How Texas Assoc. of Realtors’ New COVID-19 Addendum Helps Buyers, Sellers Closing Right Now

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Negotiating real estate contracts in the middle of a global pandemic has never been so nebulous. Thankfully a Texas Association of Realtors’ COVID-19 Addendum is helping smooth the process.

I had a closing set for the end of March 2020 — in the midst of a city-wide mandated “Stay-at-Home” Order. I represented the residential purchasers, who are adorable first-time home buyers who’d had a new baby approximately two weeks before closing.

The seller was eager to close, of course. Having a contract that was negotiated pre-pandemic, they wanted this to fund and be on their way. What do the interested parties do?

The buyers were understandably nervous. They worried what the market was like now. Will the home hold its value? Will we keep our jobs? Can the lender perform? What are the lender’s closing requirements in this situation? How will we close remotely, now that safety and distance being especially warranted with a newborn at home?

We had to take it day-by-day. Reaching the lender was not easy with their employees working from home, so everything took longer. A mobile notary was secured and the title company came to my clients’ home — a kind gesture but still not in full compliance with the quarantine. The transaction closed on time, but it could have been a lot easier and less stressful.

Enter the Texas Association of Realtors’ new COVID-19 Addendum. 

What The COVID-19 Addendum Does

While not mandatory, the COVID-19 Addendum addresses many of the issues my clients experienced, different issues others are experiencing, and provides one last “out” for the buyer and seller in these unprecedented times. For example, what if my clients would not allow a mobile notary and the title company in their home to effectuate closing due to the quarantine? 

If both parties agree to the COVID-19 Addendum, Paragraph A of the COVID-19 Addendum allows the parties to agree to extend the closing date by 30 days due to voluntary or mandatory COVID-19 quarantine or closures. After the 30 days have passed, if any portion of the closing is still not able to be performed, either party may provide notice to the other party that they are terminating the contract without any further liability to the other party, and the earnest money will be refunded to the buyer.

The 30-day extension can be used if the delay in closing is due to a quarantine or closure that affects the buyer, seller, or other service provider, including, but not limited to, a title company, lender, inspector, or appraiser. 

Changes in Employment Due to COVID-19

As another example, what if one of my clients had been laid off from their job due to the pandemic and thus financing was no longer available, despite the fact that they were past the date set forth in the Third Party Financing Addendum? Enter Paragraph B of the COVID-19 Addendum. 

If both parties agree to the COVID-19 Addendum, the parties can agree that if buyer is not able to fund their loan and close due to buyer’s loss of income from COVID-19-related issues, then either party may terminate the contract and earnest money will be refunded to the buyer.

Such a provision is a huge relief for a buyer locked into a contract who has been or anticipates being laid off from work due to the pandemic. Of course, sellers can refuse to sign the COVID-19 Addendum and sue the buyer for specific performance, but the court system is presently delayed due to the pandemic and what court is going to be able to force a buyer who is presently unemployed to get financing they qualified for pre-pandemic but no longer qualify for? 

Not a Solution For All Contracts

Note that use of the COVID-19 Addendum may not be appropriate in all circumstances. It will depend on the facts of each individual situation.

For example, if the parties want to negotiate an extension of the closing date to a specific, definite date, they may want to consider the Amendment (TXR-1903) form and fill in a new date in paragraph 3. Should the Buyer still be under the financing deadline but need an extension of time to obtain buyer approval under the Third Party Financing Addendum, they may use the Amendment (TXR-1903) form, filling in the new date in paragraph 7 (one example: if the buyer has a reduction in income due to the pandemic that may affect the lender’s requirements). Additionally, if the parties both agree to terminate the contract and move on, they could use the Release of Earnest Money (TXR-1904) form, with which they can agree how the earnest money will be dispersed and would release the parties from any and all liability under the contract. 

Who Can Use The COVID-19 Addendum?

The COVID-19 Addendum can be used as an addendum to a new contract for those of you still out there making deals, or it can amend a currently executed contract. This new Addendum is appropriate for use with the following residential sales contracts: 

  • One to Four Family Residential Contract (Resale) (TXR-1601)
  • New Home Contract (Incomplete Construction) (TXR-1603)
  • New Home Contract (Completed Construction) (TXR-1604)
  • Residential Condominium Contract (Resale) (TXR-1605)
  • Unimproved Property Contract (TXR-1607)
  • New Residential Condominium Contract (Completed Construction) (TXR-1608)
  • New Residential Condominium Contract (Incomplete Construction) (TXR-1609) 

With all the uncertainty caused by the pandemic, buyers and sellers need to have open, clear communication with each other and be especially attentive to timelines in their contracts. Remember, you want to try to extend deadlines before you’re in breach. Just because many courts are working remotely doesn’t mean you can’t or won’t be sued in the future for a breach occurring now.

The COVID-19 Addendum is a new tool you may utilize to get your deals through this unprecedented time. 

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Cassie Evans, J.D.

Cassie Evans, J.D. is an Associate Attorney with the law firm of Scheef & Stone in Dallas and Frisco. Her practice focuses on real estate, business transactions, compliance, ownership and governance of corporations, partnerships, limited liability companies, other entities, and business law as well as litigation. She can be contacted at Cassie.Evans@solidcounsel.com

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