Free Trec Seller Financing Addendum Form in PDF

Instructions on Writing Trec Seller Financing Addendum

Preparing to complete the TREC Seller Financing Addendum is an important step in the home buying process when seller financing is involved. It outlines the terms of the loan provided by the seller to the buyer, covering elements such as credit approval, promissory note details, and the arrangement for a deed of trust. To ensure clarity and compliance, follow these step-by-step instructions carefully.

1. Start by reading the form thoroughly to understand all provisions and requirements related to seller financing.
2. Enter the address of the property in question at the top of the form where it states "CONCERNING THE PROPERTY AT (Address of Property)."
3. Under section A, "CREDIT DOCUMENTATION," decide which types of credit documentation you will need to submit. Check off the appropriate boxes such as credit report, verification of employment, verification of funds on deposit, and current financial statement. Remember, these documents need to be delivered to the Seller within the specified days mentioned after the effective date of the contract.
4. In section B, "BUYER’S CREDIT APPROVAL," note the specifics about the credit documentation delivery timeframe and the conditions under which the seller may terminate the contract.
5. For section C, "PROMISSORY NOTE," fill in the amount of the promissory note and the interest rate. Specify the payment structure by checking the applicable box and filling in any relevant details like the amount per installment or the duration of the note.
6. In section D, "DEED OF TRUST," make selections regarding property transfers, casualty insurance, and tax and insurance escrow requirements. Check the appropriate boxes according to the agreement between buyer and seller.
7. Consider any defaults under superior liens as noted in section D(4) and understand the implications for the deed of trust securing the Note.
8. Both Buyer and Seller must initial for identification at the bottom of the form next to the statement "Initialed for identification by Buyer and Seller."
9. Finally, ensure that both the buyer and seller sign and date the form at the end where indicated.

Once completed, this addendum becomes part of the overall contract concerning the purchase of the property. It's crucial to have legal and financial professionals review all documentation, especially for such complex transactions as seller financing. This careful approach protects all parties involved and facilitates a smoother transaction process.

What is the Seller Financing Addendum and when is it used?

The Seller Financing Addendum is a document added to a real estate sales contract when the seller of the property is also financing the purchase for the buyer. This means that instead of the buyer getting a loan from a bank or another financial institution, the seller is lending the buyer the money to purchase the property. This addendum outlines the terms of this financing, such as the interest rate, payment schedule, and what happens if the buyer fails to make payments. It is used when both the buyer and seller agree to seller financing as part of the sale of a property.

What kind of credit documentation is required from the buyer?

The buyer must provide certain documents to establish creditworthiness within a specified number of days after the contract becomes effective. These documents include a credit report, verification of employment including salary, verification of funds in financial institutions, and a current financial statement. The buyer also authorizes credit reporting agencies to provide copies of the credit reports to the seller at the buyer’s expense.

What happens if the buyer’s credit documentation is not approved?

If the buyer fails to provide the required credit documentation within the specified timeframe, or if the seller finds the buyer's credit unacceptable after reviewing the documentation, the seller can terminate the contract. If terminated because the documentation wasn't provided on time, the earnest money is paid to the seller. However, if the documentation is provided but the seller doesn't approve of the credit, the earnest money will be refunded to the buyer.

Can the buyer prepay the promissory note?

Yes, the buyer may prepay the note, which is the document that outlines the promise to pay back the loan under specific terms, in whole or in part at any time without facing a penalty. Any prepayments will be applied to the installments of principal due last. Additionally, once principal is repaid, interest will cease on that portion of the prepaid principal.

What is included in the deed of trust?

The deed of trust secures the promissory note and includes several provisions. It outlines whether the property can be transferred without the seller’s consent, whether the buyer needs to obtain casualty insurance naming the seller as a loss payee, details about tax and insurance escrow requirements, and the implications of a default under any superior lien. This deed acts as a security for the seller, ensuring the buyer follows through with the agreed-upon terms.

What are the consequences if all or part of the property is transferred without the seller’s consent?

If the property is sold, conveyed, leased for more than three years, leased with an option to purchase, or otherwise transferred without the seller’s prior written consent, the seller may declare the balance of the note immediately due and payable. However, certain situations like a transfer under threat of condemnation, a deed solely between buyers, or title passage due to buyer's death or by operation of law, do not allow the seller to demand immediate payment.

Are there any provisions for casualty insurance and tax escrow?

Yes. The buyer may be required to either provide proof of payment for ad valorem taxes and casualty insurance annually or deposit a pro rata portion of these costs into an escrow account with each payment installment. This escrow account will be managed according to the agreement, ensuring taxes and insurance premiums are paid in a timely manner, with either the buyer or seller covering the cost of escrow services, as specified in the agreement.

Filling out the Texas Real Estate Commission (TREC) Seller Financing Addendum requires careful attention to detail and understanding of its provisions. One common mistake buyers and sellers make is not correctly establishing the buyer's creditworthiness as outlined in Paragraph A, "CREDIT DOCUMENTATION." This section mandates the buyer to provide specific documents within a set timeframe after the effective date of the contract. Failure to accurately complete this step can lead to unnecessary delays or contract termination, emphasizing the need for both parties to diligently collect and review credit documentation.

Another frequent error occurs in the "BUYER’S CREDIT APPROVAL" section. Often, parties do not adhere to the stipulated timelines for the delivery of credit documentation, which can lead to the seller prematurely terminating the contract. Moreover, misunderstanding the seller’s right to deem the buyer’s credit as unacceptable, even if all documents are provided timely, can lead to confusion and disputes. It is crucial for both parties to communicate openly and ensure all documentation is not only provided on time but also meets the seller's standards for creditworthiness.

Errors in completing the "PROMISSORY NOTE" portion also stand out. Specifically, individuals often incorrectly select the terms for the repayment of the note, either by not checking the appropriate box or by misunderstanding the payment structure options available. This confusion can result in a note that doesn't accurately reflect the agreed terms, potentially leading to financial disputes. It's imperative to carefully review and select the correct repayment structure that aligns with the agreement between the buyer and seller.

Additionally, misunderstanding the "DEED OF TRUST" provisions, particularly concerning property transfers and the requirements for casualty insurance and tax and insurance escrows, is another common mistake. Buyers and sellers sometimes overlook the importance of checking the correct boxes or fail to understand the implications of their choices, such as the restrictions on property transfer without the seller's consent and the requirements for maintaining insurance and escrow accounts. Such oversights can lead to breaches of the agreement and financial penalties.

Finally, parties often fail to provide clear instructions regarding "PRIOR LIENS," potentially leading to defaults. It's critical to accurately disclose any existing liens on the property and understand the hierarchy of these liens in relation to the financing being provided by the seller. Miscommunication or omission of details regarding prior liens can result in legal complications and undermine the security of the seller's financing.

In essence, carefully reviewing each section of the TREC Seller Financing Addendum, understanding the implications of the choices made, and ensuring accurate and complete documentation can help avoid these common pitfalls. Seeking advice from legal and financial professionals is also advisable to ensure that all contractual obligations are met and that the agreement is beneficial and secure for both parties.

When involved in real estate transactions that require seller financing, such as those outlined by the TREC Seller Financing Addendum, parties frequently need to prepare and review multiple additional documents to ensure a thorough and legally sound process. These documents can vary based on the specific requirements of the transaction, local laws, and the needs of the buyer and seller. Below is an overview of other forms and documents that are often used together with the TREC Seller Financing Addendum to facilitate a comprehensive and legally compliant real estate transaction.

1. Promissory Note: A legal document where the buyer (the borrower) promises to pay a specified sum of money to the seller (the lender) under agreed-upon terms, possibly detailed within the Seller Financing Addendum.
2. Deed of Trust: Security for the promissory note that gives the seller a claim against the property if the buyer defaults on their loan obligations, as outlined in the Seller Financing Addendum.
3. Real Estate Purchase Agreement: A contract that outlines the terms and conditions of the property sale, including the price, property description, and any conditions or contingencies that must be met before the sale is finalized.
4. Disclosure Statements: Various disclosures may be required by law, including disclosures about the condition of the property, lead-based paint disclosures for older homes, and others that inform the buyer about important aspects of the property.
5. Credit Report Authorization Form: Grants the seller permission to obtain the buyer's credit report, as mentioned in the Seller Financing Addendum, to assess the buyer's creditworthiness.
6. Loan Amortization Schedule: An itemized list of loan payments for the duration of the loan term, showing the amount of principal and the amount of interest that comprise each payment until the loan is paid off at the end of its term.
7. Escrow Agreement: If an escrow account is required for the payment of taxes and insurance, an escrow agreement outlines responsibilities and terms regarding the escrow account.
8. Title Report: Reviews the public records affecting the real estate concerning the title's legal ownership, identifying any defects, liens, or encumbrances on the property.
9. Insurance Binder: A temporary insurance agreement that provides proof of the buyer's insurance coverage on the property until a permanent policy is issued.

While some of these documents, such as the promissory note and deed of trust, specifically support the financing arrangement, others, like disclosure statements and the real estate purchase agreement, are vital for nearly any property transaction. Parties should carefully consider each document's role in the transaction, ensuring they fully understand their rights, responsibilities, and the implications of the agreement they are entering into. Properly preparing and understanding these documents can significantly contribute to a smoother and more secure transaction for both buyers and sellers.

The Loan Application Form is similar to the TREC Seller Financing Addendum in that both require a detailed assessment of the buyer’s or applicant's financial situation. While the TREC form focuses on verifying the buyer's creditworthiness specifically for seller financing, the Loan Application Form gathers comprehensive financial information to evaluate suitability for a loan. Both documents serve as a preliminary step in determining financial reliability and involve similar kinds of financial disclosures, including credit reports and verification of employment.

The Promissory Note mirrors the section of the Seller Financing Addendum that outlines the obligation of the buyer to repay the seller the loan amount according to agreed terms. Both documents specify the amount borrowed, interest rates, repayment schedule, and consequences of late payments. However, the Promissory Note is a standalone agreement that evidences a debt, whereas the Seller Financing Addendum incorporates this obligation within a broader contract for the sale of property.

The Deed of Trust, like the TREC form, secures the lender's (in this case, the seller's) interest in the property until the buyer fulfills their financial obligations under the promissory note. Both documents include provisions regarding property transfers, insurance requirements, and escrow for taxes and insurance. The Deed of Trust, however, is more focused on the legal mechanisms to enforce the lender's security interest, including foreclosure processes if the borrower defaults.

Mortgage Loan Disclosure Statements share similarities with the Seller Financing Addendum because they both provide critical financing details to the buyer. While the TREC document is specific to seller-financed transactions, disclosing terms directly agreed upon between buyer and seller, the Mortgage Loan Disclosure Statement is typically used in traditional lender-financed purchases to outline the terms, rates, and fees of a mortgage loan. Both aim to ensure transparency and informed consent of the borrowing party.

The Earnest Money Contract often accompanies the TREC Seller Financing Addendum in real estate transactions. It indicates the buyer's serious intent to proceed with the property purchase and establishes initial terms and conditions of the sale. The Earnest Money Contract highlights the commitment of both parties before finalizing financing terms, which are detailed in the Seller Financing Addendum. Both documents are integral to the transaction, setting foundations for the sale and financing arrangements.

The Real Estate Settlement Procedures Act (RESPA) Disclosure forms also relate closely to the TREC form. These federal disclosures ensure buyers are fully informed about their mortgage and settlement costs in traditional financing scenarios. By comparison, the Seller Financing Addendum focuses on the financing agreement between buyer and seller, including similar disclosures about payment terms, interest, and rights regarding the property, tailored to seller-financed sales.

Credit Authorization Forms are necessary for obtaining the buyer's credit information as stipulated in the Seller Financing Addendum. Both require the buyer's consent to access personal financial data to assess creditworthiness. While the Credit Authorization Form is a more general permission slip for credit checks, the TREC document specifies the types of financial information needed for seller financing approval, emphasizing the seller's direct role in evaluating credit.

The Uniform Residential Loan Application (URLA) is akin to the TREC form in its purpose of collecting comprehensive financial information from the applicant, but it is standardized for use across various mortgage lending scenarios. The Seller Financing Addendum, though more specific in context, shares the URLA's goal of documenting the financial qualifications of the buyer for the purpose of securing a loan – in this case, directly from the seller.

The Option to Purchase Agreement can complement the Seller Financing Addendum in transactions where buyer and seller agree on a future purchase of the property, potentially involving seller financing. While the Option Agreement sets the terms under which the buyer may later decide to purchase, the Seller Financing Addendum establishes the financing terms if the buyer exercises the option to buy, providing a seamless transition from initial agreement to final sale and financing.

Finally, the Early Disclosure of Terms Agreement is parallel to the Seller Financing Addendum as it aims to outline the terms of a financial agreement before it is finalized. In seller financing scenarios, transparency about interest rates, payment schedules, and other financial obligations is crucial. Like the TREC document, this early disclosure ensures that both parties are aware of and agree upon the terms in advance, fostering trust and clarity in the transaction.

When engaging with the TREC Seller Financing Addendum form, it's important to navigate the process with awareness and precision. To help, here's a focused list of do's and don'ts:

• Do consult an attorney and a financial professional before signing the addendum. Seller financing involves complexities and legal implications that require professional insight.
• Do carefully read and understand every section of the addendum. This document contains important details about the creditworthiness process, promissory note, and deed of trust that are crucial for both buyer and seller.
• Do ensure that all credit documentation is delivered to the seller within the specified time frame. This includes the credit report, verification of employment, confirmation of funds, and current financial statement.
• Do check the correct boxes regarding the payment structure of the promissory note and understand the terms related to prepayment, late fees, and interest rates.
• Don't leave sections unfilled or assume they don't apply without verifying. Each section of the addendum plays a critical role in the financing agreement.
• Don't underestimate the importance of accurately filling out the deed of trust sections, including those related to property transfers, casualty insurance, and tax and insurance escrow requirements.
• Don't disregard the seller's right to approve or deny the buyer's credit. If the seller deems the buyer's credit unacceptable, understand that the contract may be terminated.
• Don't forget to provide buyer and seller initials on the last page for identification. This step is vital to affirm that both parties acknowledge and agree to the terms laid out in the addendum.

Following these guidelines can help ensure a smoother process and prevent common pitfalls associated with seller financing transactions. Always remember, the key is in the details.

There are common misconceptions about the Trec Seller Financing Addendum form that require clarification to ensure both buyers and sellers navigate their transactions with a clear understanding:

• Only applicable for residential transactions: A misconception is that the Trec Seller Financing Addendum is solely for residential transactions. While primarily used in residential settings, it can also be adapted for use in commercial transactions provided it meets the parties' specific needs and complies with applicable regulations.

• Legal advice can be obtained from real estate agents: The form clearly states that TREC rules prohibit real estate license holders from giving legal advice. It is essential for parties involved to consult an attorney for legal counsel regarding seller financing agreements.

• Buyer’s creditworthiness is optional: Some may erroneously believe that assessing the buyer's creditworthiness is optional. The form necessitates that buyers provide sufficient credit documentation to establish their creditworthiness, which is crucial for the seller to evaluate the risk involved in providing financing.

• There is no deadline for providing credit documentation: Contrary to what some might think, there is a strict timeframe during which the buyer must deliver the required credit documentation to the seller. Failure to do so allows the seller to terminate the contract.

• Prepayment penalties are unavoidable: A common misunderstanding is that prepayment of the promissory note will always incur penalties. However, the form stipulates that buyers may prepay the promissory note in whole or in part at any time without penalty, providing greater flexibility than is commonly assumed.

• Seller financing does not require escrow accounts for taxes and insurance: It's a misconception that seller financing transactions bypass the need for escrow accounts for taxes and insurance. In reality, the form allows for the creation of such accounts, ensuring that taxes and insurance are managed appropriately to protect both parties' interests.

• Transfer of property relieves the buyer from future payments: A significant misunderstanding is that the transfer of property absolves the buyer from their obligation to continue making payments on the note. The form specifies conditions under which the property may be transferred, but it also makes clear that the buyer's liability continues unless a release is obtained from the seller. This highlights the importance of ensuring all parties fully understand the terms of the note agreement.

Understanding these points can help prevent misunderstandings and ensure that the seller financing process is handled with due diligence and care, safeguarding the interests of all parties involved.

Understanding the TREC Seller Financing Addendum is vital for anyone engaged in a real estate transaction that involves seller financing. Here are nine key takeaways:

• Legal and Financial Consultation: Before signing the addendum, it is imperative to seek advice from both a qualified attorney and a financial professional due to the complex legal and financial implications.
• Credit Documentation: The buyer must provide specific documentation to prove creditworthiness, including a credit report, verification of employment, verification of funds in financial institutions, and a current financial statement.
• Buyer’s Credit Approval: Sellers have the right to terminate the contract if the buyer fails to provide necessary credit documentation within the specified time frame or if the seller considers the buyer's credit to be unacceptable.
• Promissory Note: The buyer will sign a promissory note that outlines the loan amount, interest rate, payment schedule, and late payment penalties. This note is crucial for establishing the terms of repayment.
• Prepayment: Buyers are allowed to prepay the note, either partially or in full, at any time without incurring a penalty, which can reduce the total interest paid over the life of the loan.
• Deed of Trust: A deed of trust securing the note will impose certain conditions, including restrictions on property transfers without the seller's consent and requirements for casualty insurance and tax and insurance escrows.
• Property Transfers: The addendum specifies whether the seller's consent is necessary for the property to be sold, conveyed, or leased, affecting the buyer’s ability to make future decisions about the property.
• Insurance and Tax Escrows: Depending on the agreement, buyers may be required to contribute to an escrow account for taxes and insurance, with sellers providing annual accounting and ensuring timely payments from the escrow funds.
• Compliance with Superior Liens: Defaults under any lien superior to the deed of trust securing the note constitute a default under the deed of trust, stressing the importance of maintaining good standing on all liens.

Thoroughly reviewing and comprehending the TREC Seller Financing Addendum is essential for both buyers and sellers to protect their interests and ensure a smooth real estate transaction.