Some of our Home Buyers are securing their mortgage with a FHA or VA Home Mortgage. Even with a USDA Home Loan, you will find a certain causes specific to the mortgage loan attached to the “standard” NC Real Estate Contract. A Seller recently asked: “What is the FHA/VA Amendatory Clause?,” and more importantly, they wanted to know if they (as the Sellers) had to sign it.
The simple answer is, “Yes,” if this contract is going through to loan approval, we have to get the FHA/VA Amendatory Clause fully ratified as part of the contract. It’s a FHA Mortgage Loan / Government requirement.
What Is The FHA/VA Amendatory Clause
The Amendatory Language says that if the home doesn’t appraise, for any reason, the Buyers don’t have to purchase the home. That’s scary for the Seller. Especially in today’s Real Estate market. Many Sellers are seeing the price of their home being bid up higher than they thought they would ever sell the home for.
In that situation, have other homes in the neighborhood already closed with very high price per square foot numbers? If so, then it’s not a big deal… you don’t likely have as big of a concern.
However with Sellers seeing bidding wars, they are not as likely to want to accept a contract with the FHA/VA Amendatory Clause.
How does the Due Diligence Clause in NC Contracts work with this Language? In NC our Real Estate Contracts come with two important dates. At the time the contract is initially sent to the Seller there’s an Earnest Money check attached.
At the time the Contract is agreed upon by both parties, then the Earnest Money Check is deposited (typically in an Escrow Account) on the Sellers behalf. With the NC Real Estate Contract, there’s an additional date determined. That’s the Due Diligence date. (Listen up, if you are working with a Lender who is not familiar with NC Contracts).
The Due Diligence basically says, if you don’t want to buy the house, let’s say the Home Inspection showed some issues, then you have to make that determination BEFORE you give the Seller the Due Diligence check. You want to be certain that the services are complete for a professional home inspection, HVAC inspection, and termite inspection (We, as the Lender do not require these, in most cases). You may also want to have other inspections such as a septic inspection or radon inspection.
This is a critical point of the Contract in NC. The Sellers get to keep the money for taking their home off of the market after that date. If you don’t give them the Due Diligence (DD) check, then the contract is Void.
The FHA/VA Amendatory Clause states that if the house doesn’t appraise, then the Buyer is not obligated to purchase the home.
What if a low Appraisal comes in AFTER the Due Diligence Date, and the Buyer has already given the Seller their Due Diligence Money? The FHA Addendum states “notwithstanding any other provisions of this contract” and so, if there’s a Government Loan Addendum / FHA/VA Amendatory Clause, the Seller SHOULD allow the Buyer out of the Contract and return any fees paid to them by the Buyer. However, that doesn’t always happen.
This form can no longer be completed at closing, but must be signed by all parties at the time the contract is written. This is new to many Agents who do not work with many Government Loan Buyers. They often think it can be signed during the loan process.
The new FHA Handbook 4000.1 states the FHA/VA Amendatory Clause Form must be executed and signed on or before the date of the Purchase Sales Contract. So Realtors/Agents will need to make sure they have the Borrower AND Seller sign this form at the time the Purchase Sales Contract is executed.
Here’s the Language found in the FHA/VA Amendatory Clause:
FHA/VA Amendatory Clause:
“It is expressly agreed that notwithstanding any other provisions of this contract, the purchaser shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise, unless the purchaser has been given in accordance with HUD/FHA or VA requirements, a written statement by the Federal Housing Commissioner, Department of Veterans Affairs, or a Direct Endorsement lender setting forth the appraised value of the property of not less than $ _____________. The purchaser shall have the privilege and option of proceeding with consummation of the contract without regard to the amount of the appraised valuation. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and Urban Development will insure. HUD does not warrant the value or the condition of the property. The purchaser should satisfy himself/herself that the price and condition of the property are acceptable.”
Further Real Estate Certification Found in the FHA/VA Amendatory Clause Form:
“We, the borrower, seller, and the selling real estate agent or broker involved in the sales transaction certify by our signatures below that the terms and conditions of the sales contract are true to the best of our knowledge and belief, and that any other agreement entered into by any of these parties in connection with this real estate transaction is part of, or attached to, the sales agreement.”
We are not attorneys. There are legal opinions in NC that disagree with the statement that the FHA/VA Amendatory Clause is the “ruling Document” for the NC Sales Contract. I can understand why. If you have more questions about the FHA/VA Amendatory Clause please call Steve and Eleanor Thorne 919 649 5058. We’d love to answer your questions!