What Is a Third Party Addendum?

Legalities associated with real-estate deals can be cumbersome -- and if the buyer depends on a lender, a third angle to the deal adds to the chaos. A relevant concept when buying or selling a house in Texas is the Third Party Financing Condition Addendum.

Old Versus New

Prior to 2004, the Third Party Financing Addendum, in case of financing disapproval, posed no obligations on the buyer. The contract was simply terminated if the lender wouldn’t agree to a deal. The revised Third Party Financing Condition Addendum requires the buyer to give prior notice within a certain period to a seller, informing about his inability to obtain financing. Inability to do so would be breach of contract.

Exception to the Addendum

The Texas Association of Realtors’ One to Four Family Residential Contract protects the buyer differently from the Third Part Addendum. In this case, protection extends if the lender rejects a loan application due to property condition-related underwriting requirements. However, if the loan was rejected because of a buyer’s finances falling short of underwriting requirements, there is no protection.

Term Debate

An important clause in the Third Party Addendum involves the period within which a buyer must send notice to the seller about inability to finance the home. The longer a buyer delays notice, the more time he has to get a loan approved. However, the earlier the seller receives notice of inability to finance, the sooner he can consider another buyer’s financially backed offer. In this way, both parties stand at a conflict.

Win-Win Possibility

Cooperation and mutual agreement on the term decision would increase the chances of a successful deal between a particular buyer and seller. Argument, on the other hand, would force the seller to seek more buyers and compel the buyer to search for a different property.

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About the Author

Frank Howard has been a professional writer for more than 20 years, working with Metro Publications and Penguin Group. He is now part of the Metro Publications creative team, where he creates fictional stories for kids. Howard has a master's degree in creative writing from City University London and bachelor's degree in journalism from the University of Leeds.