The “Standard Form”
In Massachusetts, buyers and sellers typically use the standard form purchase and sale agreement created by the Greater Boston Board of Real Estate. This form has been around since the late 1970’s and last updated in 1999–which might as well be 100 years ago in real estate life. Along with the standard form, attorneys for sellers and buyers customarily add specialized Riders to the agreement which modify the standard form and add contingencies particular to the deal.
A Vastly Changed Landscape
The legal and mortgage financing landscape has changed so much in the last few years, with Fannie Mae and regulatory agencies issuing a new policy what seems like every other week, and short sale and REO transactions becoming much more prevalent. With the recovering market and new appraisal guidelines, some homes are not appraising out. Moreover, lenders have tightened underwriting requirements considerably. As a result, borrowers have more difficulty qualifying for mortgage loans, it takes longer to get a loan commitment, and there are often delays in getting the loan “cleared to close.” All these changes in the real estate landscape require re-thinking of the standard form purchase and sale agreement and the associated riders.
As experienced Massachusetts real estate attorneys, it shouldn’t come as a surprise to know that we are on top of the latest changes in the Massachusetts and national real estate landscape, and have adapted our legal forms accordingly. I’ll go through 3 recent changes that I’ve adopted in my practice.
Low Appraisal Contingency
These days, appraisals are administered is a completely different fashion. New rules – the Home Valuation Code of Conduct (HVCC) – hold appraisers to higher standards and sharply limit communication between appraisers and lenders. Mortgage professionals can no longer select their “hand-picked” appraiser now; there is basically a random lottery system to select the appraiser. The downside of this lottery is that the appraiser may not be very familiar with the town or neighborhood being appraised. So the appraisal may fall short of the agreed-upon selling price.
I always insist on this provision to protect a buyer against the risk of the property not appraising out.
Appraisal– The buyer’s obligations, hereunder, are contingent upon the BUYER’s lender obtaining an appraisal of the property in an amount at least equal to the purchase price of the premises.
What happens if the property doesn’t appraise for asking price? Sometimes you can ask for a second appraisal or bring different comparable sales to the appraiser’s attention and he can revise the appraisal. Sometimes, the parties must re-negotiate the purchase price. Talk to your lender and Realtor about the options. This provision, however, gives the buyer an “out” if a low appraisal cannot be overcome.
Condominium Fannie Mae Compliance
Tougher Fannie Mae and FHA condominium rules have made condo financing much more challenging. I add this clause to deal with this situation:
The Condominium, the Unit, and the Condominium Documents (including but not limited to the Master Deed and By-Laws/Trust) shall conform to the requirements of Federal National Mortgage Association (“FNMA” or “Freddie Mac”), Federal Housing Administration (“FHA”) or Federal Home Loan Mortgage Corporation (“FHLMC”) or other secondary mortgage market investor, and shall otherwise be acceptable to BUYER’s mortgage lender.
Rate Lock Expirations
Delays happen. There may be a title problem which the seller needs a few days or weeks to correct. But what if your rate lock will expire and you are facing a higher interest rate loan? This provision protects the buyer in this situation:
MODIFICATION TO PARAGRAPH 10: Notwithstanding anything to the contrary contained in this Agreement, if SELLER extends this Agreement to perfect title or make the Premises conform as provided in Paragraph 10, and if BUYER’S mortgage commitment or rate lock would expire prior to the expiration of said extension, then such extension shall continue, at BUYER’S option, only until the date of expiration of BUYER’S mortgage commitment or rate lock.
There are many other contingencies and new provisions that I use, but I cannot give them all away!