provision in a real estate Contract terminates at the time of Closing.

Paragraph 5(e) Special Assessments by Public Body:  This provides an additional provision if special assessments may be paid in installments, Checking the appropriate box will indicate whether the Buyer or Seller will pay the installments due after Closing.  There is also a statement that assessments of a Public Body do not include assessments of a homeowner’s association or a condominium association.

Paragraph 6 - Inspection Periods: If the blank is not filled in for the Inspection Period then it is the earlier of 10 days after the Effective Date or 5 days prior to the Closing Date.  The FAR8 only provided 10 days from the Effective Date.  Again the new provision eliminates the Closing Date being extended.
         
Paragraph 7 - Real Property Disclosures:
The provision in the FAR8 requiring the closure of open permits has been deleted from this section and is now set forth in Paragraph 8.

Paragraph 7(g) - Coastal Construction Control Line:  A coastal construction control line (CCCL) disclosure has been added.  The Seller must provide a survey or affidavit delineating the location of the CCCL unless the requirement is waived by the Buyer.  A check box has been added for the Buyer to waive the CCCL affidavit or survey.

Paragraph 8 - Maintenance, Inspections and Repairs:  The maintenance requirement has now been capitalized and is Maintenance Requirement.  This provides that if Seller is unable to complete any repair or replacement in connection with the duty to maintain the Property in the same condition as found on the Effective Date as provided for in the Maintence Requirement that the Seller will give a credit to Buyer at Closing for the repair or replacement of said items.  The FAR-8 only placed responsibility on the Seller with respect to items that needed to be replaced or repaired in accordance with the items revealed on the inspections and gave no credit for maintenance items. 

It is also interesting to note that the FAR-8 provided that “if Seller, using best efforts, is unable to complete the required repairs” and that the FAR 9 has eliminated the words using best efforts.  The requirement to furnish written evidence that all open permits have been closed out and that Seller has obtained permits for improvements to the Property has been added to Paragraph 8.

Paragraph 8(a)(1) Warranty: Seller:
Doors and windows have been added to the items that must be structurally sound and watertight.  Missing or torn screens must be repaired or replaced.  The FAR8 only required the repair or replacement of pool cage or screen room screens. Consequently fogged windows and missing or torn windows screens were deleted from the definition of cosmetic conditions.  A warranty has been added in this Paragraph stating that all open permits have been closed out and that Seller has obtained permits for improvement to the Property.

Paragraph 8(a)(2) Professional Inspection; Buyer:  Words have been added providing that the Buyer must within 5 days after the end of the Inspection Period deliver written notice of any items that are not in the condition warranted and a copy of the portion of the inspectors written report dealing with the condition not warranted.

Paragraph 8(a)(4) Permits: Seller:
Provides that not only shall the Seller close out any open permits, but that in addition Seller shall remedy any violations of any governmental entity, including obtaining permits for improvements to the Property up to the Permit Limit.  If the cost for the foregoing exceeds the Permit Limit either party may cancel the Contract, unless the other party elects to pay the excess or Buyer agrees to accept the Property “as-as” condition and Seller will credit Buyer an amount at closing equal to the Permit Limit.

Paragraph 8(b) Wood-Destroying Organisms: The previous provision that exempts Seller from treating for wood destroying organisms if there is no visible live infestation and Seller transfers a current full treatment warranty has been revised to indicate that the full treatment warranty must only be for the wood destroying organisms “found”.

Paragraph 8(c) Walk-Through Inspection\Re-inspection: Adds that the Buyer or Buyer’s Representative (FAR8 only provided for Buyer) when doing the walk through can inspect to be sure that the Seller has made the repairs required by Contract and met the Maintenance Requirement.

Paragraph 9 - Risk of Loss:  The FAR8 provided that if any portion of the Property is damaged by fire or casualty and can be restored within 45 days from the Closing Date, then Seller will restore the Property and the Closing Date will be extended accordingly.  The new provision provides that Seller will restore the Property if the restoration can be accomplished within 45 days and deliver written notice to Buyer that Seller has completed the restorations and the parties will then close the transaction on the Closing Date or within 10 days from

Buyer’s receipt of Seller’s notice if Closing Date has passed.  In this Paragraph a provision has been deleted which stated that “if the Property is a condominium then the restoration provision only applies to the unit and not the limited common elements or common elements.”

Paragraph 10(c) Survey: Buyer: The reference to coastal construction control line has been deleted since it was moved to Paragraph 7.

Paragraph 11 - Effective Date; Time; Force Majeure:  The Effective Date has been defined to be the date that the last of the parties initials or signs and delivers the final offer.  The revision is a substitution of final for latest and the word delivers has been added.

Paragraph 11(c) Force Majeure: A paragraph has been added that provides that in the event of an “act of God” or “force majeure” which prevents performance or nonperformance of an obligation that all time periods will be extended (not to exceed 30 days) for the period that the force majeure or act of God is in place.  After that period either party may cancel the Contract.
 
Paragraph 12 Notices:  Provides that all notices must be in writing.  A sentence has been added stating “except for the notices required by Paragraph 3 of this Contract.  The author finds it strange that this is a separate sentence, but assumes that what it means is as follows: If Buyer does not provide written notice that Buyer failed to obtain financing during the Commitment Period then the contingency will not be considered waived but instead the Buyer will forfeit the Deposit as provided for in Paragraph 3. 

Paragraph 13 Complete Agreement: The word Contract has been substituted for Agreement.

Paragraph 15 Default: The provision which provided in the FAR8 that the selling Realtor would not share in the Deposit upon a Buyer
default when the default was based on the

Buyer not being able to secure Financing after providing a Commitment, has been deleted.  This means that if the Seller has the right to retain the Deposit, the listing and cooperating Broker can each demand 50% of the Deposit in total between them to be split equally among the listing and cooperating Broker not to exceed the commission that was to be paid.

Paragraph 16 Dispute Resolution:  It is the authors understanding that language will be added to the final version indicating that FREC has no authority to decide Escrow disputes if the Escrow is held by a title company or attorney.

Paragraph 17 Escrow Agent:  Name has been inserted to indicate that the name of the Escrow Agent should appear on the line.

Paragraph 18 Professional Advice; Broker Liability:  Added that the Seller is to consult with appropriate professional regarding the effect of the Property lying partially or totally seaward of the CCCL and not to rely on Broker for that advice.

Paragraph 20 Addenda:  The word attached has been added prior to Addenda to indicate that the Addenda checked are those that are attached and checked.  New addenda that has been added are:  N. Lease Purchase/Lease option has been added in replacement of Unimproved/ag. Prop which has been deleted.
               
Last Page - Counter Offer/Rejection: Has been moved above the signature lines.  In addition, the blank on the FAR8 indicating a time for acceptance has been deleted and is now automatically 2 days.

Effective Date now contains the word “delivered” to conform to the revision in Paragraph 11.


COMPREHENSIVE ADDENDUM

The proposed Comprehensive Addendum does not contain line numbering but it is the author’s understanding that the final version will contain line numbering.

Paragraph A. Condominium Association:
A sentence has been added indicating that if the condominium property is subject to a master Homeowner’s Association that the Homeowner’s Association Addendum B should be attached and completed.

Paragraph A(1) Documents: Seller. Provides that the condominium documents that are delivered pursuant to subparagraph (9) should be current and complete, including, question and answer sheet, current year end financial information and any recorded amendments. 
               
Paragraph A(5) Parking: Seller:  Blanks have been added to indicate boat slip(s) and storage unit(s), if any.
               
Paragraph A(6) Fees: Seller: If special assessments may be paid in installments, check boxes have been added to provide that either

Buyer or Seller will pay for same and a choice is given for other which provides that an addendum

may be attached indicating how installments would be paid after the Closing Date.

Paragraph A(7) Damage to Common Elements:  Provides that if any portion of the common elements is damaged due to fire, storm or other casualty before the closing, either party may cancel if (a) as a result of damage to the common elements, the Property appraises below the purchase price and either the parties cannot agree on a new purchase price or Buyer elects to proceed, or (b) the Association cannot determine the assessment attributable to the Property for the damage at least 5 days prior to the closing , or (c) the assessment determined by Association is greater than _____.  If the blank is not filled in, it is automatically 1.5% of the purchase price.

Paragraph B. Homeowners Association:
This has similar provisions to those added for the Condominium Association with the exception of the boat slip(s) and storage space(s).  Provision is made at the bottom that the warranty of Seller under Paragraph 8 of the Contract is limited to the Property and does not extend to common areas.

Paragraph E. FHA Financing: (1) Fees, Prepayments: Provides that Seller will pay required fees as provided under FHA regulations to a maximum cost as filled in the blank or if not filled in the blank it is automatically $250.00.

(2) Repairs:  If the blank for repairs if not filled in is automatically $500.00.

Paragraph F. VA Financing:  The revisions are almost identical to the revisions for FHA in paragraph E.

Paragraph H. As Is With Right to Inspect:
Provides that the Permit Limit in Paragraph 5 of the Contract is 0%.  In the FAR8, the Buyer made the determination if the repairs were greater than the amount required to cancel.  This has been corrected and it is now the inspector of the Buyer who determines the estimated amount of treatment and repairs.  The Buyer is required to give a copy of the inspector’s report rather than a copy of repairs determined to be necessary by Buyer.  The blank for the amount of the estimated repairs if not filled in is automatically $250.00 in order for the Buyer to cancel the Contract.  Provision was also added allowing the Buyer to cancel the Contract if Buyer’s search reveals open permits or if improvements have been made without a required permit.  A requirement was added that the Buyer must give the Seller written documentation that open permits exists on the Property or that permits have not been obtained if a permit is required.  Finally, it has been clarified that the final inspection can be made by Buyer or by Buyer’s representative to determine if the Maintenance Requirement has been met.

Paragraph K. Pre-1978 Housing Lead-Based Paint Warning Statement:  The word signature has been set forth next to the Selling Licensee and Listing Licensee to indicate that signatures are required by the Licensees.

Paragraph L. Insurance: L.(1)(a) Homeowners Insurance: and (1)(b) Flood Insurance: These sections have been separated
to separate the conditions upon which the Buyer may cancel in connection with problems encountered with homeowners insurance  (which

includes windstorm) and flood insurance.  Blanks are set forth, which indicates that if the annual premium exceeds the blanks or a certain percentage of the Purchase Price as filled in the blanks then the Buyer may cancel by delivery of written notice.

Paragraph L(3) Flood damage to 1st floor: Buyer. Provides an acknowledgment that the Buyer is not relying any representation by the Broker or Buyer in connection with the usability of the first floor in the event of flood damage to the first floor and further that if there is flood damage to the first floor, the Buyer may have difficulty in obtaining flood insurance or may suffer adverse enforcement proceedings by local authorities.

Paragraph N: Lease Purchase /Lease Option:  The previous title in the addendum has been deleted and replaced with this provision that provides that the Contract is contingent upon the Buyer and Seller executing a Lease Purchase or Lease Option Agreement within 3 days from the Effective Date.  In the event, the parties fail to sign the Lease Purchase/Lease Option Agreement, the deposit will be refunded to the Buyer.  In addition, check boxes have been added for the parties to indicate who will pay for the preparation of the lease purchase or lease option Agreement.

Paragraph P. Back-up Contract/Kick-out Clause:  The title of this paragraph has been revised to add the name Kick-out Clause to facilitate understanding.

Paragraph P(1) Back-up Contract:   The Effective Date of the Back-up Contract will be the date Seller delivers written notice of termination of the prior executed Contract which I will refer to as the primary contract.  Buyer can cancel the back-up Contract by delivering written notice to the Seller within 3 days after the date inserted if Buyer has not received notice that the primary contract has been terminated.  In addition there is a box that may be checked to provide that Buyer has the right to cancel his back-up offer prior to the date Seller delivers written notice to the Buyer of the termination of the primary contract.

Paragraph P(2) Kick-out Clause:   Only the title of the paragraph has been changed.