Two TREC forms cover the assumption side of a transaction, and the first one directly names the second: the Loan Assumption Addendum (TREC No. 41-3), dated 11-07-2022 and replacing TREC No. 41-2, and the Addendum for Release of Liability on Assumed Loan and/or Restoration of Seller's VA Entitlement (TREC No. 12-3), dated 12-05-11 and replacing TREC No. 12-2.
41-3 — the buyer's side: credit and the assumption terms
Paragraph A requires the buyer to deliver credit documentation within a negotiated window — a credit report, employment/salary verification, verification of funds on deposit, a current financial statement, and an open "other" line, the same checkbox structure as the Seller Financing Addendum. One difference: the buyer authorizes the credit reporting agency to furnish reports to both the seller and the noteholder(s) of the loan(s) being assumed. Paragraph B mirrors seller financing's credit-approval mechanics: if documentation is missing or the seller finds the buyer's credit unacceptable (seller's sole discretion), the seller can terminate and the earnest money is refunded to buyer; if the seller doesn't act in time, credit is deemed approved.
Paragraph C is where the actual notes get identified: a first lien note payable to a named noteholder, the unpaid balance at closing, the total current monthly payment (principal, interest, and any reserve deposits), and — separately — a second lien note if one exists, structured the same way. If the actual unpaid balance at closing varies from the stated figure, the form lets the parties choose whether the cash payable at closing or the Sales Price absorbs the difference; if the total variance across all assumed loans exceeds a negotiated dollar cap, either party may terminate unless the other elects to cover the excess.
Buyer's escape hatches under 41-3
Paragraph D gives the buyer termination rights, earnest money refunded, if the noteholder requires: an assumption fee above a negotiated cap and the seller declines to cover the excess; an interest rate increase above a negotiated ceiling; or any other modification of the loan documents. Paragraph E adds a broader one — if the noteholder simply refuses to consent to the assumption at all, either party may terminate and earnest money goes back to the buyer.
The seller's exposure — and the direct pointer to 12-3
Paragraph F states that unless the seller is released from liability on the assumed note, a vendor's lien and deed of trust securing the assumption will be required (automatically released once the noteholder delivers an executed release). The form spells this out in a bolded NOTICE TO SELLER: "Your liability to pay the notes assumed by Buyer will continue unless you obtain a release of liability from the noteholders. If you are concerned about future liability, you should use the TREC Release of Liability Addendum." That's TREC No. 12-3.
The form also carries a plain DUE ON SALE NOTICE: any assumed note or its deed of trust may contain a "due on sale" clause letting the noteholder declare the balance immediately due upon a conveyance the noteholder doesn't consent to.
12-3 — releasing the seller, restoring VA entitlement
TREC No. 12-3 has two independent sections, either or both of which can apply:
- Paragraph A — Release of Seller's Liability: within a negotiated window, seller and buyer apply for a release of the seller's liability from the conventional lender, VA (and any VA-guaranteed lender), or FHA (and any FHA-insured lender), furnishing whatever info the noteholder requires. If the release isn't approved by the Closing Date, the parties check one of two outcomes: the contract terminates and earnest money is refunded, or the missing release simply doesn't delay closing.
- Paragraph B — Restoration of Seller's VA Entitlement: the same structure, but for restoring the seller's VA loan entitlement so the seller can use it again on a future purchase. Same choice of outcomes if restoration isn't approved by closing.
Under 12-3, the seller pays the cost of securing both the release and the restoration, and the seller's deed will contain any loan assumption clause required by FHA, VA, or the lender.