Mountain Law: Changes coming to form commonly used for residential real estate transactions
The Colorado Real Estate Commission promulgates a standardized contract form that is commonly used in residential real estate transactions in Colorado, but sweeping changes to the form will take effect in 2019.
Separate Agreements for Personal Property: One provision of the form allows the parties to indicate what fixtures or personal property are included in the sale. This can become a problem because some lenders will not finance a transaction if any personal property is included. To avoid lender issues, the parties may wish to have a separate agreement regarding personal property that would not be disclosed to the lender, but federal law does not permit such undisclosed side agreements. The 2019 form includes a new checkbox stating, “if the box is checked, Buyer and Seller have concurrently entered into a separate agreement for additional personal property outside of this Contract.” Checking the box as applicable ensures compliance with federal law, but will probably not make anything easier with lenders.
Use of Loan Objection to Object to Appraisal: It may be unclear under the current form whether buyers can use the loan objection provision to object to an appraisal. The 2019 form expressly states that this is disallowed. Therefore, under the 2019 form, any buyer wishing to object to an appraisal must do so under the form’s separate appraisal provision or not at all.
Objecting to Lender Requirements: The current form allows buyers to terminate the contract based on lender requirements (e.g. that the seller install a new roof) within three days after receiving them from the lender even if the loan objection deadline is already passed. The 2019 form states that buyers must object to any lender requirements, if at all, under the regular loan objection provision. Therefore, buyers will need to determine any lender requirements earlier in the process.
Expanded List of Association Documents: The current form requires the seller to provide the buyer with certain association documents, which are subject to approval by the buyer. The 2019 form contains a more detailed list of what must be included in the association documents provided by the seller. The 2019 form also requires the seller to request a statement of current assessments from the association at least 14 days before closing where currently there is no such deadline.
Requirement to Provide Tax Certificate: The current form advises the buyer that the property may be in a special taxing district (with the potential for higher taxes) and that the buyer should investigate this issue. The 2019 form expressly requires the seller to provide the buyer with a tax certificate from the county treasurer listing any applicable special taxing districts. Currently, such a form is routinely provided by title companies, but it is now a requirement.
Expanded Seller Disclosure Obligation: The current form requires the seller to disclose known “latent defects” to the buyer. In one of the most significant changes to the 2019 form, the seller must now disclose any “adverse material facts” known to the seller at the time of the contract or that become known before closing. This is a much broader disclosure requirement, which increases sellers’ potential liability. One concern is that the term “adverse material facts” is not defined and could lead to disputes about the scope of the disclosure obligation.
Special Warranty Deed Now Default: The current form allows the parties to designate what type of deed will be delivered to the buyer at closing. Without getting into details, a general warranty deed is typically preferred by buyers whereas a quitclaim deed or bargain and sale deed is generally preferred by sellers. The 2019 form makes an intermediate option known as a special warranty deed the default while allowing the parties to specify a different type of deed as desired. For complicated reasons, this change was probably made under pressure from title companies.
The 2019 form also notably contains new provisions concerning lead-based paint and tax withholding. Real estate brokers and other persons involved with real estate transactions using the form should familiarize themselves with all the coming changes.
Noah Klug is owner of The Klug Law Firm, LLC, in Summit County, Colorado. He may be reached at 970-468-4953 or firstname.lastname@example.org
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