A seller accepts an offer on their home, and both parties sign a TREC One to Four Family Residential Contract (Resale). Before closing, the seller's house is significantly damaged by a fire, rendering it uninhabitable. The contract does not explicitly address property damage before closing. Under Texas law, what is the most likely outcome for the contract?
- AThe buyer can choose to terminate the contract and receive their earnest money, or proceed with the purchase and receive the insurance proceeds.
- BThe seller is obligated to repair the damage before closing, at their own expense.
- CThe buyer is obligated to close and purchase the damaged property, with an appropriate price reduction.
- DThe contract is automatically terminated, and the earnest money is refunded to the buyer.
Show answer & explanationAnswer & explanation
Correct answer: A. The buyer can choose to terminate the contract and receive their earnest money, or proceed with the purchase and receive the insurance proceeds.
Paragraph 14 of the TREC One to Four Family Residential Contract (Resale) addresses casualty loss. It states that if property is damaged before closing, the buyer has the option to terminate the contract and receive earnest money or accept the property in its damaged condition and receive an assignment of the seller’s insurance proceeds.
Why the other options are wrong
- B. The seller is not automatically obligated to repair the damage; the contract gives the buyer options.
- C. This is incorrect; the buyer has options and is not automatically obligated to buy damaged property.
- D. The contract is not automatically terminated; the buyer has an election to make.
Casualty Loss (TREC 1-4 Family Contract)
A provision in the TREC One to Four Family Residential Contract (Resale) that addresses damage to the property between the effective date and closing. It typically grants the buyer the option to terminate or proceed with the purchase and receive insurance proceeds.
- Addressed in Paragraph 14
- Buyer has election rights
- Applies to damage before closing
Memory trick: Fire or flood, buyer's choice, not blood.