Lender Required Repairs in Texas: What the TREC Contract Says and Who Pays

The Repair Request Nobody Saw Coming

The option period is over. Inspections are done, the repair amendment is signed, and everyone thinks the hard part is behind them. Then the appraisal comes back “subject to” a list of repairs, and the lender won’t fund until they’re done.

Those are lender required repairs. They don’t come from the buyer, and the buyer can’t waive them. Here’s where they come from, what the TREC contract says about who pays, and what they do to the closing date.

Where Lender Required Repairs Come From

They almost always come from the appraisal. The appraiser’s main job is value, but on the way through the property the appraiser also notes conditions that don’t meet the loan program’s standards. When that happens, the report is marked “subject to” those repairs, and the lender adds them to the loan conditions.

The usual sequence on a file:

1. The contract is signed and the option period runs: inspections, a repair amendment, done.
2. The lender orders the appraisal, usually after the option period.
3. The appraiser notes health, safety or soundness items.
4. The lender tells the buyer’s agent which items must be fixed before funding.
5. The buyer’s agent brings the list to the listing agent, and the clock is already running toward closing.

The wording on the 20-19 contract covers lender required treatments too. Paragraph 7E says lender required repairs “includes treatment for wood destroying insects.”

What Lenders Commonly Flag

What gets flagged depends on the loan program. The lists below are what we commonly see, not the full program rules. The lender and appraiser decide what applies.

FHA

FHA appraisals check the property against HUD’s minimum property requirements. Items we see flagged:

• Active roof leaks or a roof near the end of its life
• Peeling or chipping paint on homes built before 1978
• Missing handrails on stairs
• HVAC, plumbing, electrical or the water heater not working
• Exposed wiring or other safety hazards
• Signs of active wood destroying insect damage
• Water and sewer problems

VA

VA has its own minimum property requirements, and they look a lot like FHA’s. On VA files we also see crawl space access and moisture items, and a wood destroying insect inspection may be required. VA files carry other differences, too: see VA non-allowable fees and VA loan transactions in Texas.

Conventional

Conventional appraisals flag less. The appraiser can still mark a report subject to repairs for safety or structural problems, active water intrusion or systems that don’t work. Conventional lenders tend to have more flexibility on cosmetic condition.

Lender Required vs. Inspection Repairs

Agents and clients mix these up constantly. They’re different processes.

Paragraph 7D on the 20-19 contract notes that a buyer accepting the property as is doesn’t stop the buyer from negotiating repairs in an amendment or terminating during the option period. That’s the inspection side. Lender required repairs sit in their own paragraph, 7E, for a reason: the lender, not the buyer, is the one setting the condition.

Who Pays: What Paragraph 7E Says

This is the part most agents remember wrong. Paragraph 7E of TREC 20-19, Lender Required Repairs and Treatments, says:

“Unless otherwise agreed in writing, neither party is obligated to pay for lender required repairs, which includes treatment for wood destroying insects. If the parties do not agree to pay for the lender required repairs or treatments, this contract will terminate and the earnest money will be refunded to Buyer. If the cost of lender required repairs and treatments exceeds 5% of the Sales Price, Buyer may terminate this contract and the earnest money will be refunded to Buyer.”

In plain terms:

• Nobody is automatically on the hook. The seller isn’t required to pay just because the lender asked. Neither is the buyer.
• Who pays gets negotiated and put in writing, usually in an amendment.
• If no one agrees to pay, the form says the contract terminates and the earnest money goes back to the buyer.
• If the cost is over 5% of the sales price, the buyer has a right to terminate with the earnest money refunded.

In our experience, the seller usually ends up paying for most of these items, because the alternative is losing the deal, and the next financed buyer’s appraiser will likely flag the same things. But it’s a negotiation, sometimes split, sometimes with a price adjustment. That’s between the agents and their clients.

Whether a file has actually terminated under 7E, or whether a demand for the earnest money fits the contract, are legal questions. When a file gets there, your client should talk to a real estate attorney. If it does end, the money still moves by release; see Release of Earnest Money in Texas.

Completion Rules

Once someone agrees to the repairs, Paragraph 7F governs how they’re done. Unless otherwise agreed in writing, the seller completes agreed repairs before the closing date and gets any required permits. The work has to be done by people licensed for it, or commercially engaged in the trade if no license is required. The seller gives the buyer documentation of the scope of work and payment, and transfers any transferable warranties at closing.

If the seller doesn’t finish agreed repairs before the closing date, 7F lets the buyer use the Paragraph 15 remedies or extend the closing date up to 5 days so the seller can finish.

Repair or Credit?

Sometimes the parties would rather give a credit and let the buyer fix it after closing. That’s the lender’s decision, not theirs. In our experience, FHA and VA lenders usually want lender required items completed and verified before closing. Some conventional lenders are more flexible on some items. Before anyone signs an amendment built around a credit, the buyer’s agent should confirm with the lender that it will work.

What It Does to the Timeline

Lender required repairs usually show up late, which is why they hurt.

• The list arrives after the option period. Often two to three weeks before closing, sometimes less.
• Bids and scheduling take time. Licensed trades aren’t always available on short notice.
• The amendment needs signatures from both sides before work starts, in most cases.
• Re-inspection is its own step. Many lenders want the appraiser, or an inspector, to confirm the work. On conventional loans that’s often a completion report (commonly called a 1004D). It has to be ordered, scheduled and returned before the lender clears the condition.
• Closing may move. If the work or the re-inspection can’t happen in time, the parties may need an amendment to extend the closing date. 7F’s 5-day extension only covers the seller finishing agreed repairs.

How Our TCs Handle It

We don’t negotiate who pays, we don’t hire or schedule contractors, and we don’t decide whether a file has terminated. Those calls belong to you, your broker and your client. Here’s what we do:

• Track the appraisal as a contingency date. It’s on the deadline timeline from day one, with 48-hour reminders as it gets close.
• Flag the “subject to” right away. When the lender’s conditions include repairs, you hear about it from us, along with the closing date it puts at risk.
• Fill out the amendment only at your specific written direction. We fill out the TREC amendment with the repairs and who pays, only as you direct in writing, and send it to you to review and take to your client. We track signatures, with you copied on everything, and deliver the signed amendment to title and the lender.
• Add the new dates to the deadline timeline. Repair completion, the re-inspection, and any closing extension.
• Keep everyone current. Our weekly updates to title, the lender and the co-broke agent include where the repairs and re-inspection stand. You get it in the Monday key-dates report and the Thursday status report.
• Confirm closing with title once the lender clears the condition.

Related Guides

• Option Period in Texas
• Third Party Financing Addendum in Texas
• Appraisal Addendum in Texas
• FHA/VA Amendatory Clause in Texas
• Release of Earnest Money in Texas