Paragraph 12: The Most Overlooked Paragraph in the TREC 1-4 Contract

At closing, a seller or a buyer might be caught off guard by all the fees that are not part of the sales price but they are part of the contract.  It is important to set your clients expectations from the beginning of the transaction and highlight the additional fees they will likely incur at closing. 

There is often a lot of confusion about the owner title policy and the loan title policy.  When paragraph 6 reflects that the seller will pay for the owner title policy, the buyer might show concern when they see all these title charges on their closing disclosure or settlement statement.  It is their understanding that the seller is paying for the title charges.  Well these title charges, however, are actually reflected in the contract which the buyer has presumably read, understood, and agreed to.  In Paragraph 12, the buyer has agreed to pay for the loan policy with all the endorsements required by the lender along with other charges and fees most of which are lender fees.  Paragraph 12 also informs the seller of their obligation to pay for releases of existing liens, possible prepayment penalties, recording fees, release of seller’s loan liability, tax statement certificates, preparation of the deed, and one half of the escrow fee and other expenses that the seller is obligated to pay under the contract. 

Remember when you sit down with your clients and you’re about to accept or make an offer, point out paragraph 12 to inform them about the additional expenses.


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