126. Statutory Disclosures Property Condition Repairs and Inspection and RSC

Today we're going to talk about number of topics. We're going to talk about disclosures, the property condition, the as is clause, repairs, and then the residential service contract. So we've got a number of topics to cover today. And so we'll start off with the disclosures. And there's two different sections in the contract that we're going to be the Trek 1 to 4 family residential contract for resale. So we're going to be looking at. So we'll start off with the statutory disclosures. And then we'll get into the seller's disclosure of the property condition that's required under the Texas property code. So let's start off with the statutory disclosures. So these are in the contract. And in this contract, it's under paragraph 6e. So 6e of the contract, it says title notices. And in here, there are 10. So there are 10 listed in the contract. In reality, there's an attorney that I've talked to, real estate attorney. And he's gone through the property code and looked at any other laws that are out there that require disclosures. And I think he's got a list of more than 20, somewhere between 20 and 30, which is a pretty substantial list. And that would be for a residential transaction. And potentially a commercial transaction. There's certain items that affect residential properties that do not affect the-- would not affect a commercial property. But in this case, we've got these 10 notices in the contract. And so we start off with the first one, which is abstract or title policy. And so let me backtrack. So one thing that's important when looking at contracts is what's in the contract, what language is in there, and what does that language mean, or what are those terms mean, and how are they going to affect one of both parties. But what's also important is what's not in the contract, what needs to be added. And so a couple of years ago, I was teaching a class, and I had somebody ask me, they said, this is a real estate agent. And they said, why is our contract so long? Why is it so lengthy compared to other states? And I said, well, I said, I can't speak to other states. So I'm not sure-- that's something I put on my list for one of these days. That's not a priority right now. But to look at the contracts or what's required, what's the law in each state in terms of-- is there a promulgated form that's required to be used? Like we have here in Texas, we have that rule. Unless an exception applies, the real estate agent must use the promulgated form. So other states have that requirement. And if so, what are those promulgated contracts look like? If not, then what contracts are used? So that's a research project that's on the back burner way, on the back burner. But it's something that's interesting when I heard that question that I said, you want to take a look at this and see what-- I want to find an answer to that question. But I said, I can speak to our contract. And I said, our contract is only-- this promulgated form is only about 10 pages long. And if we really look at it, the last two pages, the very last page is a receipt for the option fee, the earnest money, the contract, and then if there's any additional earnest money. So that's the title company. And then the seller's agent or the seller would note the receipt of funds on that page. So take that page off. Then we go to page nine. And page nine is the broker information. And so this is where we have the information for the listing agent and the listing agent's broker. And then the buying agent and the buying agent's broker. And the title company needs that information for their file. So we had that to page nine. And so then half of page eight is the signature lines. We've got the executed date blanks to fill in. And then the buyer's seller's attorney blanks to fill in. And so if there's no attorney, then really for the-- there's really only one paragraph on page eight, which is the termination option. We're going to get that into a later episode. And so really, we come down to seven pages, seven substantive pages of the contract, and then not all that language is used. So what we've done or what Trek has done through the broker lawyer committee is add certain clauses, certain provisions. And this has been changed some. Like for example, if we go back to the financing provision or financing paragraph on page one, and that's already been discussed in a previous episode, but there all we have is the sales price, the type of financing-- I mean, the cash portion, the type of financing, and the amount of financing and the sales price. And then that's it. You check a box on the type of financing, and then you go to that financing addendum, depending upon what type of financing you have, then that will include additional language specific to that type of financing. Now, go back 20 years. That paragraph in relation to financing was much more significant. We had a number of different boxes to check and blanks to fill in, and there was additional content there. But we-- so that has been reduced. But then we've added these-- we've added other language so to the contract. So we end up with effectively about a eight-- what does that say? Eight page contracts, seven, not even really that seven page contract. If you go to page, the bottom of page seven, paragraph 22, that's to check the box for any identity that apply. And there are times where you may have-- if I'm looking here, you may have maybe one or two of those boxes checked out of-- on the agenda, we've got one, two, three, four, five, six, seven, eight, nine, ten, eleven, 12, 13, 14, 15, 16, 17, 18 boxes that could be checked. So that takes up a good part of page seven. And then we have notices and paragraph 21. So I'm kind of back-- I'm going backwards now. We're going to cover these in later episodes. We're going to cover all the agenda in a later episode. But so now that really gets you to seven and a half pages. So-- and then as we go through this, there are certain instances where-- like special provisions, paragraph 11 on page five, that's really not used anymore. I could see that disappearing all together one of these days. But we still kind of need that. But maybe that would be added as an agenda later instead of including that space in the paragraph. So there's the paragraph itself with the content. And then there's blank space to fill in or to type in factual statements. And then there's others where you may-- like if we go to the survey or the seller's disclosure, we'll get to in a minute where there's boxes to check. And so in theory, if you weren't using that sentence or that paragraph that you're checking, and an ideal world uses to delete that out of the contract, the paragraph for sentence that's not being used. And so that would shrink the contract even more. So really at the end of the day, it's really not a very long contract. If I were to come in as an attorney, and real estate attorney start drafting this contract, I could get to 20 pages easy. And it would not include all these additional boxes and filling the blanks. It would be 20 pages of substantive content. And I could make it 30 pages based on the type of property. We get into commercial contracts. There's a lot of additional representations and disclosures that are made. So those contracts, let's take a commercial lease, complex commercial lease, that could be 50, 100 plus pages easy. And then we've got exhibits and a denda that get attached. So with that said, this is pretty basic. I mean, pretty simple. I say it's simple. It is, but it isn't. It is, if you're a real estate attorney, it isn't if you're looking at it for the first time and you have no idea what all this stuff means. And so that's part of going through this. So I say that because going back to, it's important what's in the contract, but it's also important in terms of what's not in the contract. And if you were to go up to the average person on the street and say, OK, what are the statutory notices? Is it a requirement? If you went to a seller and said, OK, what are the statutory notices? You're required to disclose to a buyer or a real estate transaction. Residential real estate transaction. They would say, what's a disclosure? I have no idea what you're talking about. So this accomplishes that objective. Otherwise, the seller would be required to make these disclosures and would likely not do so, because they don't know what to do. There's this attitude that we don't need real estate agents as part of real estate transaction. Buyers and sellers can handle that on their own. And there's actually lawsuit that-- that was just filed last week against the NAR and other larger brokerages, franchise wars, that is claiming that the NAR National Association of Rilters and the MLS systems are harmful to buyers and are locking them into transactions where they have to use a real estate agent when they really don't need one. And I think I want to do a podcast episode outside of the RFD Connect podcast. I'm going to do an episode on another podcast on that because the reality is when I, you know, representing a seller, I have a checklist, when a rep is in the buyer, I have a checklist and that doesn't include all of these things that are in this contract itself. It's all these other things that need to be accomplished and in terms of fully representing that party and, you know, it's close to 100 items. It used to be more, we've taken some items off but now I'm in the process of adding more items and that's in the transaction management stage or for the transaction management process but I'm also adding additional line items for pre-representation, representation and post-closing. And so I think when all is said and done, that checklist will probably be at least 150 items easy. And so that's when you're representing a party. So that's where the professionalism really comes into play is having that knowledge where to find the information, how to guide the buyer through the process, how to guide the seller through listing a property. You know, this attitude of, well, you can just throw a house up, you know, on a third party platform out there on the internet and just let somebody buy it. There's a whole lot more to it in terms of making that property marketable and getting the most money for the client. So anyway, a little bit off tangent there but going back to this attitude of, well, we don't need your role state agents. Well, this is where having a role state agent that is using this form and not just using this form but also knows what these items mean, right? So anybody can fill in some blanks and checks and boxes. So the level of professionalism or where the professionalism comes into play is understanding this document and what these items mean. You know, it's based on that going back to the argument of the lawsuit, it's like, well, we really don't need attorneys to do anything when we just give us some forms and we could do it ourselves. And that is happening in a lot of areas of law. And the attorneys are saying, this is harmful to the clients because they're not being represented, they're not being protected. So it's kind of an interesting argument. Where on one side, you've got a law firm saying, we don't need, you know, this type of representation, these parties don't need this type of representation but you flip it over to the attorney side and attorneys are saying these parties need this, you know, type of representation. So we'll see how all that plays out in the future. So if we go into the notices, the first one is abstract or title policy. So there's a law that says that the real estate broker or agent is required to inform the buyer of getting an abstract or title policy on the property. And so that paragraph reads E1, abstract or title policy, broker advises buyer to have an abstract of title covering the property examined by an attorney of buyer selection or buyers should be furnished with or obtain a title policy. If a title policy is furnished, the commitment should be probably reviewed by an attorney of buyer's choice due to the time limitations on buyer's right to object. Well, in the preceding paragraph, if we go back to 6D, that's the objection paragraph and I haven't really covered that, but that ties into both the survey and the title commitment. And that is if there are any issues in relation to title that are reflected on that survey or in the title commitment, then the buyer can make an objection. And then the seller then, and then they put the seller on notice that they're making the objection. And then it says that buyer must, so buyer has a certain time frame with width in which to object. And so usually it's about 10 days. So the 10 days from the date that you get those documents. And so buyer makes an objection and then asked to the exception documents and the schedule be the title commitment. So that was covered in the previous episode. Buyers failure to object within the time allowed will constitute a waiver of buyer's rights to object, except that the requirements of the schedule see the commitment are not weighed by buyer. So those are items that must be cured by the buyer and or for a title company to issue a policy. But then it goes on that seller provided, seller is not obligated to incur any expense, seller shall occur any timely objections of buyer or any third party lender within 15 days after seller receives the objection. So that's a cure period, which means that within that 15 days, the seller can cure those objections. And then the closing date will be extended as necessary. If the objections are not cured within the cure period, buyer may by delivering notice to the seller within five days after the end of the cure period, terminate the contract and the earnest money will be refunded to buyer or waive the objections. So if buyer does not terminate within the time required, buyer shall be deemed to have waived the objection. So like an example, there's an issue with the boundary line. The fences three feet inside the boundary onto the seller's property and the neighbor is using that three feet. So the survey would reflect that. And the title company would say were not going to ensure that issue. And if they were, then they would need to get that issue cleaned up. So you can make an objection as to that boundary line issue. And then the seller within those 15 days can either cure that issue, cure that defect or not. And then the buyer can either terminate the contract or see the earnest money back or waive the right to object and just move forward with that issue in relation to the property, likely with understanding the title company is not going to issue or not going to provide coverage for that issue under the policy. So a couple of, I mean, that's just E1. I don't know how long it took me to review that. But that's where having a big picture understanding of what that means. And most in Texas, we really don't do abstracts anymore. That used to be the norm. I remember when I was in undergrad, one of the assignments, it was an extra credit assignment, was to put together an abstract on a piece of property. And so that's what I did. And so that's where you do the title research. An attorney would do the title research and then write an opinion on the title for that property. And in other states where attorneys are closing the transactions, that may be still how their researching title of the property is by preparing an abstract. Here in Texas, what we use is the title commitment. And then that title commitment outlines, in schedule A, the buyer/barrower, the amount of finance, the purchase price of the property, the record title owner, the type of interest that that record title owner has, and then the legal description, you know, the lot in blocker to meet some bounds. And schedule B gets into all the exception documents, or what I also call the underlying documents, which are all the easements, and if there's leans, there's the billing setbacks, the deed restrictions, et cetera. All of that's going to be reflected there. And then schedule C is going to be your title curative matters. So the title company has a very efficient process by using what's called a title plant. Now, there's a lot of changes that have been happening lately. And so one of the things I have on my list is to follow back up with some title companies and say I need to get an update in terms of how y'all are doing things. So in the old days, the title plant was not a what you think of as a plant. It was an office building. And where they came up with that term, nobody knows. I've asked that question. I've heard other people talk about it. Nobody knows where that terminology came from. But the title plant was an office that contained the documents for the properties. And so I remember going, when I was in law school, I went to the title plant for Elmo Title over in Houston. And I remember seeing Galveston County. And Galveston County was just this little section within the office. It wasn't a very big section where that contained all the documents related to real estate transactions for Galveston County. The Harris County, of course, took up a lot more space. And so that's when the internet had come online. Scanning was still something that was new, digitizing documents was something that was new. So a lot of it was still on an old paper system. And then each title company kind of had their own research method of researching title to the property. And one of the things you don't want to necessarily start over from scratch each time. So there would be like this catalog system to where if they closed a transaction on a piece of property, they would go in and update. their records. And so effectively just think of it like either a catalog file or a file folder that where they continuously updated with records that they had in relation to that property. So if they had never closed the transaction then they would bring the documents together and then they would go into that folder. And some used a card system and the card system was just a means of being able to keep track of the history of the transactions on a piece of property. And so now that in all of that started getting digitized. And so you know the process then to do the research was once the contract was delivered to the title company with the earnest money that would get entered into the computer system then that information would enroll over to the plant side. So you've got the plant side was the cost side of the business. You know there's where they're doing the research they're not making any money. The escrow side is where they're closing the transactions. And so the information would be entered on the escrow side. It would be sent over to the plant. The plant would then pull a run sheet, they'd turn off a run sheet for that property which would give all the the transactions for that property because they're tying into a database of all these records. And then they would do a name search on the seller or sellers. And then that would go into a folder and that would be picked up by a title examiner. And a title examiner somebody on the plant side who then does the research on that property and then writes the title commitment. I would say historically I think title examiners were predominantly attorneys. And then in more recent times because of the cost of hiring an attorney to do that work in house that they started hiring non-aturnees. Title companies were hiring non-aturnees. And then now I know that then then well anyway then the title examiner would draft the title commitment in the computer system. And then when that was finished it would get sent back over to the escrow side. And then the escrow side would pick it up and then draft their documents that they needed and start bringing everything together then to close that transaction. Now I know that there was a plant there was two different plants under one title company here in town that were owned by the same parent company. And then I know a number of years ago they consolidated into one plant. And so all the research for either of those title companies was done under the same roof. And then I heard somebody recently mentioned where they were outsourcing that research. And I'm not sure what percentage of that. I want to get an answer to that but outsourcing that. So imagine we all go to bed at night. You know contract gets delivered today gets entered into the system. We go to bed. And then somebody oversees wherever that's being outsourced to starts doing the research. And you wake up in the morning and that title commitment is ready to go. And so one of the things with with the title commitment is in the in the contract it and I covered this in the last episode but it states that the title company has 20 days to prepare the title commitment. And I remember back in the day like on a new home on a new residential development you know the title company would have already done all the research on that that neighborhood. And then the builder is then closing the new home sales through that same title company. They're not they're not in under law originally when when I started in the business and start practicing law title companies had to go back 20 years in their research. Now they've got to go back 30 years. But the reality is they a lot of times they don't go back 30 years because it's a it's a fast paced business. They've got to turn out these documents and get these these transactions closed. And so when I started in the business it was it was a slower process to get that title commitment and then get to closing. Now when when we were in the mid 2000s in the in the heyday before the great recession you know there was times where title companies were doing 10 15 day closes. I mean right and left and just fast fast transactions fast closings. And so now you know part of it's with the volume if they can outsource that and you wake up the next day or you know two days later and the title community is ready to go that's just going to expedite that process of being able to do more transactions. So that that system has changed and it's continued to evolve or continue to a change. So we'll be interested to see where it is in 10 years. But so in Texas we we predominantly use the title commitment and not the abstract and so that's where you advise the client. Hey you know you should get a title policy on this property. And I've had clients in the past say I don't want that and then you know there's a disclosure that you need them to sign off on saying you understand the risk you're taking that if there's some issue a title to this property it is all on you. It's it's it's the equivalent of saying why don't need auto insurance. I'm not going to get into an accident. Not worried about what you do. We're worried about what other people do. And if you get hit you know all of that liability not just for the vehicle damage but any other liability personal injury is all on you. So that's why we have insurance you know to minimize our personal risk. And so same thing with with the title policy. So so there's an overview on abstract or title policy under E1. E2 is membership in a property owners association and then it says the property either is or is not so you check one of those boxes subject to mandatory membership in a property owners association. We'll also refer to that as a POA you know generically or sometimes you'll hear it referred to as an HOA for a residential subdivision COA for a condo owners association and then either generically a POA for you know kind of all of them or POA if it's a commercial property that has a property owners association. So it's if the property is subject to mandatory membership in a property owner association seller notifies buyer under 5.012 the Texas property code that as a purchaser of property in the residential community identified in paragraph 2a says the that's the property description in which the property is located you're obligated to be a member of the property owners association. So that way you don't have some buyer coming back going but nobody told me I was in an HOA you know I didn't want to be in an HOA so this is where the the seller checks that the property if the property is checks that the property is subject to mandatory membership in a POA and then there's an addenda that comes into play again we'll get into the addenda later they gets filled out and determines who's going to pay for what and so that that I'm not going to get into all of that paragraph but you know one of the issues we had was was getting timely access to these documents and that's a whole other process now a lot of HOAs I can't say I can't qualify that but there are HOAs that use a third-party management platform to facilitate the delivery of their their documents and so as a result the cost of obtaining the documents has increased exponentially in the old days like I remember there's a subdivision let's say a subdivision out in the county out in Comell County you would contact the HOA and you know it was all self-managed and it was volunteer-based and you know the individual that's responsible for handling these requests would you know this was you know you'd have to call them and leave a voicemail you know they may or may not have been using email back in the day and so you leave a message say here's what I need and and then you know maybe they would get back to you and there's one transaction I was trying to close outside of a title company setting where I never could get a hold of the property owner or the HOA ever they just never responded and so one of the issues is getting quick access to these documents so a lot of that has been facilitated three third-party platforms but again as a result there's a significant cost involved now in getting those documents so those documents are going to be the deed restrictions any amendments to the deed restrictions the association documents so you know the certificate formation the bylaws and then they will fill out that form and sign on the dendum or not the dendum but there's a certificate they will fill out and sign and on that you want to know as a buyer you know what's the what's the reserve for the HOA that means what money do they have in in reserve for repairs and improvements are there any special assessments that have been assessed so that's you've got your regular assessments and the special assessments are on top of that so you could have an HOA that says well we don't have enough money reserves and we have to resurface the pool or we have to resurface the roads or there is significant damage to the or we're going to or like let's say in a COA we're going to redo all the roofs well maybe insurance will cover part of that but what's not covered gets passed on as a special assessment to the owners right on top of their regular dues so you want to know about those things is there any litigation or pending litigation so all of this gets answered so a buyer can make a decision on you know that property has additional information to make that decision on that matter. property. And so some of the issues were, you know, the sellers just weren't getting the documents to the buyers fast enough. So then we changed the the process to where now the buyer can request those documents if the seller's not doing so in a timely manner. So next one is E3 statutory tax districts. So if a property is situated in the utility or other statutorily created district providing water sewer drainage or flood control facilities and services. Chapter 49 Texas water code. Then this requires a seller to deliver and buyer to sign the statutory notice related to the tax rate bonded indebtedness or stand by fee of the district prior to final execution of this contract. So it's supposed to be before the final execution of this contract. So what we're talking about here are like the mud districts, you know municipal utility district. And you know one of the things you want to know is if your property is located within a one of these districts because there's going to be a generally a bond that the developer put in place provides certain services to the the property or to the development. And and then therefore there's going to be a cost or an expense to the owner of that property. So if a buyer's buying that property they want to know what that additional expense is going to be. And so you know there are certain areas in you know in and around Texas that are more prevalent for like muds. I think there's there's there's probably some around the San Antonio area. I know if you go into Houston area they're more prevalent over there. And so it's getting that disclosure and knowing what you know what those that additional expense is going to be on that property because of that you know utility district. So E4 and so it so anyway E4 says tide waters. If the property of butts the tightly influenced waters of the state then there's a state law that requires a notice regarding coastal area property to be included in the contract. And a denim containing notice promulgated by Trek or required by the parties must be used. So if you're in the San Antonio area you're never going to use this you have the properties located in the San Antonio area you're not going to use this form. But if you go down to the coast this is where it becomes more prevalent. And then that gets into a whole other area now in terms of what what could potentially impact that property or the ownership of that property based on those tide waters. There's a whole different you know whole other set of laws that come into play based on properties that are you know down there on the coast. E5 and so in a denim containing the notice promulgated by Trek required by the parties must be used. So that's under E4. E5 and exation. If the property is located outside the limits of municipality, seller notifies buyer under the Texas property code that the property may now or later be included in the ETJ which is the extraterritorial jurisdiction of a municipality and may now or later be subject to annexation by the municipality. So if you're the the ETJ or extraterritorial jurisdiction is a boundary or think of it like a ribbon around the that extends beyond the city limits into the county around a city. Okay and so that's the ETJ and that that the ribbon or the the size of that ribbon is going to be determined by the population of that municipality. So if it's and this is all going to be found in Texas local government code and I'm looking at you know section 42.001 so the purpose of the extraterritorial jurisdiction legislature declares that the policy of the state to designate certain areas as the ETJ of a municipality to promote and protect the general health safety and welfare of persons residing in and adjacent to the municipalities. So that the size of the ribbon is going to be determined by the population of that municipality. So 42.021 extent of the ETJ of a municipality is the unincorporated area that is contiguous to the corporate boundaries of the municipality. So what that means is the area in the county that abuts to the city boundary and that is located within one half mile in the case of a municipality with fewer than 5,000 inhabitants. So if it's a smaller city than the ETJ is 5,000 so less than 5,000 inhabitants within one mile in the case of municipality with 5,000 to 24,900 inhabitants within two miles if there are 25,000 to 49,999 inhabitants within three and a half miles in the case of municipality with 50,000 to 99,999 and then within five miles in the case of municipality with 100,000 or more inhabitants. So San Antonio for example has a five mile ETJ. So what that means is that now there are there there's an application of both city municipal ordinances and county ordinances within that ETJ. So giving example I had a since I had a client years ago where Bolverde had incorporated which that was all county out in Colman County that Bolverde incorporated it was a small city and as a result of that there was zoning now within the city limits but then there is also a policy under the municipal code for Bolverde that there could only be one residential structure per property. Well prior to that you could put in theory as many structures as you wanted to on a property because you're out in the county and there's no regulation. So now you've got the city you've got this ordinance and now with the ETJ the individual property fell within that ETJ which meant that that individual could not build more than one structure on that property. So there was already one structure wanted to build a second structure and so we went before the city council and requested a variance for that and received it. So that individual is able to add a second structure to the property but that's where there's agreements in most cases there should be between the city and the county in terms of which ordinances control based on certain ordinances within that ETJ. So there should be an interagency agreement between the city and the county on what gets applied within the ETJ. So the annexation is an issue because the big issue there is that when you're in the county you're not paying city taxes even if you're in that ETJ you're not paying city taxes and once you're annexed now you're paying city taxes which means your your tax rate is going to go up and your taxes are going to go up significantly and then as a result of that the city has to provide certain services and so that's a whole another issue in terms of whether that happens how that happens you know in terms of fire, EMS, police, water sewer and so you know there's a lot of instances where people don't want to be in the city because they don't think they're going to get value for their tax dollars for those services but this is a disclosure putting a buyer on notice that the property could be annexed at some point in the future and to put the party on notice in relation to the ETJ. E6 if the property is located in a certificated service area of a utility service provider then there's a certain notice under the water code that says the real property described in paragraph 2 so that's the property description that you're about to purchase may be located in a certificated water or sewer service area which is authorized by law to provide water or sewer service to the properties in the certificated area. If your property is located in a certificated area there may be special cost or charges that you'll be required to pay before you can receive water or sewer service. There may be a period required to construct lines or other facilities necessary to provide water or sewer service to your property. Your advice to determine if the property is in a certificated area and contact the utility service provider to determine the cost that you'll be required to pay and the period if any is required to provide water or sewer service to your property. The undersigned buyer here by acknowledges receipt of the foregoing notice at or before the execution of a binding contract. So what this is is the CCN. It is the certificate of convenience and necessity and I can give you an example. There's you know I think you're you're generally going to find this in more prevalent in the rural areas in terms of me know we get access to to utility services you know water and sewer if if both are available and you If you live in San Antonio, you're. you're getting your water provided by saws or by potentially one of the other, you know, the other municipalities within the boundaries of the city of San Antonio have their own water system, then they may provide their own water service. But if you're out in the county, let's go up to Comal County as an example. There are, there are, there used to be a lot of independent water service providers out in that area. And over time, there was one company that came in and bought a lot of those up. But I remember the so division that I had property in owned its own water system. It still does to this day. And they, and one of the neighbors in the so division managed that water system. And then the, you know, the HOA board was also, you know, responsible for the management of the water system. And so, you know, they did the billing and the maintenance and repairs and everything. And so, but there was a CCN in place that certain properties that were not with, that were not inside the boundary of the the so division, which, you know, fell under the HOA, fell under that CCN. And so, they, under the law could have gotten water service from the HOA, even though they weren't, their property wasn't in that HOA, wasn't in that so division. So, that's where that, that comes into play. E7 is the public improvement districts. This says if the property is in a public improvement district, then the property code requires seller to notify buyers, follows. As a purchaser of this parcel of real property, you are obligated to pay an assessment to municipality or county for an improvement project undertaken by a public improvement district under the local government code. The assessment may be due annually or in due dates of that assessment. Oh, no, I'm sorry, the assessment may be due annually or in periodic installments. More information concerning the amount of the assessment and the due dates of that assessment may be obtained from the municipality or county living the assess management. The amount of the assessment is subject to change. Your failure to pay the assessments could result in a lien on the or and the foreclosure of your property. So, what what a this is a public improvement district is something that can be initiated by landowner or property owners or by city or county itself. It's it's an area in which the their improvements and those improvements are financed by these special assessments. So, the city or let's just let's just look at it from the city's perspective. So, the city ends up taking on a responsibility for those those improvements in the maintenance, but they are financed and then maintained through these special assessments. So, property in a in a public improvement district would be taxed based on have alarm taxes, but then also incur an additional special assessment for being in that public improvement district. And you know examples you know part of it is you know it can tie us into economic development. It ties into improving the property in that area. And so, there's there's a laundry list of things that could come into play in terms of what falls under those improvements. It could be you know, acquiring property. It can be fences. It can be lighting signs, fencing sidewalks. You know, aesthetics like like decorations, entry features, you know, into an area. So, there's a there's a laundry list of items that they could fall under the under that definition of improvements. And giving example Austin downtown Austin has three pits or the public improvement district. So, they've got a downtown district that was created by Austin downtown that was created by a city ordinance. City resolution they have the East six street that was also created by resolution and then South Congress preservation and improvement district. So, the and then you know, the city also has other outside of downtown has a few other public improvement districts. So, you'll find these throughout Texas. So, you've got to determine if that property is within that district. And the purpose behind that is that buyer wants to know, you know, if they're buying a house and they go, okay, my here's my my principal interest payment on the loan and here's my tax payment and then my HOA dues and then it's like, oh wait a minute. I've got a special assessment for the HOA dues and I've got this other assessment for this special this public improvement district, you know, where it's like, I don't want to pay all that. So, it's more to give them the information so that they can make the decision. E8 is transfer fees. If a property is subject to a private transfer fee, then under the property code requires a seller to notify the buyer's follows. The private transfer fee obligation may be governed by chapter five of the Texas property code. So, this was put in place, why not put in place, this, you know, developer started putting this in place years ago with with subdivisions and and what it did is it generated fees on the front end for the developer. You know, sometimes fees would be 500, you know, 1,500 that that went to the developer, the developer was still in control of that development and and then other what was interesting is and so then in each subsequent sale that property requires a transfer fee. So in I can perpetuity, you sell that property 10 times and there's a thousand dollar transfer fee then you know, the either the developer, the developer still control the HOA or the HOA gets $10,000 for for all the transfers of that one property. So I remember when this when this first when I first heard about this this goes back probably 15 plus years and and the fee at that time was just outrageous. I mean it was outrageous at that time for that development and yet the you know, buyers and sellers are locked into that and then next thing you know you had other property owners coming in on their own requiring a transfer fee for their property and so it kind of created some issues. So that's one of the reasons why this disclosure came into place because buyers needed to know if there was going to be a transfer fee and then what that transfer fee will be. The E9 propane gas system service area. So if the property is located in a propane gas system service area owned by a distribution system retailer, seller must give buyer the notice. Our written notice is required by the Texas utilities code and then there is an addendum that Trek has that that where the seller can provide this notice. So what this is is like here in San Antonio, you know, gas is delivered through or by sauce. So that's a that's a whole system into itself but this is a little bit different. This is where you've got a propane system that provides a service to a subdivision or to an area and the the one that I've I've heard about you know, you just you don't see these all over the place but that I've heard about was up in the Austin area somewhere to where a subdivision or an area was being provided propane gas through one of these distribution system retailers. So that's one of the reasons why this notice came into place because the the buyers didn't know, you know, where you know, it's where they were getting their propane from. And so it's in that their property is being serviced by, you know, this distribution system. So there's another notice that comes into play. E10 is one of my favorites. It is the notice of water level fluctuations. And what this basically says is if your property is on a river or lake, it could go up, it could go down. And so, you know, we've had some some drought like more recently we had a drought going back while I say more recently but a couple years ago and you know Medina Lake was was just dry. And the problem is you've got buyers that would buy a piece of property and go and then, you know, whether it's Medina Lake or any other lake or water, here in Texas and then we're in a drought and then they complain that nobody told me that, you know, the water could have gone down and, you know, my property values would drop because there's no water in the lake or in the river. So now we have a notice to put, you know, adults on notice that if you're on a water, you know, if you live on the water, it could go up, it could go down. So I think there's some, we have lost some common sense in in a lot of areas but in relation to this. And so now we have to put into the contract so that a buyer knows. So what this says is if the property adjoins an impoundment of water, including a reservoir lake constructed and maintained under chapter 11 another water code that has a storage. capacity of at least 5,000 acre feet at the impoundments, normal operating level, so hereby notifies buyer, the water level of the impoundment of water adjoining the property fluctuates for various reasons, including as a result of an entity lawfully exercising its right to use the water stored in the impoundment or drought or flood conditions. You know, we just had some flooding up in the Austin area recently, you know, all those properties on the river in that area were flooded out. And now you look up in the Midwest of the US, you know, same thing I've got a buddy that posted a picture of his parents house on a lake, their lake house, and it is totally underwater. I mean, you can see a little bit of the rooftops. But that's, you know, it's putting people on notice that water could go up, it could go down. Moving into section, or paragraph seven now, so we were talking about disclosures than the property condition, the as is clause repairs and then the service contract. So this is, there's a lot to this section in terms of putting the buyer on notice. But one in particular is the seller's disclosure notice that's required by 5.08 to the Texas property code. So if you go look at that form, the form is actually in the Texas property code in terms of what's required. And that's where the seller's required to fill that out in most circumstances. Let me go back here, let me go find that real quick. It's, there are some exceptions, there's a number of exceptions, but you know, what you get into is what does the house have, what does the house not have? What type of utilities does the house have? What type of roof, you know, what type of air conditioning heating system, does it have a septic system? What's the age of the roof, what type of roof? Are you aware of anything that's not in working order? Do you have working smoke detectors installed in accordance with the requirements of chapter 766 of the Health and Safety Code? And that now, that now requires a smoke detector in each bedroom and each hallway that services a bedroom or series of bedrooms. And so, you know, there's a lot of properties that don't have those. Are you aware of any defects? Are you aware of any termite investigation, any previous flooding, you know, any environmental conditions related to the property? So these are, any structural modifications, anything that was done without permits, any notices of violation with the deed restrictions or with the HOA, any lawsuits related to the property or potentially related to the property. So this is where all of this comes, that comes into the form and the sellers require to fill this out. Now, Trek has a form that mirrors this language in 5.08 of the Texas property code. And TAR has a form that actually expands on that. And so TAR's form is a little bit, not a lot, a little bit more expansive. And then the sellers required to deliver this, except there's some exceptions now. And one is if the property is being sold by court order or at a foreclosure sale, assuming it like a tax sale or a foreclosure sale, the trustee or the sheriff is not going to give a seller's disclosure because they don't know the condition of that property by trustee and bankruptcy. Let's see here. By a lender that has acquired the property under deed of trust, under their power of sale, so if the lender foreclosed and then received title to the property under that foreclosure, they're not required to give, the lender's not required to give a seller's disclosure notice. By producing the course of administering a decedence estate, so the administrator of that estate is not required to give a seller's disclosure. One of the issues that comes up with that are one of the errors of confusion that I see what real estate agents have is, they say, well, are the errors required to give a, to fill out the seller's disclosure. If the property is being sold by the estate itself, so like you've got the property is, was owned by the decedent, you're going through the probate process and as part of that probate process, that property is being sold to a third party. Then that trustee, that administrator, is not going to be required to give a seller's disclosure notice in that transaction, but if the property is transferred to the air, to the beneficiaries under that probate, and then the beneficiaries list that property and sell it, they will be required to give a seller's disclosure notice on that property. In that case, they say, we never lived in this property, or we haven't lived in this property in 30 or 40 years, so we don't know, you're still required to fill that out as an air or beneficiary if you receive title to the property, but you just do the best you can, and you make sure that you don't make any misrepresentations when filling out that form. From one co-owner to one or more other co-owners, not required to do the seller's disclosure, made to a spouse or to a person or person in the line of consane quantity, of one or more of the transferers, transferers, so line of consane quantity means related by blood. Between spouses resulting from a decree of dissolution of divorce, two are from any governmental entity, of a new residence of not more than one dwelling unit, which has not been previously occupied for residential purposes, so new home construction. Or of real property where the value of a dwelling does not exceed 5% of the value of the property, so if property is being sold in the value of any dwelling does not exceed 5% of the value of property, means there's really no value to the property there anyway to the dwelling unit. And so in those cases, the seller's disclosure notice is required to be delivered to the seller, and then what we fill in there is that either the buyer has received the notice, so the agents will have the, either have the seller fill that out ahead of time, as part of the listing process for that property, and then either post it in the MLS platform or hang onto it and then tender notice whenever the buyer's agent requests it. Otherwise, you check box number two, buyer has not received the notice, and then within next number of days after the effective date, seller shall deliver the notice to the buyer. Another notice that's in this section is the seller's disclosure of lead-based paint and lead-based paint hazards. So any property that was built prior to 1978, the seller's required to fill out this addendum and deliver it to the buyer. And that addendum basically says that the seller either does know or does not know that the property has lead-based paint and either does or does not have any reports related to the property, if there's an inspection related to the lead-based paint, either does or does not have any reports related to the property. So lead-based paint was used up until 1978, after 1978. There's no longer used or should not have been used. And so this puts the sellers on note or the buyer's on notice if the house was built prior to '78, that the house could have lead-based paint. And then there's a pamphlet that the agent is required to deliver to the buyer, pretty substantive, when to say pamphlet. I mean, when we print it out, it's on many pages, it is maybe 20 pages, maybe not quite that many, but that goes through what is lead-based paint, what are the risks and things to be aware of. So one of the issues is the house that had lead-based paint, if the window seals, if the window seals were painted with lead-based paint, you'd have a baby come up and chew on that window seal, where they're chewing on the lead-based paint, and then they get brain damage as a result of that. Something totally unrelated, but we had recently a prevent Michigan, the water system there had lead pipes, and that lead was, the water was getting contaminated with those lead pipes, and then the residents were drinking that water. And so we haven't heard anything in the news lately on that, but long-term, there can be some significant health issues because of that. So it's putting the buyer on notice if that house was built prior to 78, that the house may have lead-based paint. And then the 70 is acceptance of property conditions. So this is where the buyer either accepts the property as is, where the buyer accepts the property as is, provided the seller makes certain repairs. And then that 70 says as is means the present condition of the property with any and all defects, and without warranty except for the warranties of title and the warranties outlined in the contract. And so with this, so the buyer under this contract is buying the property as is, and I could do a whole other episode just on the as is, clause in the contract and the progression of the as is, clause in the development of that through common law here in Texas. But, What we've got here is the property being sold as is, what a seller must do though is disclose everything that they know or should know that materially affects the condition of that property. A seller cannot rely on this as is clause and say, "Oh, you bought the house as is, but failed to disclose something that should have been disclosed." So we've got the sellers disclosure and the seller has a duty, a continuing duty, to update that seller's disclosure if they are made aware of any issues related to the property. I'm going to talk about that here in just a second with the inspection. So the seller must disclose, must disclose, and my perspective on this is disclose, disclose, disclose. There are times where a seller may say, "Well, but I don't want to disclose this because I don't want to scare off a buyer." That is going to get you sued almost every time. So disclose, disclose, disclose. I would rather lose a transaction to a potential buyer because you disclosed rather than not disclosing and then getting sued. Everybody is going to get sued and it can cost some significant money. Give you an example. There is one case where the property that was being sold was an expensive property. The roof had been, well, one of the questions on the sellers disclosure was, let me go back here. Let's see here. Give me just a second. And they may have used, I think in that case they used the tar form. So yeah, so in that form, section 9 of the tar social disclosure says, "Have you seller ever filed a claim for damage to the property within the insurance provider?" Yes or no. Section 10, "Have you seller ever received proceeds for a claim for damage to the property?" For example, an insurance claim or settlement or a award in a legal proceeding and not use the proceeds to make repairs for which the claim was made. Yes or no. If yes, please explain. And so I'm not sure what the exact language was at that time because these forms are always evolving. But in this case, the sellers had made a claim for damage to the roof. It was a significant amount that they had received and then didn't repair the roof. Well, they sold the house. They did not disclose that they had filed a claim. The issue with that is that, and this could be a whole other episode in and of itself on insurance is that there's what's called a clue report, COUE. And I forgot exactly what that stands for. It's like comprehensive liability. I'll tell you, comprehensive loss underwriting exchange. Okay. And so basically what that is, it's like a credit, not the same, but it's like a credit history on a piece of property. And so insurance companies will run a clue report on the property to determine if there's been any claims, how many claims, the amount of the claims, because they're looking at the risk of that, potentially the risk of that property, just like with a credit report, if you've got a borrower that has a lot of debt and a lot of delinquencies and not paying the debt, then they're a higher risk. And that's going to have a lower credit score or a FICO score. And so the same thing applies. There's effectively a credit report on a property called the clue report that insurance companies will look at. And so one of the things you want to make sure is that you can actually get insurance on a property, because there are times where either one of two things, either you may not be able to, because the number of claims that have been filed on a property or because of the number of claims and then the potential or the perceived risk, such as that property, or insurance premiums going to be substantially higher as a result of that, than what you would normally pay. So that's something else that you need to be aware of. And so in this case, the seller had sold the house, filled the disclose that, and then the buyer had an issue in relation to that claim being filed, but the proceeds not being applied to the new roof. And so the buyer in that case ended up suing the seller and the court had said there was an ongoing obligation to update that seller's disclosure. So when you're made aware of anything that changes with that property or there's anything that, I think in that case, what had happened is they filled out the seller's disclosure. It sat there. And then in the meantime, they had filed a claim and then they did not update the seller's disclosure. And the court said there's an ongoing obligation to update that seller's disclosure if the seller's made aware of anything that materially affects the condition of the property or if there's anything, any representations made in that original seller's disclosure that have changed. And so that ended up, they ended up getting sued and the judgment was, I think, about a quarter of a million dollars against that seller. So it was an expensive mistake. So that's an example where I say disclose, disclose, disclose. So that's the as is clause. The property is being sold as is. But the seller's still required to disclose any material defects that they know or should have known about the property. In relation to repairs, so what happens is there's a, we'll get to the option provision later. There's an option provision in which the option period in which the buyer will hire an inspector and have an inspector going to look at the property. And the inspector has a, let's just call it a checklist that they use where they go through the property and then they'll go over that report with the buyer. And then the buyer can assess the condition of the property. What issues are, the way I use you presented are what are the major issues, what are the deal breakers, and what are the issues you can take care of yourself. So there's certain things that if there's potential foundation issues, now you need to bring in a structural engineer or a foundation company to look at that foundation to determine if there are any issues and how much that's going to cost. So the inspector will operate within a certain context. But they're not going to make, they're not going to make representation as to the roof or as to the foundation or the structural components of the property. What they will point out is if there may be an issue and then the responsibility at that time to bring in additional professionals to make that inspection. Giving example, I just read a Facebook post earlier today where the individual had said, we did the inspection but it's not cold enough to really get a good assessment on the condition of the air conditioning system. Like what do we do? Another agent wrote in and said, hire an HVAC company to come out and test it. So the inspector will run certain tests. But if it's really cold outside, it's going to be really hard to get an assessment on the condition of that HVAC unit until it warms up and then vice versa with the heater. And so in this case, they're like hire an HVAC company. Well, there's going to be an additional cost to that. An inspection, the cost of the inspection varies, it's usually tied into the square footage of the property. And then it also ties into any add-ons. Like if there's a pool, if there's a sprinkler system, if there's a septic system. So there's all these additional add-ons. So an inspection could cost you, you know, easily $700 plus. But then to bring in another company to do an inspection on the HVAC system, you know, that could be another $500. But in that case, it looked like they had it done today, like immediately. And then they were able to make a determination, you know, based on that report. And so you don't want to buy a house because nowadays you buy a house, let's say the house has two units. You know, it could be, you know, depending upon, you know, if the units go out and I'll tell you what, these units are not designed to last very long these days. Let me rephrase that. Certain units that are installed are the cheapest units that that installer could possibly put in and they're not designed to last very long. And the components will go out. And so you could be looking at, you know, $10,000 in repairs or replacement on an HVAC system. And so you just bought this house and now you're having to incur this additional expense. So it is worth coming in and getting that, you know, those additional inspections for that piece of mind. It's worth spending that money so that you don't make those, you know, you don't make a mistake of getting into a property where there's substantial repairs down the road. And so the inspection will be conducted. And then if there are any repairs that the buyer once made, then that can be negotiated between the buyer and the seller before that option period expires. And so then the parties can, you know, the seller can either accept the request, the encounter can sometimes they split it down the middle. Sometimes they say yes to some, no to others. You know, and there's all sorts of, you know, things that pop up. You know, there are some major issues when you get into electrical issues or plumbing. We've got overhouses that don't have the GFA. five outlets, you know, the ground fault indicator outlets. The, you know, maybe the water heaters not working efficiently, or maybe the water heater needs to be cleaned. Maybe the HVAC system needs to be serviced. There's times where wind does need to be replaced. Sometimes it's, well, you know, so it just, it varies. It's property property and I could go through everything from A to Z, but it's going to be dependent upon that property on the age, on the condition, on deferred maintenance, you know, on all these different issues. And so the parties are going to negotiate that. And then the last thing I was going to talk about is the residential service contract. So paragraph seven H is the residential service contract. Says buyer may purchase a residential service contract from a residential service company license by track. So tricking if you go on a track's website, you can find the list of companies. If buyer purchases a residential service contract sell or shall reimburse buyer at closing for the cost of the residential service contract in amount not exceeding and then you fill in the blank for that dollar amount. Biosho, reviewing residential service contract for the scope of coverage, excluding any and exclusions and limitations. The purchase of a residential service contract is optional. Similar coverage may be purchased from various companies authorized to do business in Texas. So I stepped away for one second. There's, I've got a brochure from one company that just got this week. And it's one that I know and that I recommend to my clients. But they actually have a 13 month coverage and they actually have coverage. If you buy it now, let's say the property gets listed as an example. And you put in the order for the service contract, it will cover the seller from the date of that order until closing at no cost to the seller. And then if the if the buyer comes in and buys that contract, then it will continue from that point on to provide coverage of the buyer. Right now they've got a 13 month warranty. And so the issue is you're with car insurance. The insurance company wants to know that the car exists, the age, the condition, they're going to run assessment on the driver or drivers with a house homeowners insurance. You want to make sure that the house exists condition aged, you know, condition of the roof, all those things. With with the residential service contract, it's a it's a warranty on the components of a house site unseen. And generally in the past, I've heard you know, horror stories, but more recently, you know, I've heard nothing but good things myself. That's subjective, but you look at terms of what they what what's covered. And so as an example, I'm looking here like there's three different usually they've got yeah, they've got three different levels. The low levels 475 and it provides coverage up to a certain point. Next one is 550 and the next one is 600. And then it's $75 per service call. And then you can add on extra coverage. There's a green coverage. There's external waterline repair, pool spa combo, saltwater pool, well pump, septic system, second fridge, stand on freezer, you know, etc. Ice maker, washer, dryer package. So you could you could spend some good money on this. So it's not uncommon. This is always negotiable, but it's not uncommon for a seller to buy this for the buyer. Now what you may see a lot of times is the seller will say I'll pay for I'll pay 475. And so if the buyer wants the highest level, they want to pay the 600 and then they want to do some add-ons, well then the seller on the on the settlement settlement statement on the on the closing disclosure, the seller pays 475 of that and then the buyer pays the remaining balance. And you know part of this, you know, this includes this specific provider includes a free re-key service. You know, so one of the things you recommend to a buyer whenever they buy a house is to get the house re-keyed, well that that can cost some money. I mean it's not cheap. So you send out somebody to you know locksmith to re-key the locks. And you know in an average house you could have you know three exterior locks. And so to have that service is a huge just that end of itself is a huge benefit. And then they also provide like I've got a monthly I've got a service contract on my HVAC system where I pay out monthly which covers the whole year but I get service twice a year. Once in the spring as it starts to heat up and then once in the winter when it starts to cool down and then any repairs and other maintenance there's a discount as a result of that annual contract. And so that's not cheap. I mean it's expensive but with the residential service contract here they will provide that type of service. Now you pay for it but that's included as one of the the items. I was looking here real quick to see if I could get an idea of the cost. So here we go. So usually it's a $75 service call and then I was looking on the on if you buy additional years at a time you get a discount but I'm looking for the like the service call and I'm not seeing it right off but yeah so I'm not I'm not going to sit here and keep you in silence while I while I read through the whole thing but but I know that exists so I'm just not sure what that cost is. One of the issues you run into is that if I if I call my service provider I am paying a premium and I'm not going with the cheapest company out there and and actually I get priority scheduling as a result of that. So the AC goes out. I don't want to have to wait days for my AC to get fixed so that's one thing you may run up against but nonetheless it's not a bad option to have and actually you got a phone call from somebody recently saying hey I had to do some major repairs on the plumbing in the house. I want to buy one of these now moving forward you know so it had nothing to do with a with a real stake closing they already own the house and they wanted to buy by one of these residential service contracts so so with that said it in my mind it gives the the seller a piece of mind to the buyer if something does go wrong instead of the buyer coming back to the seller saying hey my I just bought this house and the AC went out in this case the buyer is going to go to the residential service contract company and handle that that issue through that company and so it takes the you know any of those issues off the the shoulders of the seller assuming that there was no you know misrepresentation or withholding you know a mission of favor to disclose so so we've covered a lot this was the the closures the statutory disclosures we looked at the property description we looked at the as is clause we looked at the repairs and the inspection and then the residential service contract