October 2014 • Volume 102 • Number 10 • Page 466
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New residential real estate contract incorporates common modifications
A new version of the widely used multi-board real estate contract incorporates the most common changes lawyers made in its predecessor.
There's a new version of the Multi-Board Residential Real Estate Contract, a staple of real estate transactions throughout northern Illinois. Version 6.0 incorporates nearly all of the modifications real estate attorneys routinely make to the 5.0 version, according to Ralph Schumann, president of the Illinois Real Estate Lawyers Association (IRELA) and a member of the committee of metro-Chicago lawyers and real estate agents who drafted the contract. The new version includes revisions to the condominium provisions and the mortgage contingency clause, among many other changes, Schumann said.
In one of the most important changes, new paragraph 15 addresses condominium association issues. Buyers no longer need to demand condominium or homeowners' association documents - the onus is on the seller to request the documents from the association within five business days of the date the contract was accepted, then provide them to the buyer.
According to Schumann, paragraph 15 is designed to protect buyers from unexpected surprises. For example, under the Illinois Condominium Property Act, a condo association can collect six months of unpaid assessments and other fees from someone buying a foreclosed property. This can lead to sticker shock when the condo association presents the buyer with an unpaid-assessment letter that includes attorneys' fees and late charges. The changes are designed to make buyers aware ahead of time.
Mortgage contingency revamp
Version 6.0 also significantly changes two provisions affecting mortgage contingency (mortgage contingency is the principle that the deal can be canceled if the buyer can't get financing). According to common practice under previous versions of the contract, the mortgage contingency clause is stricken when the buyer intends to purchase the real estate with cash. This can create problems for buyers who have enough cash to buy but nonetheless want to finance some or all of the purchase.
Version 6.0 has a new paragraph 36 that allows cash buyers to reserve the option to obtain financing without making the deal contingent on obtaining a mortgage. Under this provision, buyers give up the mortgage contingency, but sellers still agree to take steps necessary to help the buyer obtain financing (e.g., allowing access to the real estate for an appraisal).
Paragraph 8, the actual mortgage contingency clause, also contains language that, according to Schumann, is designed to get buyers moving on their loan applications. Version 6.0 requires a buyer to make a written loan application within five business days of the contract's acceptance. It also requires a buyer to "cause" an appraisal to be ordered by the lender within 10 business days of the contract's acceptance.
Under past versions of the contract, Schumann said, some buyers would wait until the end of the attorney review and inspection contingency periods to apply for a loan, requiring multiple extensions of the mortgage contingency period. The version 6.0 contract provides for specific dates by which buyers must have taken affirmative steps to get financing. The intended result is that real estate transactions spend less time bogged down in the mortgage approval process.
According to Naperville lawyer Anastasia Xinos of Gardiner Koch Weisberg & Wrona, the paragraph 8 appraisal clause may leave buyers at a disadvantage. She notes that failing to comply "constitute[s] an act of default under [the] contract. Why should it be the buyer's fault if the lender doesn't order an appraisal in a timely fashion?" asks Xinos. Schumann notes that, on the buyer's side of a transaction, prudent attorneys can modify this language to allow for the inevitable delays on the lender side.
On the other hand, paragraph 8 provides two safety-valves for buyers. First, if the buyer is unable to get a loan application into the underwriting process within a specified period, either party may terminate the contract without penalty. If no specific period is provided, the contract defaults to a 30-day contingency. Second, if the buyer is unable to obtain a clear-to-close from the lender within a specified period, then either party may also terminate the contract without penalty. The contract defaults to a 45-day contingency if the parties do not supply a specific period.
A sample of the version 6.0 contract is available on IRELA's website (http://www.irela.org/). Use of the official 6.0 contract, which is a fillable PDF form with no watermarks, requires membership in IRELA or an affiliated Realtor association.