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Browse on or click to Can not include your user id.The Manual is a source of information, statutes, rules, and position statements for the real estate industry. The Manual benefits new applicants for licensure as well as existing real estate brokers, appraisers, and other real estate professionals by providing current relevant statutes and requirements for practicing in Colorado. It also includes current Colorado Real Estate Commission rules and position statements for brokers, appraisers, mortgage loan originators, and conservation easements. An excellent resource for real estate professionals that provides history, new laws and requirements, descriptions, and landmark case law.Click here for more information about LexisNexis eBooks.What the Law Does Not Cover III. The Commission Office A. The Master File B. Licensing C. Enforcement Section IV. Subdivision Statutes III. Rules and Regulations for Subdivision Developers IV. Licensee’s Responsibilities V. Municipal Planning and Zoning Laws VI. County Planning Laws VII. Special Types of Subdivisions A. Condominiums as Subdivisions VIII. HOA Registration III. Community Association Manager Licensing IV. Colorado Common Interest Ownership Act VII. Colorado Revised Nonprofit Corporation Act CHAPTER 6: APPRAISER REGULATION I. The Colorado Board of Real Estate Appraisers II. Appraiser Licensing and Certification III. Levels of Appraiser Licensure IV. Requirements for Appraiser Licensure V. Continuing Education Requirements VI. Standards for Mortgage Lending and Servicing IV. Loan Fraud CHAPTER 9: RULES AND REGULATIONS FOR MORTGAGE LOAN ORIGINATORS AND POSITION STATEMENTS I. Mortgage Loan Originator Rules Rules Regarding Mortgage Loan Originators II. Colorado Real Estate Commission v. Hanegan (1997). Case Topics: Adequate Notice of CE Requirements; and Standards for Court Review of Agency Imposed Sanctions V. Colorado Real Estate Commission v.
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Bartlett (2011) (Case Topics: Convictions of Attempted Crimes; Proof of Rehabilitation; and Appropriate License Discipline) VI. McDonnell v. Colorado Real Estate Commission (2015) Case Topics: Non-Brokerage Activities; Specific Prohibited Acts; and Court Review of Agency Imposed Sanctions VII. Colorado Real Estate Commission v. Vizzi (2019) Case Topics: Mandatory Duties of Real Estate Brokers; Federal Antitrust Defense; Anonymous Complainants and Due Process Rights; and Court Review of Agency Imposed Sanctions GLOSSARY OF TERMS TOPICAL INDEX RELX Group and the RE symbol are trade marks of RELX Intellectual Properties SA, used under license. A licensee constantly reviews contracts for purchases, lease agreements and mortgages. In Colorado, real estate licensees are allowed to fill in blanks in standard contract forms. The competency and professionalism of the real estate licensee are always at stake when contracts are being written or explained. The stability and security of our business world are dependent upon the law of contracts. It insures the performance of the parties to their agreements by requiring that they either perform or pay for all loss or damage caused by non-performance. Furthermore, the specialized branches of business law, such as the sale of goods and services, negotiable instruments, partnerships and corporations, are all founded upon the law of contracts. Such mutual assent is evidenced or objectively set forth by the offer and acceptance. If the consent was obtained by fraud, misrepresentation, duress, undue influence, or mistake, then there is no real consent and, therefore, the element of mutual assent is absent. In certain cases the law requires that the expression of the parties’ mutual agreement must be in writing to be enforceable. The one making the offer is called the offeror; the one to whom the offer is made is called the offeree. No contract exists until the seller agrees. Secondly, the offer must be intended as such.
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Whether it is Expressions made in jest, anger, or excitement are generally not offers because the hearer should realize that the speaker is not, at the moment, seriously contemplating what is said. Thirdly, an offer to be effective must be definite and certain as to its terms. If the offer is indefinite as to some of its terms, no mutual agreement can occur because reasonable persons could disagree as to the interpretation of the indefinite provisions. How long does an offer last. When does it cease? An offer can be terminated by a lapse of time, by revocation, by rejection or by operation of law. However, an expired offer may Ratification occurs if a person’s acts or conduct For example, if a buyer gives a seller If no time is Thus a person may offer to sell or buy a vacant lot, Many so-called options are not enforceable because In a real estate transaction, this is usually accomplished by the seller signing the offer to purchase made by the buyer. If not specified, then the acceptance must be made and communicated in a reasonable manner, according to the custom and usage of the trade in that locality. If a party consents due to fraud, misrepresentation, undue influence, duress or mistake, it would be unfair to hold them to the agreement. Therefore, when consent is obtained under these circumstances, the courts usually hold that there is no contract, or permit the innocent party to cancel the contract. But when the mistake concerns an unessential fact, or relates to the value, or is made by only one party due to that party’s carelessness, an enforceable contract will result. Thus, if the parties agree to buy and sell property at a certain address and there are two properties having the same address, and each party has in mind a different property, no contract results. But if one party has a mistaken belief as to the value of a piece of property, a good contract will result. Duress consists of compelling a person, through fear, to do or to agree to do an act.
As to real estate, the Colorado law provides: Colorado differs from most other states that provide that “the party to be charged” (in a lawsuit by the other party) must have signed the contract. The writing does not have to be the “perfect” contract but it does have to be sufficient to allow a court to determine that the parties intended to sell the property. Such things as (1) the identity of the parties, (2) subject matter, Although Colorado’s statute of frauds only provides that the seller must sign the real estate contract, the obvious best practice is for both parties to sign. These laws provide that a real estate licensee shall not be entitled to a commission unless there is a written employment agreement between the licensee and the buyer or seller. Although the Colorado license law does not have such a statute of frauds provision, there is a statutory requirement that all agency listings and agency employment agreements be in writing. The parol evidence rule is closely linked to the statute of frauds. It provides that an agreement in writing shows that the parties intend it as the final and complete expression of their agreement. Evidence of any earlier oral or written statements is not admissible to vary, add to or contradict the terms of the writing. The word parol means “word” or “speech.” Because the purpose of the statute of frauds is to prevent the possibility of nonexistent agreements being enforced by fraud or perjury, it makes sense to have a rule that requires the parties to live with what they have written. The parol evidence rule generally keeps parties from trying to introduce evidence in court that they really meant something other than what is stated in the contract. There must be consideration supporting the agreement. Many persons assume money is a requirement of consideration; but in the vast majority of cases the consideration for a promise is the return promise.
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The promise of the buyer to buy and the promise of the owner to sell constitute sufficient consideration to support their agreement—no deposit is necessary. Both parties must receive consideration for their promises. Legal value is generally defined in terms of benefit or detriment. Thus legal value is present if (1) the one making the promise (or doing the act) thereby commits to something they were not previously obligated to do (detriment), and (2) the one receiving the promise (or act) thereby becomes entitled to something they would not previously have received (benefit). Both parties to an agreement usually receive some benefit and suffer some detriment. In promising to recover stolen property, a police officer is doing no more than already bound to do. A promise given without any return does not create a binding contract. Each party must in some way give legal value for what they receive. This partial payment is called “earnest money” or “good faith money.” It is a good But certain persons, for reasons of public policy or some disability, do not have full contractual capacity. Among these are minors, mental defectives, and intoxicated persons. Minors have the right to cancel or disaffirm their contracts with no liability other than the return of any proceeds they received under such contract. Minors are given this right to protect them against their lack of experience, judgment and ability. The burden is upon adults to ascertain that the person they deal with is of legal age. After reaching legal age, minors may ratify or approve previous contracts, which will then be binding on them. In that case, the intoxicated person may cancel or ratify the contract. Its capacity to contract may be related only to specific things or it may be related to broad areas of business transactions. The object cannot be to violate valid statute. An agreement to commit a crime, a tort, or something contrary to public welfare is illegal.
For example, an agreement to defraud someone, or to slander a person, or to operate an unauthorized gambling operation is illegal. Dual contracting to induce a lender to make a loan on real estate without knowing the true terms of sale, such as the actual amount of down payment, is a criminal offense under C.R.S. 18-5-208. This contract determines the kind of title to be conveyed, the type of deed, liens and encumbrances that the land will be sold subject to, and the manner of payment of the purchase price. Although dishonesty or wrongdoing on the part of the licensee is rare, disputes stem from the licensee’s lack of thoroughness or knowledge. Real estate brokers must continually strive to increase their own proficiency and that of their employed licensees in writing good contracts. It is an art to write a sound, workable contract that includes all important matters and is still reasonably clear and understandable. Although Colorado licensees are fortunate in having commission-approved contract forms available, they must nevertheless pay close attention to completing these forms in a competent manner. This list is not intended to be exhaustive; seldom are two real estate transactions alike. Only If two or more persons own the property, all should be named and all should sign—unless, of course, only one is selling his or her interest. If two or more persons are buying the property, all should be named and should sign, together with an election as to whether they are buying as joint tenants or tenants in common. If there is no provision regarding the method of payment, the law presumes it is to be a cash sale. The contract should state, when applicable, the amount of the deposit; the amount to be paid at closing; the method of payment; the balance either by assumption of the existing mortgage or by a new mortgage; and any and all other pertinent financial provisions.
Although the street address, with the city and state, is sometimes sufficient, it is better to use the legal description contained in the seller’s deed. Even though the contract may not mention them, such additional rights to the land as easements, rights of way, and other appurtenances belonging to the land, will automatically pass to the buyer in the transfer of ownership. For the sake of clarity and completeness, they should be mentioned in the contract. In addition, all items of personal property to be included in the sale should be listed. In the event the type of deed is not stated, the courts will probably require that kind of deed that is customary to that particular type of transaction in that locality. Even without this provision, the law presumes that merchantable title is to be conveyed. Mortgages, tax liens, and other liens and encumbrances are considered defects. Therefore, if the property is to be conveyed subject to a mortgage or other encumbrance or restriction, the contract should clearly state so. Another customary provision states that the buyer will give written notice of defects of title, not excepted in the contract, and that the seller will clear up said defects by a given deadline. The seller has the duty of proving good title. A contract should require the owner to establish their title by furnishing evidence of ownership, such as an abstract of title or a title insurance commitment. In approved Colorado buy-sell contract forms, the seller does not specifically agree to provide merchantable title. However, the seller does agree to provide the buyer with a title insurance commitment, and, if the buyer objects to the The law, of course, gives the parties remedies for non-performance, but a lawsuit can be avoided if the parties mutually agree to a settlement beforehand. Therefore, provisions should be made as to the disposition of the buyer’s deposit if the buyer should default, and any other arrangements deemed appropriate.
An offer to purchase must clearly state such conditions. It is possible that the seller may also wish to provide for some contingency. Poorly written contingencies are one of the major causes of disputes between the parties and complaints against real estate licensees. Any contingency clause must state not only the conditional situation or event, but also provide a definite method and deadline by which to accomplish the contingent requirement, remove the contingency or terminate the contract, including disposition of earnest money. The answer is not as simple as it seems. The buyer holds what is known as equitable title even though legal title has not yet passed. The buyer can legally force the seller to convey the legal title. Also, the seller can force the buyer to accept the legal title and perform their part. This right is called specific performance; the parties lose the right only if they waive it in the contract. Not being in possession, the buyer is unable to protect his or her interest. However, the majority of courts seem to hold that the loss falls on the buyer unless the contract It is not unusual for the contract of sale to provide that the risk of loss remains with the seller. They contain, among other provisions, a promise by the buyer to pay for the land and a promise by the seller to deliver a deed to the land. These contracts serve the purpose of establishing good faith until the time for payment and delivery of the deed. Buy-sell contracts are not recorded (except for a very good reason) because many such contracts fail and are never consummated. Recording would cloud the title to the land if delivery of a deed did not occur. However, an installment land contract, described later in this chapter, should always be recorded unless there is a specific agreement to the contrary. The default provisions shown in the contract below note the different remedies afforded.
If any note or check received as earnest money hereunder or any other payment due hereunder is not paid, honored or tendered when due, or if any other obligation hereunder is not performed or waived as herein provided, there shall be the following remedies: Seller may elect to treat this contract as canceled, in which case all payments and things of value received hereunder shall be forfeited and retained on behalf of Seller and Seller may recover such damages as may be proper, or Seller may elect to treat this contract as being in full force and effect and Seller shall have the right to specific performance or damages, or both. All payments and things of value received hereunder shall be forfeited by Buyer and retained on behalf of Seller and both parties shall thereafter be released from all obligations hereunder. It is agreed that such payments and things of value are LIQUIDATED DAMAGES and (except as provided in subsection c) are the SELLER’S SOLE AND ONLY REMEDY for Buyer’s failure to perform the obligations of this contract. Seller expressly waives the remedies of specific performance and additional damages. This position of influence should be used cautiously because there are circumstances when the use of a particular remedy may be injurious to one of the parties. In the event of default by the buyer, the usual seller does not want to become involved in a lawsuit against the buyer in order to enforce the specific performance of the contract. The seller is usually more concerned about getting the property back on the market and making a successful sale. The broker has the same desire. The average buyer is not often engaged in a real estate transaction and is not aware of the possibility that he or she might be compelled to purchase the property. The knowledge of such a buyer usually extends no further than knowing that the earnest money is endangered. It may be the fairest because it offers both parties an equal right to seek damages.
Earnest money should be adequate to demonstrate the buyer’s serious intent to purchase and, in the event of the buyer’s default, to compensate the seller for the act of taking the property off the market during the period prior to closing. Earnest money should apply only to part payment of the purchase price. The form of earnest money, e.g., check or promissory note, must be specified in the contract. If a note, it must have a definite due date. The Commission strongly recommends that notes not be taken with due dates of “at closing.” Such notes create confusion as to the seller’s forfeiture rights if closing does not occur and the buyer is at fault. Mediation is non-binding. If efforts at mediation do not resolve the dispute within 30 days of the written notice requesting mediation, the mediation terminates unless the parties mutually agree to continue. Under this provision, if the parties do not give mutual written instructions to the broker, the broker may “interplead” the money into court and let the court decide the matter. Although the broker may interplead without such a provision, the existence of the provision encourages the parties to make settlement. The provision also enables the court to relieve the broker from court costs and attorney fees. Nothing, of course, prohibits a broker from refunding an earnest money deposit to a buyer if, in the broker’s judgment, that is what the contract calls for, but the broker may subsequently become liable to the seller if the disbursement is found to be wrongful. A broker may never unilaterally declare a forfeiture of the buyer’s earnest money. Only the seller may declare a forfeiture. Contingencies and promises must be completely defined. Consideration of the circumstances affecting the parties involved in the transaction must be carefully weighed before spelling out the terms. If a buyer is unable to buy unless the sale of his or her current home is consummated, any offer should reflect this contingency.
Such a contingency is still needed even if there is a pending contract to sell the buyer’s home, if the buyer requires the proceeds from the sale in order to purchase, because there is never complete certainty that a pending sale transaction will close. The buyer may “assume and agree to pay” the existing mortgage or may buy the property “subject to” the existing mortgage. A seller will usually want the buyer to “assume and agree to pay” because it will make the buyer responsible on the original note along with the seller. In either case, both parties to the transaction should be informed of the resultant effect of the sale. Too often, unscrupulous buyers of equities have purchased “subject to” or even agreed to “assume and pay” an existing loan. They then collect rents from the property for as long as possible, while deliberately defaulting on the loan payments and letting the property go into foreclosure. A resulting deficiency judgment would be against the original owner and seller rather than the buyer. Such conduct, known as “equity skimming,” is a criminal offense. Licensees are subject to disciplinary action for failing to ensure that loan assumptions are finalized through the lending institution. What is meant by “able?” Certainly it means more than the buyer’s ability to execute the contract and make the initial payment. The licensee has a duty to the seller to make a reasonable effort to determine if the buyer is truly able to buy. If the buyer is assuming an existing loan, or if the seller is carrying back a purchase money mortgage or conveying by means of an installment land contract, the seller is in a high risk position. There is no third-party lending institution to determine the buyer’s qualifications. The typical residential seller is not a speculator, and does not wish to pursue foreclosure or to retake title to the sold property. The seller will likely depend upon the licensee for guidance.
Although the licensee may have no legal obligations to investigate the buyer, the licensee at least has a duty to inform the seller of the inherent dangers in the transaction and to advise the seller to make some type of an investigation concerning the buyer’s ability or willingness to pay. The seller might also be induced to carry a second purchase money mortgage, which may even result in cash being given to the buyer at the time of closing. Thus, the buyer purchases without a down payment. This type of transaction may be perfectly proper if the seller knows the buyer or has faith in the buyer’s creditworthiness. If a note requires regular equal installments but will not be completely paid off at the time the note matures, a larger (balloon) payment will be required at the maturity date. The buyer may be in danger of foreclosure if unable to raise the money for such a “balloon payment.” In such a case, the licensee should make the buyer and seller aware of this eventuality. At the time the balloon payment becomes due, the buyer may be dependent on the ability to refinance. Colorado law protects the borrower in this regard. (See the Uniform Consumer Credit Code printed in this Manual.) This is true particularly in areas that have not been formally subdivided into platted parcels. Some subdivided areas also contain irregular lot sizes and the survey may be questionable. Both the frontage in running feet and the acreage, which determines square footage, are important and both should be verified before quoting figures to a buyer. In some cases, improvements, such as fences or garages, encroach on boundary lines and only a survey will reveal the problem. A broker may be liable in such situations because brokers are assumed to have greater knowledge than that of buyers and sellers. The broker should recommend to both buyer and seller that a survey be made. (See Chapter 7) This is called dual contracting to induce a loan and is prohibited by the Colorado Criminal Code, C.
R.S. 18-5-208. However, it is also a method of effecting a sale. From the broker’s viewpoint, it is a sale entitling legal claim to an earned commission. It is distinguished from the real estate buy-sell contract in that the buy-sell contract does not usually contain provisions for installment payments and is merely intended to hold the deal for a short period until the condition of title is accepted and title is delivered to the buyer. In this case, the buy-sell agreement will of course not refer to delivery of a deed but rather to the subsequent signing of an installment land contract. At the signing of either type of contract, the buyer has an equitable interest in the real estate. Courts generalize this result and say that the “buyer becomes owner of the land in equity” and is called the “equitable owner.” Oftentimes a person with little or no cash for a down payment will be permitted to take possession of property under an installment land contract providing for monthly payments to the seller. The seller will still hold “legal” title, and the buyer will possess “equitable” title. It will always be in the buyer’s best interest to have the installment land contract recorded, and the real estate commission requires that buyers of subdivisions registered with the commission be so advised. Sellers of unimproved subdivided lands often have installment land contracts. If an ILC is not recorded, there is no notice to the world of the buyer’s interest in the property, the buyer being completely at the mercy of the seller. The larger the buyer’s down payment offer to the seller, the stronger the buyer’s bargaining strength as to deed and trust deed arrangement. The seller’s interest in the contract is considered personalty, and would be treated as such in the distribution of the estate in the event of the seller’s death. The seller would convey legal title interest in the property by formally assigning the contract.
Any person buying a seller’s legal title interest should make sure that the contract being assigned is of public record, and should receive the original signed ILC in the assignment. If a seller merely has a contract interest and is not the holder of legal title, the contract or assignment should so state. If an ILC has a non-assignment clause, the seller’s consent must be secured. Often, the contract will preclude the property from being mortgaged or leased. Of course the buyer under an ILC could not give a trust deed even if the contract permitted, because the buyer does not have a deed. A buyer’s interest given as collateral for a loan would be secured by a mortgage. The wording of an assignment or new contract will determine whether the assignee is personally liable to make the remaining payments. It is not enough to merely state that the property is subject to an existing loan. Such a statement would make the buyer responsible for both the contract price and for the seller’s existing loan payments in order to protect equitable title interest. Usually it is the seller who continues to make the payments on the existing loan and the contract should so state. It should also provide that in the event the seller fails to make payments, that the buyer is permitted to pay the lender directly, and credit the amount paid against payments owed to the seller under the ILC. This may create a problem if the seller is not able to execute and deliver the deed when it is due. A high level of trust is placed in the seller’s ability to convey a future deed clear of all encumbrances. If the seller dies before the buyer fulfills the contract, other difficulties may arise. The seller’s interest may be tied up in estate proceedings. Therefore, if the seller is a natural person rather than a corporation, it is prudent to place the deed with an escrow agent at the time of sale, with proper instructions to deliver when the buyer has complied with the contract.
If a deed is being held in escrow and the seller assigns the contract, a new agreement with the original escrow agent is necessary to substantiate the chain of title to the property. As with any loan, however, terms or restrictions on prepayment should be clearly set out in the contract. The usual forfeiture clause gives the seller the choice of foreclosure or suing for payments when each comes due. Upon choosing one remedy, the other is lost. Thus, upon default, the seller usually keeps the money that has already been collected and forecloses to secure the return of the property. Even if in possession, however, the seller must still go to district court to foreclose. This would amount to strict foreclosure if the courts enforced the foreclosure clause. In mortgages or trust deeds the courts will not enforce strict foreclosure, but in an installment land contract the courts may do so, if only partially, inasmuch as there is no public sale. A seller who chooses this remedy elects to rescind the contract and cannot get a deficiency judgment. The court, in its judgment, will often determine how long the buyer may keep possession regardless of how many days are stated in the forfeiture provision. In one Colorado case, when the buyer had paid approximately one-third of the purchase price, the court required that the buyer be given six months to redeem. One popular but ineffective method of doing this is to have the buyer sign a quitclaim deed back to the seller up front, and escrow both the ILC and the quitclaim deed. The escrow agreement would provide for delivery of both the buyer’s copy of the ILC and the quitclaim deed to the seller in the event of default. Adding the quitclaim deed to the escrow does not in any manner strengthen the position of the seller as it would have been executed simultaneously with the ILC and does nothing to alter the underlying nature of the relationship between the parties.