Those Mortgage Brokers and Loan Officers who get a good share of their business from Real Estate agents, will see attached to the 1-4 Family Sales Contract, a Financing Addendum promulgated by the Texas Real Estate Commission for mandatory use by Real Estate Licensees, effective April 1, 2004. Contracts and their addendums have been prepared by the Broker/Lawyer Committee of TREC which are then submitted to the Commission for their approval. Once approved by Commissioners, the contract or form becomes for mandatory use by their licensees.
That new Financing Addendum, as well as other items in the body of the Sales Contract, are our marching orders. The Financing Addendum recites the type of loan and loan terms sought by the buyer aka your borrower.
The Financing Addendum was revised to correct some problems or vagueness on the sale side of the transaction. But it could present a potential problem on the mortgage side of the transaction. Consider this.
In the version before revision, the addendum said as follows, “If financing approval is not obtained within (fill in number) days after the effective date, this contract will terminate and the earnest money will be refunded to Buyer.” What does that mean? We would argue that all approvals are conditional approvals and the loan isn’t fully approved until our lender funds the loan. They can always come up with a reason not to fund like pulling a credit report the day before closing and discovers our buyer/borrower just financed a $60,000 Mercedes and now their income to debt ratios are out of whack. For that matter our borrower could talk to his momma who tells him “I don’t approve of you borrowing that much money” He didn’t get approved, did he?
In an attempt to clarify and tighten up the responsibilities in this paragraph, the new mandatory addendum now reads, “If Buyer cannot obtain financing approval, Buyer must give written notice to the seller with (fill in number) days after the effective date of this contract and this contract will terminate and the earnest money will be refunded to Buyer. If Buyer does not give such notice within the time allowed, this contract will no longer be subject to Buyer being approved for the financing described below.”
Now let’s say the number of days is 30 days. Well within 30 days, your favorite real estate agent calls and asks if the Buyer is approved. You might say “yes” the Buyer is approved. The real estate agent communicates to the Seller that the Buyer is approved.
The Seller is elated to know that the money will be there to fund the sales price. Then before 30 days elapses, the Seller gets another TREC promulgated form, a notice from the Buyer that says “...Buyer notifies Seller that Buyer cannot obtain financing approval” with no explanation.
Potentially the Seller gets into a heated argument with the Buyer, perhaps a law suit, and you get drawn into this suit because you were the one who said the Buyer was approved.
This is a potential liability that we don’t want any part of.
My advice is not to tell anyone, including your friendly Real Estate Agent, that the loan is “approved” except the Buyer/Borrower. Let the Buyer communicate with their Real Estate Agent. And remember all approvals are “conditional” approvals. | 
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