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Big Changes Proposed to the CR/CBA Purchase Contract – Part I

The Columbus Realtors and the Columbus Bar Association are currently working on significant changes to the standard residential purchase agreement, taking it from 10 to 12 pages among other things.  May of the proposed changes are in response to the new Consumer Financial Protection Bureau’s new TRID rules.   I’ll be outlining in several articles the major changes and sprinkled in commentary for good measure. This is Part I – Attorney Approval and Financing.

The Attorney Approval Clause is proposed to become a standard provision in the contract.  Previously it was optional and only applicable if a number of days were inserted in the form.  The proposal provides five days for either the buyer or seller’s attorney to reject or propose changes to the contract and three days for the other party to accept or reject the changes.

One of the more significant changes proposed deals with financing.  Buyers will be given the option of selecting a financing contingency or to pay cash, each with their own respective requirements for their selection.  In the case of a financing contingency, the process goes from two steps to three: Lender Pre-Qualification; Loan Application and Approval and Loan Commitment.

The Lender Pre-Approval is changed to Lender Pre-Qualification, with space for the agent to note whether or not the same has been already provided to the Seller or Seller’s agent.  Additionally the pre-qualification need only state that the buyer’s credit report has been reviewed and the buyer is prequalified to obtain a loan to finance the purchase. Removed is former language dealing with the buyer meeting the lender’s guidelines for approval and subjecting the pre-approval to an appraisal, other qualifications and final underwriting approval.

New is Loan Application and Approval, which provides a default of 7 days of acceptance for the buyer to make formal application for a specified type of loan, notify Seller of the Buyer’s lender and notify lender of Buyer’s intent to proceed.  (Remember, under the new TRID rules, Buyers have to accept the lender’s “Loan Estimate” before the lender can proceed with processing).  If the loan is denied, the buyer has three days to terminate the contract or the right to terminate is waived.  This is a 180 degree change from current language, which provides for automatic contract termination a loan commitment (effectively loan approval) is not timely provided.  Nonetheless, I expect litigation related to Buyer’s breach for failure to timely terminate upon loan application denial.

Last is Loan Commitment, which provides a default of 30 days of acceptance for the seller to provide a loan commitment, and terms the period the “Loan Commitment Period.”  The proposal contains a requirement that the loan commitment state that the lender will provide financing for the purchase, subject to any lender conditions or qualifications at lender’s discretion. If the Buyer has not delivered the Loan Commitment to the Seller or Seller’s Agent within the Loan Commitment Period, the Seller “may” terminate within 3 days of the expiration of the Loan Commitment Period.  Missing from the proposed language is any Buyer right of termination should the lender elect not to provide a Loan Commitment.

Of course it goes without saying that the Lender Pre-Qualification, Loan Application and Approval and Loan Commitment sections are inapplicable in a cash transaction.

Keep in mind all of the changes discussed above are just in the “proposal” stage.  However, you should expect that these changes or substantially similar ones are forthcoming in the near future.  If you have thoughts or recommendations, let the Columbus Realtors know and I will be sharing my thoughts with the Columbus Bar Association.

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