In January the Colorado Real Estate Commission’s (CREC) approved forms underwent numerous changes, and while most of these were only minor and editorial in nature, there were 6 major and significant changes that you need to know about especially if you will be purchasing and/or selling a home in 2013.
1. Buyer Now Has the Ability to Choose the Title Company:
While in most states in the country, it’s customary that the Buyer pay for both the Buyer’s/Lender’s and Seller’s/Owner’s Title Insurance Polices and therefore chose the Title Company that will facilitate the closing, in Colorado, it’s always been customary that the Seller of the home chose the Title Insurance Company, as well as to furnish the Seller’s/Owner’s Title Insurance Policy to the Buyer, at the Seller’s expense. Moving forward, the new contract provides that either the Seller or the Buyer can select the Title Insurance Company/Provider. This change provides the Buyer’s Real Estate Agent with an opportunity to better serve and protect their clients by ensuring that a reputable Title Company handles the transaction. Since the Buyer is ultimately covered by the policy, it’s important that Agents help the Buyer understand the importance of the impact of this decisions Alternatively, if you’re a Real Estate Investor who purchases multiple homes annually, and you would like to keep your title insurance with one company, than this will be a welcome change that will makes things easier and more cost effective for you.
2. Buyer Can Now Request Owner’s Extended Coverage:
Owner’s Extended Coverage (OEC) is a title insurance endorsement that provides increased and extra protection by insuring over matters such as unrecorded easements, parties in possession, mechanic’s liens, etc. The new contract form explains the OEC endorsement, allows the parties to choose whether it will be required, and sets forth the responsible party for payment of the premium required. The cost of the OEC can now be split between the Buyer and Seller.
3. Buyer’s Now Have the Ability to Stipulate a Conditional Sales Deadline:
The previous contract did not provide for the sale to be contingent on the sale of the Buyer’s property, unless it was done as an additional provision or addendum to the contract. Section 10.8 has now been added to the 2013 contracts. the new “Conditional Upon Sale of Property” section permits the buyer to terminate the sales agreement if the specified property owned by the Buyer has not been sold and the sale closed by the Conditional Sales Deadline. this section is for the sole benefit of the buyer. If the Seller does not receive the Buyer’s notice to terminate on or before the Conditional Sales Deadline listed in the contract, the Buyer the waives his/her right to terminate the contract.
4. Damage to Inclusions and Services:
The 2013 Contract clarifies that if, prior to closing, there is damage to an inclusion (for example, a dishwasher, or window coverings) or a service (for example, communication services or utilities), the Seller must repair or replace, otherwise the Buyer can either terminate the contract, or demand a credit at closing towards the Buyer’s financing costs or reduction to the purchase price. This change gives Buyers more leverage during the final walk-through if and should they discover such issues, damages, and/or broken inclusions.
5. Providing Closing Instructions at the Time Earnest Money is Tendered is no Longer Required:
Historically, it has been an “automatic” requirement that the Title Company provide Closing Instructions to all parties involved with the transaction. The new contract no longer requires this “automatic” procedure, however, and although this requirement has been removed, it’s still in the best interests of the Seller and Buyer to execute Closing Instructions at the beginning of the transaction. This allows the Title Company to hold the Earnest Money and provides a mechanism for dealing with the Earnest Money in the event of a dispute between the Seller and Buyer. Agents should continue to be proactive and fulfill their responsibilities to their clients by encouraging and assisting in the execution of closing instructions at the time the Earnest Money check is sent to the Title Company. Commission Position Statement 34 was issued in August 2012, at the same time the Commissioners approved the contract form changes. It specifically address the question of closing instructions under the 2013 contract:
- “If a title company in engaged to perform the closing services, the Division of Insurance requires that a title entity provide closing and settlement services only when there are written instructions from all necessary parties. See Division of Insurance Rule 3-5-1.”
6. Inspection Resolution (Part of the Contract):
This by far is the one change that will require the most “getting used to”. The purpose of the Inspection Resolution is to document the items that the Buyer’s Inspector found during the inspection process and which the Seller agreed to fix, or the amount of money, that Seller agreed to credit the Buyer, either in the form of a reduction to the purchase price, or credited towards the Buyer’s finance charges for their mortgage loan in exchange for not fixing these items. For years now, there has been significant debate and discussion as to whether the inspection resolution should be part of the contract or not. Because the resolution can negatively impact a Buyer’s ability to obtain a full mortgage loan approval, lots of real estates and mortgage lenders have taken the position that the resolution is not part of the contract, and therefore, the resolution should not need to be disclosed to the lender.
Take for example the situation where the Buyer’s inspector recommends in his/her final inspection report that there are foundation issues and structural repairs need to be done, and then the Buyer and Seller agree per the inspection resolution that the Seller will credit the Buyer $10,000 to cover the cost of these repairs. In the past, the Buyer’s lender would not be aware of these issues, the recommended repairs, or $10,000 credit from the Seller to the Buyer, simply because the inspection resolution was not a part of the contract. However, since the resolution now is part of the contract, and is reviewed by the lender, the lender may not approve the mortgage loan on the home. A more likely response from the lender would be to require that the repairs be done before the Buyer is allowed to close on their mortgage, which in turn could then still cause the entire transaction to fall apart, especially (from the same example above) if the Seller doesn’t have the $10,000 to take care of the structural repairs before closing, and of course, the Buyer certainly won’t take care of the repairs, and would actually be advised against doing the repairs on a home that they don’t technically own, since this would represent a significant financial and legal risk to the Buyer. If the Buyer’s real estate agent takes the position that the resolution was not part of the contract, and therefore need not be disclosed to the lender, the Buyer might end up being accused of loan fraud for failing to disclose this $10,000 problem. Bad idea. The 2013 form clarifies that the form is in fact an amendment to the contract and it contains language to inform the Buyer that the Buyer should provide the form to the Buyer’s lender.
Please contact us if you need a recommendation for a Real Estate Agent or Realtor who is up to speed on all these changes and is a local expert.