July 1, 2016 Form Changes
Chuck Cornwell, chairman of the NVAR Standard Forms Committee, discusses the July 1, 2016 Form Changes.
1. Residential Sales Contract – K1321
July 1, 2016 NVAR Standard Forms Changes
a. Deposit. The new language clarifies that the Deposit needs to be delivered to the Escrow Agent and not the real estate licensee in order to satisfy the terms of Deposit paragraph.
b. Virginia Condominium Act. This paragraph has been updated to comport with the new laws. The Condo Act now allows a buyer to void a contract after receipt of the resale certificate OR receipt of a notice of non-availability of the resale certificate.
c. Foreign Investment in Real Property Tax Act (FIRPTA). This paragraph was added to the contract to handle circumstances under which the seller is a foreign person for taxation purposes and thus subject to FIRPTA. If the Seller is a foreign person for taxation purposes, then in addition to checking the appropriate box in this paragraph, the seller will have to complete the FIRPTA Addendum – K1370
d. Wood Destroying Insect Inspection. This paragraph was updated to comport with the practice and the inspection report provided by the pest inspection companies. The validity of the report was extended from 30 days to 90 days. In addition, the seller will now have to provide written evidence of treatment and repairs as may be applicable.
2. K1370 – FIRPTA Addendum
This is a new form to the NVAR forms library which was created by the committee at the request and with the input of the attorney roundtable. The increase in foreign buyers and sellers has created a need to address FIRPTA in our contract. FIRPTA is a complicated federal law which affects the obligations of the parties under the contract. These requirements are disclosed in this new addendum to allow the parties to get a head start on the process and ensure a smooth and timely settlement.
3. Financing Contingencies and Notices for their removal
a. Conventional, VA and FHA Financing Contingencies – K1339, K1340 and K1359.
The changes to these contingencies represent a major shift in the mechanics of the financing contingencies in our contracts. Previously, a contract with a financing contingency that was not satisfied by the financing deadline continued up to and including settlement date, unless the seller delivered notice to the buyer that the contract would become void. Once a seller delivered that notice, the only option for the buyer was to deliver a written commitment from the lender or evidence of funds necessary to settle without financing, otherwise, the contract would become void within three days. Under the new financing contingencies, a contract with a financing contingency that has not been satisfied by the financing deadline still continues up to and including the settlement date. Seller also retains the option to deliver a notice to buyer, however, there is no longer an automatic voiding of the contract if buyer does nothing. Instead, seller may, at seller’s option send a notice to the buyer alerting the buyer that the buyer has three days to either void the contract or proceed with the contract without the financing contingency in place. If the buyer, after receiving the seller’s notice, does nothing, the contract is no longer contingent on financing and the buyer no longer has the protection of the financing contingency. The buyer has to decide whether to void the contract or take the risk of no longer having the protection of the financing contingency. Also, a sentence was added to provide that nothing shall prevent the parties from agreeing to some other remedy under mutually acceptable terms.
b. Seller’s Notice Requesting Removal of the Financing Contingency – K1371. This new form will allow the seller to send a notice to the buyer telling the buyer that they have three days to void the contract or the financing contingency will expire and the buyer will proceed to settlement without the protection of the financing contingency.
c. Buyer’s Notice Removing the Financing Contingency – K1331. This form has been updated to allow a buyer to remove any of the financing contingencies (VA, FHA, and Conventional) without having to show proof of funds or a written commitment letter.
4. K1335 – Seller Financing Addendum
This form was updated to reflect current market practices. It contains four major areas. (1) The first requires the parties to agree as to whether seller financing will be a first, second or third deed of trust. The addendum then allocates the responsibility for drafting the required documents, which version of documents will be used and who will pay for the drafting of these documents. (2) The second paragraph describes basic loan terms: amount, payment of principal and interest, the term and any pre-payment terms. (3) The third paragraph addresses taxes and insurance escrows. (4) The fourth paragraph addresses the requirement for buyer’s credit documentation and approval by the seller. The buyer has 10 days from the date of ratification to provide the seller with credit documentation (defined by agreement of the parties). The buyer also grants the seller the right to obtain the credit documentation from third parties. The paragraph then provides a remedy in the event the buyer fails to provide the required credit documentation and a remedy in the event of material changes in the buyer’s financial condition prior to settlement.
5. K1297 – Useful Information about a Transaction
This form was updated to reflect the addition of a FIRPTA paragraph and addendum to the Residential Sales Contract.
6. K1207- Disclosure of Brokerage Relationship to Unrepresented Parties
This form was updated to comply with the changes to the Agency statute in the Code of Virginia which will become effective July 1, 2016. The updated statute makes away with the requirement to use the disclosure form in commercial transactions. This form will now only be required in residential transactions.
7. K1363 - Disclosure of Dual Agency or Dual Representation in a Commercial Transaction
This form was updated to comply with the changes to the Agency statute in the Code of Virginia which will become effective July 1, 2016. The updated statute eliminates the previous classifications of licensees for commercial transactions. Commercial agents will now act as agents or independent contractors. They will no longer be known as standard agents and will no longer be able to practice as a limited service agent.
8. K1346 – Understanding Your Right under the Residential Property Disclosure Act
This form was updated to comply with the changes to the Residential Property Disclosure Act in the Code of Virginia which will become effective July 1, 2016. The statute was amended to add to list of disclosures that the owner makes no representation on covenants and restrictions which may affect the property or to zoning and permitted uses of adjacent parcels. It advises the buyer to exercise due diligence pertaining to covenants and restrictions that may be recorded in land records that affect the real property or any improvements located on the property. Similarly, the law advises buyers to exercise due diligence in regard to the costs associated with maintaining, repairing, or inspecting any wastewater system, including any costs or requirements related to the pump-out of septic tanks.
9. K1299 – Request for POA packet and K1024 – Request for Condo documents
The form was updated to comply with recent changes in the Property Owner’s Association Act and the Condominium Act. The form now tracks the statutes specification of who the owner of the property can have copies of the POA/Condo packet sent to. In addition it has shortened the number of days which an owner has to pay for the packet from 90 to 60 days. The association will be able to charge the owner directly if settlement does not occur within 60 days of the packet delivery.