Changes to the 2019 Real Estate Contract
The 2019 changes to the Contract to Buy and Sell Real Estate have been sweeping; by this article we attempt to break down some of the changes that we believe will be the most impactful on day to day real estate closings.
Section 2.5.4 – Other Inclusions
In this revised section, the parties can now indicate that they have entered into a separate agreement for the sale of personal property outside of the contract; once the box is checked, a personal property addendum must be prepared. This feature is only intended to be used when the personal property being transferred is of substantial value, in excess of the typical inclusions. Please note that the personal property addendum may trigger sales tax on the personal property, which can be handled inside or outside of the closing.
Section 7.3 – Association Documents
This revised section now includes a more robust list of the Association Documents that Seller is obligated to deliver to Buyer on or before the Association Documents Deadline. The list includes but is not limited to declarations, articles of incorporation, bylaws, articles of organization, operating agreements, meeting minutes, a list of all Association insurance policies, a list of the Association’s assessments (regular and special), and the Association’s most recent financial documents. The Buyer has the right to review these Association documents and object if the Buyer deems any of their provisions to be unsatisfactory; if the Buyer fails to object within the Association Documents Deadline as outlined in the contract, the Buyer is deemed to have accepted the provisions of the Association Documents.
Section 8.4 – Special Taxing Districts
A tax certificate has always been required as a part of the real estate closing; the change to this provision relates to the timing of the tax certificate. This new provision requires the Seller to provide the tax certificate by the Record Title Deadline. Be advised that tax certificates can take as much as a week to order, and so this could present an issue for transactions with a quick close, or for closings scheduled during a time of year during which a tax certificate is not available from the county. In these circumstances, a contract amendment may be necessary in order to allow for extra time.
Section 13 – Transfer of Title
This revision can be broken into two parts:
Deed Type. In keeping with the previous version of the contract, the new contract form still allows the parties to select the type of deed that will be used in their transaction (there is a “checkbox” available for each of the four statutory forms of deed). However, the contract defaults to a special warranty deed if no other deed form is affirmatively selected.
Warranty of Title. The new contract indicates that if a warranty deed or a special warranty deed is used to convey title, the deed must include certain specific exceptions from the warranties of title. According to the new contract, those exceptions must include, generally: distribution utility easements, off-record rights of third parties of which Buyer has actual knowledge and which were accepted by Buyer in accordance with the terms of the contract, inclusion of the property within any special taxing district, and special assessments if the improvements were not installed as of the date of the contract (collectively, “Standard Exceptions”). Additionally, each warranty deed or special warranty deed must include an exception for all recorded documents appearing as Exceptions in the Title Documents accepted by the Buyer (for a special warranty deed, the exceptions will include only those documents recorded after the seller acquired title). This means that every time a special or general warranty deed is used under the new contract, it will contain both the Standard Exceptions, and a list of all recorded Schedule B Exceptions, taken from the Commitment.
Please note that parties can opt out of these exceptions from the warranties of title, but to do so, they will need to make it clear in the contract. If the parties decide to change the required warranty exceptions after the fact, a contract amendment may be required.
Section 15.8 – FIRPTA
Without going into too much detail, FIRPTA is a tax withholding requirement in any real estate transaction in which there is a foreign seller. This new section of the contract indicates that if the box in this Section is NOT checked, the Seller represents that they are NOT a foreign person for the purposes of US income taxation. To the extent that the box IS checked, the Seller represents that they ARE a foreign person for US income tax purposes, and that if withholding is required, they authorize the closing company to withhold the withholding amount from the Seller’s proceeds. When the Buyer prepares the contract, they may not know whether the Seller is foreign; it is up to the Seller to ensure that this Section properly reflects the Seller’s foreign or non-foreign status.
Please note that this article is a synopsis of the most impactful changes to the Contract to Buy and Sell Real Estate. There are a multitude of changes that are not addressed in this article; please refer to the terms of the new contract for more information, and as always, please reach out to your Land Title Sales Representative with any questions.