When not to use the One to Four Family contract

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11/10/2014 | Author: Editorial Staff

My client’s listing is a home on a 15-acre tract. A buyer’s agent submitted an offer for his client on the One to Four Family Residential Contract (Resale). My client is concerned that the residential form won’t address the outstanding mineral interests, but the buyer’s agent says he often uses this form for situations such as this and his client is OK with using that contract. Does the use of that form instead of the Farm and Ranch Contract make any difference?

Yes. Paragraph 6 of the Farm and Ranch Contract (TAR 1701, TREC 25-10) has specific language that deals with outstanding mineral interests that would be an exception to title in the owner's title policy and in any deed to the property. The Farm and Ranch Contract also covers outstanding surface leases, and any farm and ranch improvements and accessories that might be involved in this sale.

A buyer interested in purchasing the property even when mineral interests have already been conveyed to or reserved by another person can list the exception documents in the offer. The seller can provide documents that contain or reserve those mineral interests to any prospective buyer to list in Paragraph 6. When listed, those interests would be acknowledged by the parties and not subject to objection by the buyer during title commitment review.

To ensure the buyer and the seller have a meeting of the minds about the nature of the title to the property and the outstanding mineral interests, the seller could provide the appropriate documents to the buyer and require the use of the Farm and Ranch Contract as a condition of accepting any offer by this buyer.

Read more legal FAQs on texasrealestate.com.

Categories: Legal
Tags: legal faq, contracts, trec contracts


Comments

Candy Cargill on 11/13/2014

I can understand why someone wants to use the 1 to 4 family, if they are getting a conventional loan, the Farm and Ranch Contract sometimes sends lenders into a tizzy.  It just doesn’t fit into one of their boxes.  On the other hand…when it comes to minerals and conveying mineral interests or retaining mineral interests or a portion or royalties or executive rights or a thousand other things that can and may arise out of that can of worms…I’ll tell buyer or seller, other broker, agent, ANYONE and everyone involved in the transaction that to KNOW what to do, we need the assistance of an attorney that handles minerals.  No negotiation with me on that one.

Mike McEwen on 11/13/2014

Interesting on the Minerals Addendum.  We were told it had been repealed for the Farm & Ranch.  Anyway, we now use an attorney-drafted form.

Steve Anderson, ALC-Advanced on 11/13/2014

The revised Minerals Addendum is out for review on the TREC Website.  It still does not address the most important issues, Royalties and Exec Rights.  They are bundled under the Mineral and Surface Estate.

Dottie Worthington on 11/13/2014

I think we can all agree that TREC could do some updating on the Minerals addendums and contract for land.

Lori Solecki , Broker on 11/13/2014

I asked TREC and it is my understanding we CAN still use the reservation addendum with farm & ranch. They had considered making it NOT for use but after the huge response decided to remove that wording from the contract. I do believe they are considering a redraft of the addendum to create a better understanding regarding is use.

Stephen Williams on 11/13/2014

I would contend that the TAR 1905 has lots of draw backs whether or not the agent has full knowledge of minerals.  In my opinion, it does more harm than good, which is not the same as saying it’s not better than nothing.  Obviously, minerals need to be addressed in a transaction, especially if seller is making a reservation as part of the transaction.  But all too often, a confusing situation is made worse by an agent or form trying to make it more “boiler plate” than it should be.  With that said, I don’t think it’s always appropriate to mandate a O&G lawyer involved.  If both parties sign off (maybe the parties are convinced minerals aren’t important to the tract, and/or both parties are informed enough w/o legal help), why insist on a paying legal fees?  Just because a party wants to reserve an interest, doesn’t equate that he or the buyer believe it’s worth paying an attorney to negotiate.  I think each transaction should be considered on case by case basis.  Am I wrong?

Steve Anderson on 11/11/2014

RLILAND.COM I have not put my class schedule together for 2015 yet.  We do plan on offering about 6 classes in Texas next year.

Shawn Gray on 11/10/2014

I’m interested in taking some of these land broker classes….where can I find schedules??

Robert E Shaffer on 11/10/2014

The use of the Farm & Ranch contract should be determined by what you are buying.  If your client is buying a 5 acre piece or a 50 acre piece with home, stock tanks, cross fencing, barn, stalls, loafing, cattle chutes I would suggest the F and R.  TREC’s mineral reservation is inadequate and a local attorney/TREC teacher advises not to use it.

FHA land amounts can change depending on locality.

TREC needs to address this issue.

Steve Anderson, ALC-Advanced on 11/10/2014

Velda,  as a certified Land Instructor I have a 1 Hour and a 4 Hour course :

Want to List or Sell Land (1 hr)
Land the Core of Real Estate (4 hr)

Both MCE Thru TREC.  and the Realtors Land Institute
the 1 hr course is heavy in the Mineral Estate and the 4 hr course addresses Minerals as well as other aspects of the land business.  A great overview of the land business is presented in Land 101 a 16 hr course.

Dave Wyatt , BROKER, FARM AND RANCH INSTRUCTOR CHA on 11/10/2014

I fully agree with Steve Anderson. I also agree the TAR 1905 Minerals form has many drawbacks if the Agent does not have full knowledge of the many facets of the Mineral Estate and what constitutes so called ” surface control” .
That was the reason I wrote and teach the Farm and Ranch Real Estate course because no one else had addressed those issues.

velda on 11/10/2014

Clearly a nice detailed half day class would be beneficial on this subject.  smile

Steve Anderson, ALC-Advanced on 11/10/2014

I only use the 1-4 family when selling or listing homes on 1 or 2 acre parcels .  Usually 5 acres and up in my area fall into one or more pools and have mineral interest involved.  The Farm and Ranch contracts attempt to address these components, however the current and proposed Minerals Addendum neither address all the parts of the Mineral Estate (Mineral Estate, Surface Estate, Royalty Interest and Exec Rights).  If the Realtor writing the contract does not fully understand all four of these elements , I would recommend they consult a Minerals Atty.  This all ties back to Article 11 in our Code of Conduct being knowledgeable in the area of expertise, ie. land.

Mike McEwen on 11/10/2014

Just because the farm & ranch refers to it does not mean that it may still be used.  Call TREC w/ your doubts.  The form will be being modified.

Dave Wyatt , BROKER, FARM AND RANCH INSTRUCTOR CHA on 11/10/2014

The Farm and Ranch Contract in item 2.F Reads as follows” Reservations: Any reservation for oil, gas, or other minerals, water, timber or other interest is made in accordance with the attached addendum or Special Provisions”
So, indeed the TAR 1905 Addendum is still available to be used. The use of a lawyer is a personal preference but not mandatory .

Mike McEwen on 11/10/2014

The minerals addendum may be used w/ the one to four but not the farm and ranch.

Linda Niehuus on 11/10/2014

Regarding FHA lending, they won’t lend on anything over 10 acres, so the Farm & Ranch can be used on any properties larger than 10 acres. However, as has already been stated, I have had several experiences with small acreage sales (under 10 acres) that involve financing (even when not FHA, but with a “big box” lender) where the lender requires a 1-4 contract. When representing the Buyer, I always start out with a Farm and Ranch Contract and then provide a 1-4 if necessary to obtain the financing. Regarding the Minerals Addendum, I understood that it can/should be used until a revised version is available. Would appreciate some clarification.

DAVE WYATT , BROKER, FARM AND RANCH INSTRUCTOR CHA on 11/10/2014

I fully agree the Farm and Ranch contract should be used on a 15 acre tract with or without a home. Mineral interest owned is a very complicated issue and I find most sellers do not know what the own. Sellers will say they own all the mineral estate and when the chain of title is run they own less or even worse don’t own any of the minerals.
It is imperative that a buyer understands this complicated issue or minerals and surface control within the mineral estate.  Any buyer who does not want to roll the dice on mineral ownership should be advised to have a land man or oil/gas lawyer run the chain of title from the patent to today to determine ownership and surface control.
Many counties who were not previously effected by drilling are experiencing a step up in activity which makes mineral ownership more important than ever.

Mike McEwen on 11/10/2014

The Minerals Addendum may no longer be used w/ the Farm & Ranch contract form.  You will need a lawyer to create one.

geraldwaldon on 11/10/2014

Except when it is an FHA loan. The won’t accept a Farm and Ranch Contract

Wayne Warren on 11/10/2014

I have experienced the same with my listings of homes that include small acreage. I believe the real motivation is financing, ie, getting a 3rd party lender. Some agents maintain the use of the addendum for reservation of og and other minerals resolves the issue.

Mike McEwen on 11/10/2014

If the 1-4 is used for the 15 acre tract w/ a house, it makes it implicit that the seller is selling all of his interest in both the surface and mineral estate…...whatever that may be.


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