This Risk Management Article covers changes to the June 2022 CAR forms and some anticipated December 2022 changes to the Residential Purchase Agreement.
June 2022 changes
Seller Possession After Close of Escrow
The two June 2022 RPA changes apply to all purchase agreements including the RIPA, NODPA and MHPA. Paragraph 7 (Closing and Possession) and paragraph 8 (Contingencies and Removal of Contingencies) were modified in the June 2022 RPA as described here.
Paragraph 7C changes involve the Seller remaining in possession after the close of escrow. On page 5 of 16 of the RPA, paragraph 7 advises the parties to consult with insurance and legal advisors concerning liability, damage, and injury risks when the Seller remains in possession after closing.
Typically, a couple of days of Seller possession is not a problem; however, if Seller possession exceeds a couple days, the relationship between the Buyer and Seller could result in the creation of a tenancy relationship. Moreover, a Seller in possession could impact the Buyer’s loan for owner-occupied loans. Best practices require real estate agents to use the Seller in Possession (SIP) form if Seller possession is less than 30 days past close of escrow. The Residential Lease After Sale (RLAS) form acts as a “mini-lease” for Seller possession beyond 30 days. Although the forms specify less than (SIP) or more than (RLAS) 30 days, it is better to use the RLAS rather than the SIP if there is any possibility the Seller might hold over longer than anticipated. This situation often arises in sales contingent on the Seller finding replacement housing. Consult with your real estate Broker and/or counsel if there is a question on how to handle a particular transaction where the Seller does not move at Close of Escrow.
Fair Appraisal Act Addendum
The June 2022 change to RPA paragraph 8B on page 5 of 16 of the RPA adds as Subsection (3) “The parties acknowledge receipt of the attached Fair Appraisal Act Addendum (CAR Form FAAA).” Form FAAA is conveniently bundled with the purchase agreement forms in Zipforms®. The FAAA describes the Federal Law prohibiting discrimination in Property appraisals.
Potential December 2022 Changes
Assistant General Counsel of CAR, Neil Kalin, recently addressed the San Diego County Bar Association on the following “potential” changes to the RPA anticipated in December 2022. The CAR Forms Committee is considering an optional paragraph for the seller to pay the buyer’s broker if the buyer has a separate compensation agreement with the broker. (Paragraph 3G(3)).
Expect a reminder to the seller to attach Tenant Occupied Property Addendum (TOPA) to a counter offer if the property is tenant occupied (Paragraph 3M(3)). TOPA paragraph 1A defaults to “property subject to rights of existing tenants.” TOPA paragraph 1B addresses vacancy (of the entire property or a specifically identified unit) but the seller could possibly be excused if they made a good faith effort to remove the tenant. Buyer occupied units are to be vacant at close of escrow, unless a TOPA is used (Paragraph 7A).
The December 2022 RPA expects to remove “review of seller documents” from the Buyer Investigations paragraph (12) but it will remain as its own contingency (Paragraph 8D). Nominees might be treated the same as assignees. Assignment is to be provided to the escrow holder. (Paragraph 23). Reference to Civil Code and Government Code definition of legal holiday is expected to be added at Paragraph 25I. The RPA exception to mediation and arbitration for lis pendens and provisional remedies is expected to require the request for a court stay of litigation concurrent with or immediately after (Paragraph 31C).
The C.A.R. June 2022 Forms update includes the following changes:
PA-PA (Probate Agreement Purchase Addendum): The buyer has 3 days to cancel when court confirmation becomes required if initially unknown. Vesting is to be identified. The broker’s signature will acknowledge the overbid process’ effect on commission.
RLA (Residential (and other) Listing Agreements): Replaced prevailing party attorney fees clause with each to pay their own (Paragraph 18). Changed mediation clause to allow prevailing party attorney fees against a party who does not mediate (Paragraph 22A).
CC (Cancellation of Contract): Added an option for mutual cancellation of escrow when there is no deposit (Paragraph 2C(4)).
CSPQ (Commercial Seller Property Questionnaire: Created new 5-page form tracking residential Seller Property Questionnaire with additional questions for commercial properties.
ICA (Independent Contractor Agreement): Previously had two versions; one with a binding arbitration option and one without. Two forms combined and binding arbitration option requires separate initials in body of paragraph, and paragraph includes class action waiver.
NSF (Non-Standard Forms Advisory): Identifies that certain forms that are not standardized statewide or regionally may contain problematic or unenforceable terms. Principal is advised to get legal advice.
MU-PA (Mixed Use Purchase Addendum): Addresses commercial aspects of mixed-use property. Primary form would be RPA. Housing construction push may make this form more relevant in future.
The following forms changes are expected in December 2022
BRBC (Buyer Representation and Broker Compensation Agreement): Combines 3 forms into one. Compensation only. Defaults to non-exclusive representation. Unilateral cancellation permitted but compensation owed on any property with “Broker Involvement.” A new anticipated broker compensation disclosure is expected in December 2022 (Form ABCD).
SOLAR (Solar advisory and Questionnaire): Information about solar panel systems, including the possibility of ownership, ownership with lien, and lease with recorded security interest. Includes one-page of questions for the seller to complete.
NCOA (Non-Contingent Offer Advisory): Like the Market Conditions Advisory, this form informs the buyer of the risks in making a non-contingent offer.
In closing, please pay close attention to the advisory on nonstandard forms (NSF). The form acronym (NSF) is quite appropriate because use of such forms is fraught with risk. (A play on words so to speak.) Agents should NOT create custom forms and if a party presents a nonstandard form to your client, counsel your principal both orally and confirm such counsel in writing that you (Agent) advised the client to consult with legal counsel since nonstandard forms invite liability risks which could lead to the proverbial tailspin.
And be sure your brokerage is covered by California real estate errors and omissions insurance.
About the Author
Jacqueline A. Oliver, Esq has been a real estate licensee since 1983, first as a salesperson in Arizona and later as a Salesperson and Broker in California. Ms. Oliver is the former Broker/Owner of RE/MAX Grand Central, Tarzana, CA and the former General Counsel/VP of RE/MAX Associates San Diego which operated 15 offices through San Diego County. Currently, Ms. Oliver is private counsel for numerous private parties, several independent real estate brokerages, and some national franchise brokerages in San Diego County.
