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  • Writer's pictureCCK

New for Financing in 2019 - Automatic Termination of the GAR® Contract

In recent times, our contract contingencies and condition provide the right to terminate to the Buyer or Seller under certain conditions. It is rare that a failure to act within a certain period causes an automatic termination of the contract.

Not true under recent changes to the Conventional and VA Financing Contingencies for the Georgia Association of REALTORS® 2019 forms. This may result in deals falling apart unintentionally, to the surprise of many in the transaction.

Lender Required Repairs under the F404 Conventional Loan Contingency Exhibit.

The Seller agrees to pay up to a certain amount in Lender required repairs. The Buyer and the Seller negotiate the amount which can be zero. These repairs may exceed what the Buyer and Seller agreed to during the Right to Request Repairs or Due Diligence Amendment to Address Concerns negotiation. If the Lender makes certain repairs a condition of loan approval, the Seller selects a third-party contractor to provide a cost estimate. If that estimate exceeds what the Seller has already agreed to pay, the Buyer and the Seller have the option to pay the additional amount. If neither side agrees within 3 days of the written notice of the cost estimate, the contract terminates automatically.

Public Water and Sewer under the F410 VA Loan Contingency Exhibit.

In prior versions of the contract, the Seller agreed to pay up to a certain amount. If the actual cost exceeded that amount, the Seller had the right to terminate the contract. This damaged Buyers because they did not have the option to pay the additional amount. Now they do, but like the conventional loan repairs above, a failure to agree within 3 days as to who pays the overage results is an automatic termination of the contract.

ALSO NOTE: Not all properties must be connected to available water and sewer so make sure your loan officer fully understands the available options. According to Chuck Walden, Senior Loan Officer for Silverton Mortgage, "For properties on individual water and/or sewer (septic) systems, VA only requires a connection to public water when that connection is immediately available and 'feasible.' The VA Regional Loan Centers have applied several interpretations of when that connection was feasible. As it stands now, 'the connection to public water and /or sewer systems will only be mandatory if required by the local building, planning, or health authorities'."

What is the Result of the Automatic Termination?

Buyer and Seller part ways and the Buyer receives a refund of the Earnest Money deposited into the contract. This is stated explicitly in the VA Loan Contingency and not in the Conventional Loan Contingency. That is an unintentional inconsistency in the forms but the effect of the termination is the same in both situations.

Practical Consequence - Less Sleep for REALTORS®

Our contract timelines have day and not time deadlines so the deadline is 11:59 on the 3rd day. If the Buyer and Seller are in a staring contest waiting for the other side to blink, it may be a late night for everyone.

About the Author:

Cheryl King is a Closing Attorney and Founding Partner for Sparks|King|Watts|Reddick. She co-hosts a real estate radio show and podcast - She is also a non-selling licensed REALTOR®, a participant in the GAR® Forms Committee meetings, a member of the Exhibits Subcommittee and a GAR® certified instructor. Want a true expert to handle your closings?

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