Elements & Practice Contract Addenda

Question 1

When should the Third Party Financing Addendum for Credit Approval addendum be used?

If the buyer is applying for a loan with conventional, FHA, VA or other forms of financing?
If the seller is carrying the note for the buyer
If the buyer is paying cash for the property and not financing any portion
If the seller and the buyer are trading one property for another and no financing is required by either side
Next

Answer 1

If the buyer is applying for a loan with conventional, FHA, VA or other forms of financing?

Question 2

Should addendums be attached to the main contract?

No, addendums are added to the transaction but not to the contract..
Yes, but only after the contract has been accepted
No, the addendum is voluntary for use
Yes, all addendums should be attached to the contract under Paragraph 22.

Answer 2

Yes, all addendums should be attached to the contract under Paragraph 22.

Question 3

How is the interest rate in the Third Party Financing addendum determined?

By computation in section C. of the addendum
By the market
By negotiation between the buyer and lender
By regulation of the Texas Property Code

Answer 3

By negotiation between the buyer and lender

Question 4

Which FHA loan is typically the lowest down payment loan for a buyer?

203 (a)
203 (b)
203 (K)
203 (Z)

Answer 4

203 (b)

Question 5

With the Loan Assumption addendum, what happens if the seller does not respond to the buyer’s creditworthiness after seven days?

The contract terminates.
The contract is voidable by the buyer.
The contract is valid.
None of the above

Answer 5

The contract is valid.

Question 6

Why might a buyer want to assume a note and not originate a new loan?

The interest is lower than current market rates.
The note is paid down.
There is no legitimate reason.
Both A & B

Answer 6

Both A & B

Question 7

What does “ad valorem” mean?

According to value
Service veteran
Taxes
Statutory value

Answer 7

According to value

Question 8

When should the Seller Financing Addendum be used?

It is used when the buyer is financing the property from anyone but the seller.
It is only to be used when the seller carries a note for a buyer for all of the sales price.
It is only to be used when the seller carries a second lien note for the buyer.
It is used when the seller carries a note for a buyer for all or any portion of the sales price.

Answer 8

It is used when the seller carries a note for a buyer for all or any portion of the sales price.

Question 9

How many days is the buyer allowed to get financial information to the seller in the Seller Financing Addendum?

3 days
5 days
7 days
10 days

Answer 9

7 days

Question 10

Addendum for Release of Liability on Assumed Loan and/or Restoration of Seller’s VA Entitlement is used for what type of situation?

When a seller wants the buyer to provide financial verification prior to the VA loan being assumed.
When a seller wants to be released from further liability on the VA assumed loan and wants their VA entitlement restored.
When a buyer does not want to be responsible for the liability on a VA assumed loan and to avoid using their restored entitlement.
Never, this form is no longer allowed for use by real estate professionals.

Answer 10

When a seller wants to be released from further liability on the VA assumed loan and wants their VA entitlement restored.

Question 11

What is the fee that the lender charges for doing the work on a loan?

Capitalization fees
Reverse fees
Origination fees
Recovery fees

Answer 11

Origination Fees

Question 12

When a seller is contemplating a loan assumption, the seller must respond to the buyer within how many days or it is assumed that the seller has given approval according to the Texas Real Estate Commission promulgated addendum?

Five days
Seven days
Fourteen days
30 days

Answer 12

Seven days

Question 13

When a seller carries a loan for a buyer, matured unpaid amounts will bear interest at the rate of ________ or at the highest lawful rate, whichever is lower according to the Texas Real Estate Commission promulgated Seller Financing addendum.

1% per month
1.5% per month
5% per month
10% per month

Answer 13

1.5% per month

Question 14

The TREC No. 40-7 is a document used as for third party financing addendum for credit approval

Answer 14

The Third Party Financing Addendum for Credit Approval addendum is to be used if the buyer is applying for a loan with conventional, FHA, VA or other forms of financing.

Question 15

The TREC No. 40-7 third party financing addendum for credit approval would not be used if

Answer 15

The seller is carrying the note for the buyer.
The buyer is paying cash for the property and not financing any portion.
The seller and the buyer are trading one property for another and no financing is required by either side.

Question 16

The TREC No. 40-7 After the loan amount is entered into paragraph A.1

Answer 16

both the number of years that the loan will last and the interest rate need to be entered. The buyer should have been prequalified by a lender prior to writing any contract for the purchase of real estate.

Question 17

The TREC No. 40-7 The last blank in paragraph A.1 limits

Answer 17

the amount that the lender would be allowed to adjust the origination charges. It is a percentage of the loan amount and can vary from lender to lender. The amount most often charged is 1%

Question 18

The TREC No. 40-7 FHA loans

Answer 18

For an FHA loan, the box next to paragraph C would be marked. The first blank needs to contain the FHA loan type by number that the buyer will be using. The FHA 203 (B) loan is used most often because it allows the borrower to have a lower down payment.

Question 19

The TREC No. 40-7 Paragraph C

Answer 19

The amount entered in the last blank of paragraph C would be the sales price agreed to by the buyer and the seller.

Question 20

The TREC No. 40-7 Paragraph D

Answer 20

is used for a Veteran’s Affairs (VA) loan.

Question 21

The TREC No. 41-2 form is used for

Answer 21

the Loan Assumption Addendum.

Question 22

TREC No. 41-2 (Loan Assumption Addendum) Paragraph A

Answer 22

includes the documentation the buyer will provide concerning their creditworthiness.

Question 23

TREC No. 41-2 (Loan Assumption Addendum) Paragraph B

Answer 23

gives the actions that can be taken if the information is not delivered within the time frame specified in paragraph A and those actions the seller can take even if the information is timely delivered. If the seller does not respond to the buyer within seven (7) days about the creditworthiness, it is assumed that the seller has given his or her approval.

Question 24

TREC No. 41-2 (Loan Assumption Addendum) Paragraph C

Answer 24

the name of the lender is entered as well as the amount of the unpaid balance of the loan. Then the amount of the monthly payments the buyer will have to pay would be placed in the next blank.

Question 25

TREC No. 41-2 (Loan Assumption Addendum) Paragraph D

Answer 25

addresses the loan assumption terms. It describes the conditions under which the buyer may terminate the loan if the lender has certain unacceptable requirements. They are:

In paragraph D.1, the seller and the buyer will agree that the buyer can terminate if the lender requires an assumption fee that exceeds a certain dollar amount.
Paragraph D.2 addresses an increase in the interest rate. This allows for the buyer to “escape” if the interest rate exceeds what he or she is able to pay.
Paragraph D.3 allows the buyer to object and terminate if the lender makes any other loan modifications.

Question 26

TREC No. 41-2 (Loan Assumption Addendum) Paragraph E

Answer 26

exists to let the seller and the buyer know that the lender must approve this assumption or it will not happen.

Question 27

TREC No. 41-2 (Loan Assumption Addendum) Paragraph F

Answer 27

exists to let the buyer know that unless the seller is released from his or her responsibility on the original loan, then the lender will need some additional paperwork called a vendor’s lien, which will have to be added to the documents at the closing.

Question 28

TREC No. 41-2 (Loan Assumption Addendum) Paragraph G

Answer 28

addresses escrow monies.

Question 29

The TREC No. 26-7 is the Seller Financing Addendum which is needed when

Answer 29

the seller carries a note for a buyer for all or a portion of the sales price.

Question 30

TREC No. 26-7 (Seller Financing Addendum) Paragraph A

Answer 30

is for the seller to get as much information as possible to determine whether it would be a good idea to provide this loan to the buyer.

Question 31

TREC No. 26-7 (Seller Financing Addendum) Paragraph B

Answer 31

states there are 7 days in which the buyer must get the financial information to the seller. If the seller does not receive it in a timely manner, the seller could terminate the contract and receive the earnest money.

Question 32

TREC No. 26-7 (Seller Financing Addendum) Paragraph C

Answer 32

refers to paragraph 4.C in the Residential Contract. The interest rate is entered into the first blank of paragraph C of this addendum. This interest rate is given by the buyer’s mortgage company and is an agreement between the mortgage company and the buyer.

Question 33

TREC No. 26-7 (Seller Financing Addendum) Paragraph D

Answer 33

talks about the Deed of Trust securing the Note and the things the deed of trust provides. Paragraph D.1 deals with the matter of consent upon transfer – that is, whether the buyer can sell, lease, or otherwise convey the property without the seller’s consent while the original note is still in place. Paragraph D.2 deal with how the payment of the taxes will be handled – whether the buyer will be paying taxes and insurance outside of the regularly scheduled payments or whether the buyer will be paying a portion of taxes and insurance to the seller during the period of the loan and then the seller will be paying the bills for the taxes and insurance.

Question 34

The TREC No. 12-3 is an Addendum for Release of Liability on Assumed Loan and/or Restoration of Seller’s VA Entitlement. It is used to make sure the seller who allows someone else to assume his or her loan is

Answer 34

released from further obligation on the loan in the event that the person who assumed the loan goes into default.

Question 35

TREC No. 12-3 (Addendum for Release of Liability on Assumed Loan and/or Restoration of Seller’s VA Entitlement) Paragraph A

Answer 35

there is a blank for the buyer to put in the number of days after the effective date of the contract application when release of the seller’s liability will be initiated. The time frame to apply for release of liability is negotiable between the buyer and seller. Then either A.1 or A.2 needs to be checked. If the release of liability has not been approved by the closing date, either:

The contract will terminate (A.1).
The closing will move forward and the seller will remain liable for the loan (A.2).

Question 36

TREC No. 12-3 (Addendum for Release of Liability on Assumed Loan and/or Restoration of Seller’s VA Entitlement) Paragraph B

Answer 36

is used by the seller to reacquire his or her VA benefits to purchase another home. Then the seller needs to determine which box will be checked.

He or she will not be released and the contract is ended (B.1).
The seller is willing to go through with the transaction even though the VA benefits may be lost (B.2).

Question 37

TREC No. 12-3 (Addendum for Release of Liability on Assumed Loan and/or Restoration of Seller’s VA Entitlement) Paragraph B ADDT’L INFO

Answer 37

The buyer has to meet certain requirements to be approved to assume a VA loan anyway, such as he or she:

Is a veteran
Has sufficient unused entitlement
Is otherwise qualified
Also, the licensees involved in the transaction need to know that to use the form properly for a veteran who is a seller, both paragraphs A and B must be completed.