New Laws Mean New Forms Changes to the Colorado Real Estate Commission Approved Forms 2011 COLORADO REAL ESTATE COMMISSION FORMS (Adopted 8-3-10) By Kent Jay Levine, Esq. August 12, 2010 Kent@kent-law.com - www. kent-law.com Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 1
New Laws Mean New Forms Changes to the Colorado Real Estate Commission Approved Forms 2011 COLORADO REAL ESTATE COMMISSION FORMS (Adopted 8-3-10) By Kent Jay Levine, Esq. I. INTRODUCTION 2010 continues the trend that new laws mandate changes to the Commission approved forms. Legislation enacted this last legislative session (2010) requires the Contract to Buy and Sell Real Estate and other forms to be revised again. The revised Contracts and other form changes made by the Commission on August 3, 2010 will become mandatory January 1, 2011. The most significant modification to the forms involve the creation of 5 separate contract forms: 1. CBS1 - Contract to Buy and Sell Real Estate (Residential) 2. CBS2 - Contract to Buy and Sell Real Estate (Income-Residential) 3. CBS3 - Contract to Buy and Sell Real Estate (Commercial) 4. CBS4 - Contract to Buy and Sell Real Estate (Land) 5. CBSF1- Contract to Buy and Sell Real Estate (Colorado Foreclosure Protection Act) The following legislation required changes to the forms. 1. H.B. 10-1133 Amendments to the "COLORADO FORECLOSURE PROTECTION ACT". Governor signed 6-7-10. Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 2
Effective Date 1-1-11. The Amendments change the definition of an Equity Purchaser. Under the new definition, if an investor or non-owner occupant purchases a residence that is in foreclosure or the Buyer has actual or constructive knowledge that the Seller is 30 or more days delinquent on a mortgage loan, the CFPA applies (unless exempt). No longer is there a requirement that the Buyer be in the business of buying properties in foreclosure. A major exemption was created. If the Seller is underwater, i.e., a Short Sale transaction and a Short Sale Addendum approved by the Commission is part of the contract, the CFPA does not apply. The basis for creating this exemption is that there is no equity for the Seller to lose, thus the CFPA should not and does not apply (as of 1-1-10) in such a transaction. These changes required modifications to the Contract to Buy and Sell and the Seller Listing contract. The Amendments also modified the all bold print requirement. 2. H.B. 1288 Commercial Real Estate Brokers Commission Security Act (Brokers Lien act) Governor signed 3-20-09. Effective Date 8-11-10. The Act grants the Broker a right to a lien against the property when not paid in a commercial leasing transaction (if there is a written listing or agreement specifying the fee to be paid to the Broker). The proposed change to the Listing Contract (Exclusive Right-to-Lease) form was to have an alert to the owner of this potential. The Commission voted not to include any mention of the Broker s lien or waiver in the Listing Contract. Due to the Act allowing a waiver of the lien if the parties agree on acceptable consideration for a prospective waiver, it is anticipated that this topic will enter into the discussions between a sophisticated or knowledgeable owner (or counsel) and the commercial broker seeking to obtain a listing to lease the owner s property (despite the absence of any mention within the Exclusive Right-to-Lease). 3. H.B. 09-1207 Concerning Procedures To Enforce A Lien Related To Real Property. Governor signed 4-22-09 Effective Date 9-1-09, 1-1-10 4. H.B. 10-1249 - Concerning Expedited Residential Foreclosure Sales Governor signed 4-29-10. Effective Date 4-29-10 (Effective upon enactment). Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 3
The Act (H.B. 1207) amended the foreclosure statutes, 38-38-100.3, C.R.S., especially the definition of publish and correctly changed advertisement to legal notice (NED). This coupled with the Act entitled Expedited Residential Foreclosure Sales warranted a further review of the Deeds of Trust, most importantly removal of specifying the number of publications required (i.e., not less than 4 times really means 5 publications), which is altered if the Lender proceeds under the Expedited Residential Foreclosure Sale procedure, if applicable. The following revised, new and repealed forms were adopted by the Commission at its August 3, 2010 Rule Making and Public Hearing. Listing Contracts Listing Contracts 1. Exclusive Right-to-Sell Listing Contract (Revised) 2. Exclusive Right-to-Buy Contract (Revised) 3. Exclusive Right-to-Lease Listing Contract (Revised) 4. Exclusive Tenant Contract (Revised) Sales Contracts 5. Contract to Buy and Sell Real Estate (Repealed) 6. Contract to Buy and Sell Real Estate (Residential) (New) 7. Contract to Buy and Sell Real Estate (Income-Residential) (New) 8. Contract to Buy and Sell Real Estate (Commercial) (New) 9. Contract to Buy and Sell Real Estate (Land) (New) 10. Contract to Buy and Sell Real Estate (Colorado Foreclosure Protection Act) (Revised) Addenda to Contracts 11. Licensee Buy-Out Addendum to Contract to Buy and Sell Real Estate (Revised) 12. Residential Addendum (New) Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 4
13. Source of Water Addendum to Contract to Buy and Sell Real Estate (Revised) Exchange Addendum to Contract to Buy and Sell Real Estate Lead-Based Paint Disclosures (Sales) Lead-Based Paint Disclosures (Rentals) Brokerage Duties Addendum to Property Management Agreement 14. Short Sale Addendum (Revised) 15. Exclusive Brokerage Listing Addendum to Exclusive Right-to-Sell Listing Contract (Revised) 16. Open Listing Addendum to Exclusive Right-to-Sell Listing Contract (Revised) Disclosure Documents Brokerage Disclosure to Buyer-Tenant Brokerage Disclosure To Tenant Brokerage Disclosure to Seller (REO and Non-CREC Approved Listings) Broker Disclosure to Seller (Sale by Owner) Definitions of Working Relationships 17. Seller's Property Disclosure (All Types of Properties) (Revised) 18. Seller's Property Disclosure (Residential) (Revised) Change of Status Square Footage Disclosure Dual Status Disclosure Notice Documents 19. Inspection Notice (Revised) 20. Inspection Resolution (NTC43R) (New) 21. Inspection Notice (Colorado Foreclosure Protection Act) (Repealed) 22. Notice to Terminate (Revised) 23. Notice of Cancellation (Colorado Foreclosure Protection Act) (Revised) 24. Seller Authorization (Revised) Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 5
25. Seller Warning (Colorado Foreclosure Protection Act) (Revised) 26. Homeowner Warning (Colorado Foreclosure Protection Act) (New) Counterproposal 27. Counterproposal (Revised) 28. Counterproposal (Colorado Foreclosure Protection Act) (Repealed) Agreement to Amend/Extend Contract 29. Agreement to Amend / Extend Contract (Revised) 30. Agreement to Amend / Extend Contract (Colorado Foreclosure Protection Act) (Repealed) 31. Agreement to Amend / Extend Contract with Broker (Revised) Closings 32. Closing Instructions (Revised) 33. Earnest Money Receipt (Revised) Closing Statement Deeds of Trust 34. Deed of Trust (Due on Transfer-Strict) (Revised) 35. Deed of Trust (Due on Transfer-Creditworthy) (Revised) 36. Deed of Trust (Assumable-Not Due-on Transfer) (Revised) II. NEW and REVISED FORMS NOTE: The forms included in this material are current through August 12, 2010. The forms and rules are available electronically at the Colorado Real Estate Commission's web site (under the Rule Making tab): http://www.dora.state.co.us/real-estate/ Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 6
Introduction. A. Contract to Buy and Sell Real Estate 1. CBS1 - Contract to Buy and Sell Real Estate (Residential) 2. CBS2 - Contract to Buy and Sell Real Estate (Income-Residential) 3. CBS3 - Contract to Buy and Sell Real Estate (Commercial) 4. CBS4 - Contract to Buy and Sell Real Estate (Land) 5. CBSF1- Contract to Buy and Sell Real Estate (Colorado Foreclosure Protection Act) As noted above, the impetus to revisiting the Contract to Buy and Sell again this year was primarily due to legislation mandating the change to the contract form to reflect the Amendments to the Colorado Foreclosure Protection Act. The Forms Committee, for some time, had been developing a Commercial version of the Contract to Buy and Sell Real Estate. In doing so, a fresh look at the form, how it looked, its content and flow or sequencing of its provisions was thoroughly examined. As a result, while many of the provisions in the forms are identical to last year s version, a substantial reorganization makes it look totally new. We are hopeful that this will make the form easier to understand and use. We took the opportunity to clarify and fix some other provisions as well. As noted, while there are benefits to simplify and only have one form of contract, many wanted to have discrete forms. As a result, there are 5 versions of the Contract to Buy and Sell Real Estate effective January 1, 2011. The form has captions or titles for the various parts of the form. The respective items collected in the respective area will hopefully be more easily found and will have a more natural progression. For example, many of the general items were grouped together under General Provisions, toward the end of the contract form. The CBS form has the following labels describing the various parts of the contract: I. Agreement ( 1-4) II. Transaction Provisions ( 5-9) III. Disclosure, Inspection And Due Diligence ( 10 11) IV. Closing Provisions ( 12 17) V. General Provisions ( 18 28) Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 7
VI. Additional Provisions and Attachments ( 29 30) VII. Signatures 31 33) The following Sections of the Contract to Buy and Sell Real Estate contain substantive changes or clarification: 1. Section 2.3, Seller. Section 2, Parties and Property now identifies both the Buyer and Seller, as it should. If the Broker preparing the Contract is the Listing Broker, the Broker should have the correct name of the Seller who is in title. If the Broker is working with the Buyer the Broker may: (1) contact the Listing Brokerage (2) look on line - public records or, (3) review MLS as some of the smaller MLS already display this information. 2. Section 2.2, Assignability. Whether the Buyer is or is not permitted to assign the Contract without the consent of the Seller has been moved directly under the identification of the Buyer in Section 2.1. 3. Section 2.4.1, Fixtures. Items attached as fixtures after the date of the Contract are included as part of the Purchase Price. For example, if a new furnace, HVAC system, hot water heater, etc. were installed after the Contract was entered into, they are nevertheless included in the Sale and Purchase Price. 4. Section 3, Dates and Deadlines. This Section reflects the new sections affecting various deadlines; it groups related matters together. For example, the Title Documents Deadline follows the Title Objection Deadline. The Dates and Deadlines table also contains topic headings to more easily find the particular deadline: Title and CIC, SPD, Loan and Credit, Appraisal, Survey, Inspection and Due Diligence, Closing and Possession. 5. Section 4.2, Earnest Money. The language is part payment of the Purchase Price and was removed. In the instance of a VA loan or other 100% financed transaction, the Earnest Money Deposit is not applied to the Purchase Price. In some computer generated contracts there is an inability to do a strike through (plus the obligation to explicitly state was deleted in Additional Provisions), if the Contract form is correctly filled out. Further, it would be redundant of the Purchase Price and Terms table in Section 4.1. Accordingly, the proper place to identify whether the Earnest Money is or is not applied to the Purchase Price is in Section 4.1. Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 8
6. Section 4.2.2, Return of Earnest Money. This new provision specifically provides that if the Buyer is entitled to terminate (i.e., Inspection Notice to terminate or Notice of Termination) and does terminate the Contract, the Earnest Money is to be returned to the Buyer. If the Buyer has not received the return of the Earnest Money, the Seller is required to sign the Earnest Money Release form and return the signed form (Earnest Money Release form) to the Buyer within 3 days of the Seller s receipt of the form. The Earnest Money Holder (Section 32, 33 or the Closing Instructions require the Earnest Money to be released within 5 days of receipt of a fully executed Earnest Money Release form. (If there is a dispute over the Earnest Money Deposit, Section 24 will preempt the return of the Earnest Money, and the Earnest Money Holder will continue to hold the Earnest Money until the matter is resolved). 7. [The proposed Section 4.3.3, Alternative Loan Funding Deadline was voted to be removed by the Commission prior to adoption of the forms]. This proposed provision was another attempt to address the failure of the Buyer s Lender to fund the loan in a timely fashion (by Closing to allow disbursement) as required by the Contract. This has become a more common problem than not. The parties can still elect to allow an alternative funding deadline, i.e., the transaction could close in escrow and if the loan proceeds arrive by the alternative funding deadline (likely to be 1-3 days after Closing), the transaction can still close. In such case, the Seller will be entitled to the amount specified for the delayed funding fees in the Contract. The proposal contained a reminder that in a given instance the parties may need to provide a different deadline for possession of the Property (as the Alternative Funding Deadline) did not automatically extend the date and time of possession. The Commission recognized that Buyer and Seller may, if they both agree, enter into an Agreement to Amend/Extend Closing when it appears that additional time is needed for the lender to fund the new loan for the Buyer. 8. Section 4.4, Seller Concession. Section 4.4 was clarified that if the lender imposes a limitation on the amount the Seller may contribute to the Buyer for Closing Costs, points, etc., the amount of the Seller Concession is the lesser of the amount of the Seller Concession in the Contract or the amount allowed by the Lender, but not in excess of the Buyer s Closing Costs. 9. Section 4.7, Seller or Private Financing. This Section was updated to reflect the three revised Commission approved Deeds of Trust; e.g. TD72-8-10. Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 9
10. Section 5.1, Loan Application. The provision now expressly states that the Buyer must exercise reasonable efforts to obtain the Buyer s loan. 11. Section 7.2, Copies of Exceptions. While minor, it illustrates the effort to make the Contract more understandable. The deadline to request copies of the Exceptions was renamed for Document Request Deadline to Exceptions Request Deadline. 12. Section 7.4.2, Common Interest Community Disclosure. As required by the rule set forth in 38-35.7-102, C.R.S., this provision is now in Bold (and in all capitals as printed in Section 102). 13. Section 7.4.5, (CIC) Conditional on Buyer s Review and Section 8.2, (Title Objections) Matters Not Shown by the Public Records and Section, removed the requirement that an objection must be signed. These Sections now are made consistent with the other objection sections. The important requirement is to assure Notice is timely and clearly given. Ideally the Commission approved form for Notice to Terminate will be used to assure clarity in stating the objection and that the Buyer has elected to terminate the Contract. 14. Section 10.2, Inspection Objection Deadline. This Section now has a lead-in sentence noting the property is sold AS IS, Where Is and With All Faults Existing. It was added to alert the Buyer to have the Property inspected. Most transactions involving the use of the CREC forms are for existing resales, not new construction, thus a Buyer must assure the Property will work for their wants and needs. The provision was also clarified by adding service to the Property as a basis for a Buyer, if acting in good faith, to terminate the Contract if any of the service is not acceptable to the Buyer. In light of the importance of communication (broad band) and the importance to many of having a high speed internet connection, this was added, as well as clarifying that utilities, heating, plumbing, etc. are proper areas for a Buyer to base an objection. 15. Section 10.2, Inspection Resolution Deadline. The one day following Inspection Resolution Deadline was removed. This change avoids a Buyer betting that the deal could be sweetened by raising various objections to the condition of the Property and seeking further concessions or reduction of the Purchase Price. Rather, the contract will TERMINATE if (1) the Buyer timely submits an Inspection Objection (including a Notice to Correct) and (2) the parties have not entered into a written Inspection Resolution by the Inspection Resolution Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 10
Deadline; and (3) the Buyer did not submit a withdraw, in writing, the Notice to Correct before the Inspection Resolution Deadline. 16. Section 10.6, Due Diligence Physical Inspection. The most significant modification of the CBS forms, after separate forms for the different types of transactions (residential, income-residential, commercial and land), is the addition of Due Diligence provisions. Section 10.6 now makes it clear that any objection to the physical condition of the Property or Inclusions is to be made pursuant to Section 10.2 (Inspection) and be made no later then the Inspection Objection Deadline as specified in Section 3. Some of the key areas involved in inspecting and investigating the physical aspects of a commercial property such as roof, walls, structural integrity, electrical, plumbing, HVAC, other mechanical aspects of the Property and environmental (Phase I and Phase II Environmental Site Assessments) are specified in the CBS 2, 3 and 4 forms. CBS1, Residential and CBSF1 Colo Foreclosure Protection Act omits reference to Environmental Assessments). While the form has a blank to specify something other than Phase 1 or Phase II, caution should be exercised if the purpose is to protect the Buyer so the Buyer would qualify under the Innocent Purchaser defense to CERCLA liability, as the assessments must qualify under the standards for for Environmental Site Assessments as noted in Section 10.6. In the CBS 2, 3 and 4 (Income-Residential, Commercial and Land) forms now include two other objections, i.e., Environmental Inspection Objection Deadline and ADA Evaluation Objection Deadline. In these forms, Section 3 has separate line items (as does the Counter Proposal and Agreement to Amend/Extend Contract) to provide a different date from the other Inspection or Due Diligence Documents Objection Deadlines). This was needed, especially in the Environmental area, as quite often such assessments need additional time allowed to schedule and accomplish these undertakings. 17. Section 10.7, Due Diligence Documents. The Documents to be provided by the Seller to the Buyer as required in the new CBS 2, 3 and 4 is a good starting point for most commercial transactions. The Section enumerates in detail a list of various documents the Seller must produce (if the documents exist and the Seller has these documents): 10.7. Due Diligence Documents. Seller agrees to deliver copies of the following documents and information (Due Diligence Documents) to Buyer on or before Due Diligence Documents Delivery Deadline ( 3) to the extent such Due Diligence Documents exist and are in Seller s possession: 10.7.1. Copies of all contracts relating to the operation, maintenance and management of the Property; 10.7.2. Copies of the Property tax bills for the last years; Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 11
10.7.3. As-built construction plans (original and subsequent construction) to the Property and the tenant improvements, including architectural, electrical, mechanical, and structural systems; engineering reports; and permanent Certificates of Occupancy, to the extent now available; 10.7.4. A list of all Inclusions to be conveyed to Buyer; 10.7.5. Operating statements for the past years; 10.7.6. A rent roll accurate and correct to the date of this Contract; 10.7.7. True and correct copies of all current leases on the Property (Leases), or other occupancy agreements if not delivered earlier under 8.2; 10.7.8. A schedule of any tenant improvement work Seller is obligated to complete but has not yet completed and capital improvement work either scheduled or in process on the date of this Contract; 10.7.9. Copies of all insurance policies pertaining to the Property and copies of any claims which have been made for the past years; 10.7.10. Soils reports, Surveys and engineering reports or data pertaining to the Property (if not delivered earlier under 8.2); 10.7.11. Any and all existing documentation and reports regarding Phase I and II environmental reports, letters, test results, advisories, and similar documents respective to the existence or nonexistence of asbestos, PCB transformers, or other toxic hazardous or contaminated substances, and/or underground storage tanks and/or radon gas. If no reports are in Seller s possession or known to Seller, Seller shall warrant that no such reports are in Seller s possession or known to Seller; 10.7.12. Copies of any Americans with Disabilities Act reports, studies or surveys concerning the compliance of the Property with said Act; 10.7.13. All permits, licenses and other building or use authorizations issued by any governmental authority with jurisdiction over the Property and written notices of any violations of any such permits, licenses or use authorizations, if any; and 10.7.14. Other Documents:. Note: In a given transaction you may want to add to the documents required to be produced by a Seller, if not already on the list of documents to be produced. (CBS1, Residential and CBSF1 Colo Foreclosure Protection Act omits the listing of the various documents to be produced. Rather, a blank has been inserted to allow specification of particular documents needed from a Seller. For example, engineering reports, builder plans, structural plans when work was previously done to rectify a structural problem, etc.). 18. Section 10.8, Due Diligence Documents Conditions. The third leg of the Due Diligence provision is that of making the contract conditional on the Due Diligence Documents under 10.7 and the Zoning and restrictions on use of the Property. If the Buyer wants to terminate based on such Zoning or documents, the Buyer may do so, provided timely written notice is supplied. The Buyer is given the right to waive such condition and close the transaction. The Physical Inspection deadline is still controlled by the Inspection Objection Deadline of 10.2 (and the date or deadline specified in Section 3). 19. Section 10.15, Existing Leases; Modification of Existing Leases; New Leases. This provision appears in CBS3, Commercial, as 10.15, in CBS4, Land, it is in Section 10.10; it is in Section 10.9 in CBS2, Income-Residential. There is no corresponding provision in the CBS1, Residential and CBSF1 forms, Colorado Foreclosure Protection Act, as these types of properties are normally owner occupied. If the Property is residential and is leased to a tenant, and the lease will continue, one should review and perhaps include it or something akin to it, or use Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 12
CBS2, Income-Residential that contains this provision. This section prohibits any concession, amendment or other change from the lease or other writing supplied to the Buyer (without the Buyer s written consent) to avoid a sweet heart arrangement of the tenant renting the Property for an extreme $1.00 a year for the next 50 years, or any other amount or duration that is done without the Buyer s written agreement. One may need to set time limits or modify this provision when dealing with Property that is currently trying to lease up existing vacant space (or renewals). One would want a Buyer to be crystal clear when the Buyer must object to a new, amended or modified lease, and if not objected to, the unit or Property may be leased without further objection to the terms submitted to the Buyer. This specification will then avoid raising a question whether the Buyer withheld or delayed supplying Buyer s consent. 20. Section 11, Tenant Estoppel Statements. This Section appears in CBS2, Income-Residential, CBS3, Commercial, CBS4, Land, as Section 11. There is no corresponding provision in the CBS1, Residential and CBSF1 forms, Colorado Foreclosure Protection Act, as these types of properties are normally owner occupied. This provision is new to the CBS form. It contains the normal contents that the lease attached is the lease between Landlord and Tenant, the periodic (monthly) rent, no default has been committed by Landlord, the start date of the Lease, Termination date, any prepaid rent, concessions by the Landlord and security deposits. Failure to provide the Estoppel Statement as required or if the Estoppel Statement is unsatisfactory to the Buyer, Section 11.3 permits the Buyer to terminate the contract or waive any unsatisfactory Estoppel Statement. 21. Section 11, Colorado Foreclosure Protection Act. This Section dealing with The Colorado Foreclosure Protection Act (Act) appears in CBS1, Residential, at Section 11; in CBS2, Income-Residential, the provision is at Section 10.14; and in CBSF1, Colorado Foreclosure Protection Act, the provision is located at Section 11. This was included as the Buyer may owner occupy one of the units, i.e., Duplex, etc. It is not included in the CBS3, Commercial, and CBS4, Land forms. This Section was revised due to the Amendments to the Colorado Foreclosure Protection Act in H.B. 10-1133. As a result of the Amendments becoming effective January 1, 2011, it was necessary to make the corresponding change to Section 11 that describes when the Act generally applies. The Act applies if: (1) the Property is residential, (2) Seller resides in the Property as Seller s principal residence, (3) Buyer s purpose in purchase of the Property is not to use the Property as Buyer s personal residence. Note that the Amendments changed the test of being in the business of buying foreclosure properties. One does not have to be an experienced foreclosure investor under the Amendments. If Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 13
the Buyer is acquiring the Property for any purpose other than to reside in it as the Buyer s home, the Act is triggered. The last requirement is (4) the Property is in foreclosure or Buyer has notice that any loan secured by the Property is at least thirty days delinquent or in default. Note that the notice required is satisfied whether the Buyer has actual knowledge or the Buyer is on constructive notice (that the Seller is in default on the loan or loans against the Seller s home). However, the Amendments under H.B. 10-1133 made a major carve out from coverage under the Act. Specifically, if the transaction is a Short Sale transaction and a Short Sale Addendum (adopted by the Colorado Real Estate Commission) is part of the Contract, the Act does not apply. Each party is further advised to consult an attorney. CBS1, Residential and CBS2, Income-Residential forms contain the above provisions to inform when the Act applies. If the transaction is a Short Sale (with the Short Sale Addendum), as noted, the Act does not apply, so the parties may use the normal CBS1, Residential form (with the Short Sale Addendum attached). If the Act applies (requirements 1 through and including 4 are satisfied) and the sale is not a Short Sale, then the parties must use CBSF1, Colorado Foreclosure Protection Act. Section 11 of the CBSF1 form, in addition to the above provisions, it also contains the Section 11.1 five conditions that must be complied with: 11.1. Buyer and Seller agree to all of the following five conditions: 11.1.1. Buyer will not assume any financial or legal obligations of Seller; 11.1.2. There are no rental agreements or leases for the Property between Buyer and Seller; 11.1.3. Seller does not have an option or right to repurchase the Property; 11.1.4. A Notice of Cancellation and Seller Warning are attached to this Contract; and 11.1.5. No consideration shall be paid to Seller prior to the expiration of Seller s right to cancel this Contract. The CBSF1 form also contains Section 11.2 that contains a blank to specify the language the Seller principally speaks. If the Seller s language is other than English a separate form Homeowner Warning Notice (HWN-65-10) must be translated in the Seller s principal language (ONLY the Homeowner Warning Notice, not the entire Contract to Buy and Sell Real Estate). Finally, the CBSF1 form contains Section 11.3, which prohibits modification of the 5 conditions in 11.1, deletion or change of 11.2 or 11.3 causes any contract to be void. The Colorado Foreclosure Protection Act, S.B. 06-71, is now found in 6-1-1101, et seq., C.R.S. Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 14
22. Section 12, Closing Documents, Instructions and Closing. The prior versions of the CBS contained various aspects of Closing, Closing Documents and Closing Instructions in different areas of the contract form (e.g., prior 15.2 and 15.5). They are now consolidated under this Section 12. Section 12 is further broken out in 3 distinct categories dealing with Closings. 23. Section 12.1, Closing Documents and Closing Information. This provision is new in requiring the Closing Company (Title Company) to supply Closing Documents by the Closing Documents Delivery Deadline in Section 3. While applicable to commercial transactions, due to the changes in RESPA and Truth in Lending, to avoid delays in Closings, it is necessary to get correct and accurate Closing Documents in advance of Closing. It also informs the Buyer that the Closing Company will need the Buyer s lender s figures and loan documents for it (Closing Company) to furnish the Closing Documents. The prior provision of the parties cooperating to supply any additional information and documents to complete the transaction and sign customary or reasonably required documents also continues. For example, the FIRPTA Affidavit. 24. Section 12.2, Closing Instructions. Specifying whether Closing Instructions are attached or will be signed by the parties and which party is to deliver the Closing Instructions to the Closing Company (Title Co.) is not contained in 12.2. Previously this provision was in Section 15.5 of the prior version of CBS. 25. Section 12.3, Closing. This Section contains the same provision of old Section 12 of the prior version of the CBS defining Closing as the delivery of Deed from the Seller to the Buyer and specifying who will designate the hour and place of Closing. 26. Section 15, Closing Costs, Closing Fee, CIC Fees and Taxes. This Section does not contain any new provision, but the title of the Section was updated to show its new content. This Section now contains: 15.1 Closing Costs. (Previously called Good Funds ) 15.2 Closing Services Fee. 15.3 (CIC) Status Letter and Transfer Fee. This is the provision in the CBS to be compliant with CCIOA that an Association specify dues, fees or amounts owed to the Association. If the Association does not timely reply, it will not be entitled to collect any amount in excess of the amount shown in the Status Letter (if the Closing Company makes the written request at least 14 days prior to Closing). 38-33.3-316 (8), C.R.S.; if the Association fails to submit any Status Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 15
Letter, the Association will not be entitled to assert any lien for the monies the prior owner (Seller) may have owed. 15.4 Local Transfer Tax. I.e., primarily the resort areas that still charge a governmental tax if a sale or transfer of the property occurs. 15.5 Sales and Use Tax. If the transaction includes taxable personal property, this Section specifies who is responsible to pay the respective governmental agencies their tax on the purchase of the personal property and prior use of the personal property used in the business. 27. Section 16.3, Association Assessments. A new acknowledgement by the Buyer is now provided. Buyer acknowledges that Buyer may be obligated to pay the Association, at Closing, an amount for reserves or working capital. Most often the Status Letter from the Association gives direction from the Closer to collect from the Buyer and remit to the Association or Management company a specified amount for reserves or working capital as allowed in the CIC Declaration. 28. Section 19.2, Condemnation. For many years the Forms Committee debated whether the form should contain a provision dealing with the impact on the transaction if a condemnation proceeding resulted in a loss or taking of all or part of the Property. The task force appointed by the Real Estate Section, in its review of a draft of the form, recommended that the form contain a condemnation provision. Accordingly, new this year is such a provision. It is in all the versions of the CBS. It is a limited provision. It only applies when a condemnation proceeding has actually been commenced. While the Seller is obligated to make disclosure if there is a pending proceeding or notice of a proposed taking under threat of condemnation, the provision only applies if a proceeding or lawsuit has actually been commenced. The Buyer is entitled to receive the proceeds attributed to the diminution in the value of the Property or Inclusions taken or to be taken. In a given transaction it may be desirable to have counsel add to this provision and address the matter in more detail and other instances (such as a taking under threat of condemnation, etc.) that may impact the transaction and Buyer or Seller. Many items are not spelled out in the abbreviated provision. For example, which party is obligated to contest the matter, must they object, who pays for the cost of the litigation, who has the right to decide whether the award or proposed award (and its content) are acceptable or not. Is the Buyer entitled or required to intervene, and many other aspects will need to be addressed and agreed upon between the parties if a condemnation action is filed and the Buyer wants to continue with the purchase and sale of the Property. Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 16
29. Section 21.2, Liquidated Damages, Applicable. The big change for this Section is to make the remedy of Liquidated Damages automatic, UNLESS the parties check the box in 21.1.1 for Specific Performance. This avoids a failure to check either box. It is also reflective of the great majority of transactions where the parties agree to the remedy of Liquidated Damages. It does allow the flexibility to elect the remedy of Specific Performance should the parties so choose. 30. Signature Block Electronic Address. The label Email Address has now been replaced with Electronic Address. The parties may now specify any particular address that they would like to receive electronic notification, whether email, web address as an URL, etc. 31. Section 32, 33, Broker s Acknowledgments and Compensation Disclosure. A new sentence was inserted (as the second sentence) to require the Broker to return the Earnest Money, if the Buyer is entitled to its return, within five (5) days of Broker s receipt of the written mutual instructions (Earnest Money Release) signed by all parties. A similar timing requirement is imposed for an Earnest Money Holder who is other than a Broker, i.e., third party Closing Company or Title Company. There is a limitation that the Earnest Money check has cleared ( final payment under 4-4-215, C.R.S.). B. Agreement to Amend/Extend Contract (AE41-8-10) 1. Due to the rearrangement of the various Sections of the Contract to Buy and Sell Real Estate, the Dates and Deadlines Section was revised which required the Amend/Extend to be changed to coincide with the changed Section numbers. 2. Further, the Amend/Extend was substantively changed by the creation of 2 new columns. The first new column is entitled No Change ; the second is Deleted (the original column of Date or Deadline still remains). This was done to avoid an accidental deletion of the substantive Section by insertion of N/A (a common practice). Unfortunately, the completion with Not Applicable or N/A, had the affect of deleting the corresponding provision in the CBS. To avoid or minimize this each line will exclusively require checking or insertion of the revised date or deadline in the respective column, now easily identified by Date or Deadline, No Change or Deleted. Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 17
NOTE: If the CBS was prepared on the contract form prior to January 1, 2011, that is on CBS1-5-09, it is CRITICAL that the Amend/Extend form of 2009 (AE41-5-09) be used, NOT the new AE41-8-10 form as the Section numbers of the old CBS form do not correlate with the new AE41-8-10 form. C. Counter Proposal (CP40-8-10) The same changes to the Amend/Extend are reflected in the Counter Proposal form including the changes to the Dates and Deadline table and adding the two new columns to permit a check in the respective column of No Change or Deleted ; or insertion of the revised date or deadline in the first column. NOTE: If the CBS was prepared on the contract form prior to January 1, 2011, that is on CBS1-5-09, it is CRITICAL that the Counter Proposal form of 2009 (CP40-5-09) be used, NOT the new CP40-8-10 form as the Section numbers of the old CBS form do not correlate with the new CP40-8-10 form. D. Residential Addendum (RA33-8-10) This is a new form. It was created for a mixed use setting when a form of CBS other than the Residential form was used. Take for instance, the sale of a 360-acre parcel used as a farm. The Property contains several residences. The predominant asset being sold and purchased is the land. Thus, the Land version of the Contract to Buy and Sell Real Estate would be used (CBS4-8-10). Because of the residences on the Property, it will be necessary to address the residential aspect of the transaction. Accordingly, the Residential Addendum (containing the relevant provisions of the Residential Contract form is included in the RA33. This permits use of the Land version of CBS without the need for drawing a separate Residential version of the CBS. E. Licensee Buyout Addendum (LB36-8-10) This form was updated with the current formatting modifications to be consistent with the other forms and updated to reflect the updated Section numbers of the Contract to Buy and Sell Real Estate. Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 18
F. Short Sale Addendum (SSA38-8-10) The most significant modification to the Short Sale Addendum is the insertion of check boxes to note whether Section 8.3 of the SSA38 form is applicable or not. Section 8.3 is entitled Additional Rights of Termination. This Section, if applicable, allows either Seller or Buyer to terminate the transaction so long as it is done prior to the Lender s approval of the Short Sale (i.e., Short Sale Acceptance). Further revisions to this form consisted of formatting changes for consistency in the signature block and other formatting modifications. G. Source of Water Addendum (SWA35-8-10) A blank to specify the Well Permit number was added and clerical formatting changes, e.g., signature block changes for consistency were made. H. Seller Authorization (SA20-8-10) The Seller authorization form contains blanks for the Seller s Social Security number (and formatting changes). It also uses the language under the various Federal statutes and regulations, including the FTC Privacy disclosure of nonpublic information (i.e., private information). Many lenders require all or a part of the Seller s Social Security number within the consent for the lender to supply documents to the Listing Broker, assistant, transaction coordinator or title company before payoffs or other information to work up a Short Sale package to submit to the lender. There is a caveat that the lender must not supply the full Social Security number (as others beyond the Listing Broker may come in contact with these documents), thus due to the press of privacy and to minimize Identity theft or fraud, this limitation is stated. Other states already preclude sending documents with the Social Security number (electronically typically the documents must be encrypted) and other safe guards are put in place. It would be beneficial to review the FTC Red Flags Rule that has finally been implemented. This form was updated with the current formatting modifications to be consistent with the other forms and updated to reflect the relevant provisions of the Contract to Buy and Sell Real Estate with the new Section numbers of the CBS. Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 19
I. Listing Contracts By and large there were not many changes made to the Listing Contracts. The more important changes to the Listing Contracts consist of: 1. LC50-8-10 Exclusive Right-to-Sell Listing Contract. a. Section 7.2.3, Holdover Provision. This provision was clarified and simplified. It is actually understandable now. It continues to allow the parties to select whether a Broker IS or IS NOT entitled to compensation if a Sale (contract) is entered into during the Holdover Period. In any event, the Broker, to be entitled to a brokerage fee (if the parties elect to allow such compensation), must (1) Negotiate with the Buyer (implicitly through the Broker working with the Buyer; and (2) submit the name of the prospective buyer to the Seller ( Submitted Prospect ) during the base Listing Period; and (3) a Sale occurs to the Submitted Prospect during the Holdover Period. (Rule E-12). This concept and basic language appears in the other Listing contracts containing a Holdover Provision. b. Section 10.5, Colorado Foreclosure Protection Act, outlines (as does the Contract to Buy and Sell Real Estate) when the CFPA applies or whether the transaction is excluded (primarily when the Buyer is to be an owner occupant or the transaction is a Short Sale transaction along with usage of the Short Sale Addendum adopted by the Commission on and after January 1, 2011). c. Section 18.2.1, Seller s Property Disclosure form was clarified by deleting the best of (before Seller s current actual knowledge ). This change was done to be consistent with the revised SPD forms and to avoid any suggestion that the Seller is under an affirmative obligation to investigate the condition of the Property. It was never the intent of the form to require a Seller to investigate. Rather, the Seller must disclose those adverse facts about the Property the Seller then has actual knowledge, without any investigation. Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 20
2. LC57-8-10, Exclusive Right-To-Lease Listing Contract. a. The changes made to LC 57, (Exclusive Right-to-Lease), were similar to the changes made to LC 50, (Right-To-Sell). For example, the term transaction was replaced with the words the sale or lease. This was done due to language in an Appellate decision this year noting that the Court found that transaction was not a defined term. To avoid any future confusion, we have now shared that such a transaction is the sale or lease of the Property (Premises). b. Section 7.4, Extensions/Renewals/Expansions. The Section now allows the parties to specify whether the Broker is (or is not) entitled to be paid if the Tenant: Extends the Lease; Renews the Lease or if the Tenant Expands the Premises leased by Tenant. c. [The proposed Section 7.7, Broker s Lien was not included in the new Listing by the Commission s vote]. The proposed new provision was to alert the Owner that H.B. 10-1288 allows a Broker to place a lien against the entire property that includes the leased Premises (in leasing commercial space) when the Owner does not timely pay the Broker. This provision also disclosed that the lien may be waived, so long as the Broker receives acceptable consideration (which is included in the statute). I am certain that future litigation or legislation will eventually define or address what acceptable consideration means in light of a prospective waiver. d. Section 16.2, Broker s Right to Terminate Listing if the physical condition of the Premises is not acceptable to the Broker. For example, Broker became informed of a problem with the condition of the Premises, on site or off, the Broker may now terminate the Listing. This now brings the LC 57 (Right to Lease) consistent with the changes made to the LC50 (Right to Sell) several years ago). 3. Conforming changes were made to the other Listing Contracts. J. Agreement to Amend/Extend Contract with Broker (AE42-8-10) The changes to AE42, Amend/Extend with Broker were merely that of formatting and identifying the Listing Contract as now the Seller Listing Contract. Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 21
K. Closing Instructions (CL8-8-10) The Closing Instructions form, CL8-8-10 was revised to: 1. Clarify that any disbursement made by the Closing Company must be made, as called for, in the Contract (which would include amendments to the Contract. 2. Show the Closing Instructions now contains a corollary provision as set forth in the Contract that the Earnest Money Holder must return the Earnest Money within 5 days of its receipt of the executed Earnest Money Release (i.e., mutual written instruction). During the revision process of DOI Rule 5-3-1, it was envisioned that the contract between the Closing Company (Earnest Money Holder/Title Co.), i.e., Closing Instructions, would set forth the time within which the Earnest Money is to be returned. L. Earnest Money Receipt (EM9-8-10) The revision to the Earnest Money Receipt now clarifies that the Earnest Money shall be held in a trust account. With the advent of some third party closing companies, it was necessary to assure the provision in the Contract be confirmed for these providers. Real Estate Brokers and title companies must already adhere to this requirement that the monies be held in trust. M. Seller's Property Disclosure (Residential) (All Types) (SPD19-8-10), (SPD29-8-10) The only two changes to the form were (1) to delete the term to the best of (Seller s current actual knowledge) to avoid any suggestion that the Seller must investigate the condition of the Property prior to completing the disclosure form; and (2) to add the phrase Do any of the following conditions now exist: in each of the titles of the Parts (except for Part A and Part B that require disclosure of now and ever, i.e., any past condition, whether corrected or not). This should now avoid any confusion Sellers may have had to disclose a past problem, now rectified. Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 22
N. Inspection Notice (NTC43-8-10) The Inspection Notice was revised to provide that the Inspection Resolution must occur prior to the Resolution Deadline (rather than 1 day following it), requiring a written agreement to resolve the Notice to Correct (within the Inspection Notice). If there is no such written resolution by the Deadline (or Buyer withdraws the objection by that Deadline), the Contract, by its own terms terminates. Formatting changes were made for consistency and clarity. O. Inspection Resolution (NTC43R-8-10) This new form, Inspection Resolution, is to be used when the parties have been negotiating back and forth on how to resolve the Notice to Correct following a Buyer s inspection of the Property. If the Buyer submits an Inspection Notice and the Seller agrees or counters with a Seller s Alternative that is acceptable to the Buyer, the Inspection Notice form works just fine and there is no need to use the Inspection Resolution. However, if there is a counter to the counter to the counter, to avoid confusion of what the parties agreed the ultimate resolution to be, the Inspection Resolution form allows the parties to set forth their resolution in one place (thus avoiding the confusion created by the back and forth changes between the Seller and Buyer and what the ultimate final agreement between the parties was to resolve the inspection objections). P. Notice to Terminate (NTT44-8-10) The Notice to Terminate form added additional areas from the Contract to Buy and Sell that grant Buyer or Seller a right to terminate. The additional rights of termination in the CBS were created with the amendments and changes made concurrent with the form changes to the Notice to Terminate. The new termination provisions for the Buyer consist of: Environmental Inspection Objection Deadline and ADA Evaluation Objection Deadline (in 10.6 of CBS2, 3 and 4), Due Diligence ( 10.8), Tenant Estoppel Statements ( 11.2), Condemnation ( 19.3), Short Sale Addendum (SSA38-8-10) now set forth in the NTT44, although that right existed in the changes made in 2008 (but previously not listed in the NTT44 as it was not a right of termination set forth in the Contract to Buy and Sell; as it is an Addendum to the CBS form, it was concluded that it would be best stated in the Notice to Terminate). The Notice to Terminate includes the Short Sale Addendum granting the Buyer a right to terminate under 3.9 and 8.3 (if Kent Jay Levine, P.C. 3780 South Broadway, Englewood, CO 80113; 303-783-0222 8/12/10 Page 23