As you may be aware, the changes to the FAR/BAR Residential Contract (both the “AS-IS as well as “NON-AS-IS” versions) will go into effect April 4, 2017.
While full redline versions are attached below:
Residential Contract For Sale And Purchase
“AS IS” Residential Contract For Sale And Purchase
The change which will have the most significant impact on your buyers and sellers is the modification to the Financing section.
Buyers will now be required to obtain a “Loan Approval” within 30 days from the Effective Date, unless otherwise stated. The newly defined term “Loan Approval” is a change from the current defined term, “Loan Commitment”. The issue with the newly defined term is that it is loosely defined in the contract as “approval of a loan meeting the Financing terms”. It is not unreasonable for one to interpret the term Loan Approval to mean “an unconditional approval”, however the contract does not define the term as such. Moreover, by virtue of the conditional language in Section 8(b)(vii), Loan Approval may be conditioned on, at a minimum, property related conditions as well as the appraisal. I anticipate that this issue will need to be clarified – and as the new version makes its rounds – it will. The takeaway here is that, regardless how the term is defined (Loan Approval or Loan Commitment) the buyer should have a candid discussion with their lender prior to the issuance of document which remotely resembles a Loan Approval. The discussion should be centered around the fact that once the Loan Approval is obtained “or deemed to have been obtained”, as the new version of the contract provides, and the buyer then fails to close, the buyer’s deposit could be at risk. Real estate agents and lenders should proceed cautiously with regard to this section of the contract and call upon real estate attorneys for counsel.
In addition to the above changes, the updated version of the contract allows a buyer to terminate the contract for inability to obtain the Loan Approval through expiration of the Loan Approval Period. This is a departure from the current version of the contract which limits a buyer’s ability to terminate the contract to a time period which is no later than 7 days prior to closing.
