Can a FHA purchase agreement addendum be added to the contract one week before closing? if we (the sellers) do not sign are we in breach of contract?

Asked by Sandra Fidoe, 75068 Sun Oct 18, 2009

The appraisal on our property has been completed (we have no idea what it has been appraised at) and we are now being asked, one week before close, to sign a FHA purchase agreeent addendum which will allow the purchaser to walk away without losing her deposit if the property does not appraise at the value. The buyer signed this form 2 weeks ago but it has only just been given to us. If we do not sign this form are we in breach of the contract?

Help the community by answering this question:

+ web reference
Web reference:

Answers

16
Lucytinaa, Home Buyer, Dallas, TX
Wed Jul 22, 2015
It is okay to sell a home "As-Is" and get an FHA loan as long as it meets FHA standards. Check with a local professional about the repairs that may be required for an FHA loan. That should give you a minimum list of repairs that would have to be done in order to meet FHA guidelines.

Web Reference: http://fhamortgageinfo.com/
2 votes
Guy Gimenez, Agent, Austin, TX
Sun Oct 18, 2009
It sounds like the amendment you're referencing is the FHA Amendatory Clause, which by the FHA regulations, must be included in the purchase contract. It's typically signed at closing, but in any event, if must be included in the contract if the buyer is using FHA financing. This amendment shouldn't change the terms of your contract (see paragraph 4(a)2(a) of the TREC approved contract form that most Texas agents use) and the Third Party Financing Addendum for details. This contract form already allows the buyer to terminate the contract if the property doesn't appraise, so the FHA amendment doesn't really change the terms of the contract assuming you're using this promulgated form.

To answer your question, paragraph 9 of the contract form states you will execute "documents necessary to close" the transaction. Would this document be considered a breach? That is a question for attorneys to consider, not real estate agents. Have your agent contact the TAR Legal Hotline for guidance. This is a free call for agents who are members of Texas Assoc. of Realtors.
Web Reference:  http://www.phgbrokers.com
2 votes
I need help with this too! Thanks for sharing the info. BTW, if anyone needs to fill out a “third party financing addendum Form ”, I found a blank form here: http://goo.gl/35ZQV8
Flag Thu Jan 29, 2015
Guy Gimenez, Agent, Austin, TX
Thu Oct 22, 2009
Sandra and Concerned Citizen

C/C is correct. Once all contingencies have been satisfied (or waived), you have a bilateral contract, meaning the buyer has to buy and the seller has to sell. Otherwise, one or the other party will be breaching the contract. The issue with the Texas forms is the the appraisal contingency does not have a time frame on it. If the appraisal comes in one day prior to closing and the appraisal is for one dollar less than the sales price, the buyer can walk. This is the reason that I didn't feel this form affects Sandra since it only restates what is already stated in the contract and it doesn't extend the contingency period because the contingency has no mandated time frame...just whenever the appraisal is complete.

In C/C's instance, it sounds like the appraisal contingency is time sensitive. If this is the case, you can consider refusing the sign the Amendatory Clause (amendment) until they provide you a copy of the appraisal. You could also advise them you will only sign the FHA form at the closing table and you'll only sign your closing documents after the buyer has signed. If the buyer comes in to sign the docs, you can be pretty certain that the home appraised since the lender would not have drawn closing documents if the appraisal did not come in at or above the sales price.

Good luck to both of you and please let us know how things worked out.

Guy E Gimenez
Broker / Owner
The PowerHouse Group
512-731-5613
guy@phgbrokers.com
Web Reference:  http://www.phgbrokers.com
0 votes
Concernedcit…, Both Buyer And Seller, California
Thu Oct 22, 2009
Guy,
Thank you for your prompt response.
I am not familiar with the forms you have mentioned.
My understanding of the forms that I signed in CA is:
The buyer can walk away from the escrow prior to loan contingencies with no penalties. I understand that they can always walk away if they do not get the loan. But I am under the impression that, depending on circumstances, seller should be able to collect damages after contingency removals. Otherwise, the buyer can walk away from escrow 1 day before close of escrow.
I always assumed that once those contingencies are removed then the process protects the seller from buyer not completing the transaction with respect to damages incurred. Otherwise why do we have those contingencies in place?
This form seems to put a contingency on seller to wave the protection provided by contract.

In may case, I am thinking of asking when each party (agents, broker, escrow) was aware of this document as a last resort. Because it should have been presented to me EARLY and this document is standard and required. and if breaks the deal, someone has been negligent. But I hope it does not come to that.

I don't think financially I have much of a choice at this point. Since I am being told 5 days prior to close that lender will not release the money unless I sign this document...

Good luck Sandra...I am talking to a real estate attorney friend of mine. If there is any useful findings I will post it.
0 votes
Guy Gimenez, Agent, Austin, TX
Thu Oct 22, 2009
Concerned Citizen:

The TREC or TAR forms do not have a time frame for the appraisal to be completed. The promulgated form simply provides that the property must meet the lender's guidelines (condition / appraisal) or the contract can be terminated.

The buyer is not waiving anything by signing the FHA amendment because this provision is already in the promulgated contract form. The amendment is nothing more than a redundant statement. The amendment doesn't change the terms of the contract, it only reiterates what has already been agreed to by the parties (again, assuming a TAR or TREC form was used).

I clearly stated that Sandra DOES NOT have to sign the FHA form...it is her option. I am only stating that in my experience, the loan will not be funded unless this form is signed because this FHA form is needed in order for the loan to be sold on the secondary market.

Unfortunately, the language cannot be changed or revised because it is language that is required under FHA rules (I believe it's in Chapter 3 of the FHA Manual).
Web Reference:  http://www.phgbrokers.com
0 votes
Dan Chase, Home Buyer, Texas City, TX
Thu Oct 22, 2009
I was wondering if it would be possible to say yes but no. (ask your realtor)
Yes, I will sign the fha addendum (to allow financing) but NO I will not give up the appraisal rights.AND if it costs us more the buyer pays the additional costs not we the seller.

Remember, an addendum ( change) is simply a proposal. The proposal can be changed. You can agree to all, part, or none. So think about a partial yes.
0 votes
Concernedcit…, Both Buyer And Seller, California
Thu Oct 22, 2009
I am not a real estate agent.
I am selling my house in CA and in similar situation.
I read Guy's answer and was wondering:
The buyer's ability to walk away from the deal due to appraisal contingency has a time limit as far as i know. So for seller to waive their rights one week before close of escrow is not covered by any clause in the state authorized contract form. At least that is how it works in CA. Have not read the Texas form.

Sandra, I am in similar situation. The broker, agents, escrow all have verbally signaled that our house has appraised. No one will show me any proof and I am asked to trust and not verify. I am being told that I have to sign this piece of document or the loan will not go through. I have already spent money for our future home and put all kinds of deposits down after the last contingency was removed and I was verbally assured that the deal was going thru. So I have not choice to comply and assume all the risks.

Banking communism/corrupt real estate system continues to rule and there is nothing you can do about it. Perhaps write your congressman if he is not in the pocket of banking lobbyists...
0 votes
Kim Noonan, Agent, New Lenox, IL
Tue Oct 20, 2009
I have not found that selling a house FHA automatically costs the seller more money. Also, I believe that should this be the case of type of loan being changed after the contract was accepted, that does not mean it will cost Sandra more than what was agreed to in the original contract. Just converting the loan type to FHA will not change the price or any credits, allowances or fees already agreed to in her original contract, unless Sandra agrees to those changes in writing.

I've had two deals in the last month alone that an originally conventional deal had to flip to FHA midstream because of issues with changing loan guidelines while the loan was in process. It was either FHA or NoWay.

In neither case did my sellers get a dime less than their originally contracted price and terms, other than in one case, two extra weeks of holding costs when the closing was delayed. My home sellers agreed that it would more than likely take more than two weeks to find another buyer and close a deal, so they accepted the closing extension.
0 votes
Kim Noonan, Agent, New Lenox, IL
Tue Oct 20, 2009
Was your original contract written with FHA financing or conventional financing?

If FHA, could be that this form was missed when the offer was written and signed. Or, it could be that the lender's underwriter wants their version of the form signed - I've run into that several times this year. We've used our real estate association's FHA amendatory clause rider and the underwriter spits it out because it isn't the identical form s/he's used to seeing.

I've had closings where a third FHA amendatory clause rider popped up at closing and had to be resigned by all parties yet again!

If conventional financing was what was stated, could be that their lender was not able to get them that loan, and flipped them to an FHA loan mid-deal, and now needs the addendum signed to get a clear-to-close.

Look at your contract and see what finance method was stated. Ask your agent or attorney to find out if the buyer's loan terms needed to modified. As a seller's agent, I always call the lender directly to ask about the appraisal. They cannot give me a copy of it but they can tell me if it failed to appraise at selling price or if the appraiser noted any repairs that must be completed prior to allowing a loan to close/fund. Perhaps your agent or attorney can get that info to reassure you.
0 votes
Kimberly Bra…, Agent, Venice, FL
Tue Oct 20, 2009
I think you guys of lost sight of question. When buyer's and seller's negotiate a contract, one of the terms that must be agreed upon is the buyer's mode of financing. Many types of financing cost the seller additional funds including FHA, VA is another. If the buyer cannot qualify for the mode of financing agreed upon in the contract - then two options happen, The buyer notifies the seller that they are kicking on the contract using the financing contingency or the buyer notifies the seller that they cannot proceed with the original mode of financing but have found another mode i.e. FHA - would the seller agree to proceed with the contract with changing the mode of financing to something that may cost them more?
Now the seller has a choice - spend a few more dollars to accommodate FHA financing and close the deal or say no and put his house back on the market in the worst real estate market in decades.
1) Financing is agreed upon upfront - not at closing
2) and changes to the contract must be agreed upon by all parties - NO the seller does not have to agree to allow the buyer to change financing
I still think Sandra needs a long conversation with her agent or real estate attorney since none of us has her contract in front of us - we are all speaking from our experiences with contracts we have worked with in the past - not the one she has signed - Sandra - Please talk to your agent or attorney.......everyone of these answers are no more than a best guess with the limited inforation available......
0 votes
Guy Gimenez, Agent, Austin, TX
Tue Oct 20, 2009
You're correct. You absolutely have a right NOT to sign the addendum. Conversely, FHA has the right NOT to fund the loan without it. Rememnber, the lender is not a party to the transaction so you have no recourse against them if they refuse to fund the loan. So, you'll have to make a decision based on principle or a decision based on finances.

If your concern is that this addendum will "change" the terms of your current contract, then review your contract. As my previous post stated, if you used the state authorized contract form (TREC or TAR), that contract form already allows the buyer to walk away from the purchase (under paragraph 4) if the home doesn't meet the lender's guidelines (ie. appraise at or above the sales price). So signing the amendment doesn't change this in any way.

If you didn't use one of the authorized forms, then you will need to review the contract for applicable language.

If you have an agent and he/she didn't advise you that this form (and the Real Estate Certification form) is part and parcel of an FHA loan, shame on him/her.
Web Reference:  http://www.phgbrokers.com
0 votes
Sandra Fidoe, Home Buyer, 75068
Tue Oct 20, 2009
It clearly states on the top of the form that it is a FHA purchase agreement addendum. Therefore as addendum means addition surely we have the right not to sign it?
0 votes
Jennifer Tom…, Agent, Princeton, NJ
Mon Oct 19, 2009
Guy is correct, it sounds like you are referring to the FHA amendatory clause and it must accompany all contracts of sale when the buyer is obtaining FHA financing. Consult with your Realtor and attorney to answer your specific questions.

Good luck with your home sale...
0 votes
T.E. & Naima…, Agent, Dallas, TX
Mon Oct 19, 2009
Excellent catch by Guy! Thumbs up!

It is very likely the document.

Naima
0 votes
T.E. & Naima…, Agent, Dallas, TX
Sun Oct 18, 2009
It seems like your house didn't appraise for the contract amount and the buyer's agent didn't put a contingency in the contract that the house must appraise for the sales price.

I think they are looking for a way out. I don't think you are in breach of contract. Although if the house didn't appraise they shouldn't be able to get a loan and have a way out that way.

Talk to your agent to get to the bottom of this.

Naima
214-289-8555
Naima@Sumner-Realty.com
Web Reference:  http://www.SumnerRealty.com
0 votes
Kimberly Bra…, Agent, Venice, FL
Sun Oct 18, 2009
You really need to speak to your realtor or a real estate attorney. What does your contract state? Most contracts have an appraisal contingency - the real issue is more likely the buyer could not qualify for conventional financing but can qualify for FHA - But the buyer's side and if you have a realtor they need to open up and communicate with you.
0 votes
Search Advice
Search
Ask our community a question

Email me when…

Learn more