New Contracts Effective January 1, 2011

RE/MAX Advantage

Purpose of this meeting

• Share with you that significant changes will occur to the Colorado Approved real estate contracts and forms.

• Provide you with an over view of some of the most significant changes.

• Review the Residential Buy and Sell Contract and the Vacant Land.

• Please review the Commercial Contract if applicable as major changes will occur as of January 1, 2011.

What we cannot accomplish

• A comprehensive review of the contracts• Discuss individual situations or participate in

“war stories”.

Therefore – please hold your questions until after we present the material.

We recommend

• Contract class – offered by Empire Title this month and by PPAR first week of January

• Contract class – offered on line at www.vaned.com

• You can review the new contracts and forms at the Colorado Division of Real Estate web page - http://www.dora.state.co.us/real-estate/contracts/contracts.htm

Overview of contract changes

• New contracts can not be used prior to January 1, 2011

• Any listing agreement or any sale contract written and endorsed prior to January 1 will not have to be rewritten on the new forms.

• We will need to use applicable amend and extends. (New contracts will need new documents.)

Seller’s Property DisclosureSeller’s property disclosures will need to be of the most current version. If the property goes under contract after January 1 you will need to use the new form.

The contract calls for the most recent version of the Seller’s Property Disclosure.

Seller’s Property Disclosure

• New headings have been added to the document.

• The Seller is required to disclose their actual knowledge. (No duty to investigate.)

Almost every contract and form has changed.

• No longer one contract or one form for all types of properties.– Residential– Income Residential– Land– Commercial– Foreclosure

All related forms have also changed in order to reflect new contrasts.

• Amend and extend.• Counter Proposal• Foreclosure Protection Act• Seller’s Property Disclosure• Inspection Notice

Exclusive Right to Buy Contract

• Reorganized by category.• Related forms also reorganized.• New Residential Addendum created to be

used for land and commercial contracts.• We will review the residential documents for

major changes and the land documents as time permits.

Elimination of the extra day after Inspection Resolution Deadline

The contract now terminates upon the Inspection Resolution deadline. The extra 24 hour period is eliminated.

A new form has been created in order to facilitate negotiations beyond the “Seller’s Alternative Resolution”.

Inspection Resolution Ideas

You may elect to include a time when you set the Inspection Resolution Deadline.

Allow time for seller to respond to Inspection Objections.

Colorado Foreclosure Protection Act

• Where the Short Sale Addendum is used the act does not apply.

• No longer is it necessary to determine if the buyer is in the “business of purchasing investment property.”

Colorado Foreclosure Protection Act

• The Colorado Foreclosure Protection Act requires special contracts and disclosures if the following criteria is present.– The property is residential.– It must be the principal residence of the seller.– The buyer does not intend to occupy the property.– The property is either in foreclosure or the owner

is 30 days or more delinquent in payments.

Short Sale: Best Practices

• New legislation requires the disclosure of profits and terms of sales for simultaneous closings to all parties of the transaction including lenders.

• It is extremely important to fill in the Short Sale acceptance deadline in the Short Sale Addendum.

• The Short Sale Addendum must be indicated as an attachment of the contract.

Listing Agreement Issues

• Hold Over Provision: It is the recommendation of the

company that a reasonable hold over period be selected. It is for the protection of the

listing agent. (Line 131)

Listing Agreement Issues

• Upon the termination of a listing the agent should indentify in writing any buyer that shall be subject to the hold over period.

• The agent should advise the owner that to avoid the possibility of owing a fee to 2 different listing brokers they should exclude the identified buyers from the new listing agreement.

Listing Contract issues

• It is recommended that you add specific marketing efforts in section 9.3 which is broker marketing.

• In Exclusive Right to Buy Contracts make sure a compensation amount is provided in the document.

Notice to Terminate

• Document continues but is revised.

• Must accompany all terminated contracts if the inspection notice is not used.

Notice to Terminate

• New criteria for buyer to use to cancel the contract– Buyer: Environmental Inspection Objection

Deadline– Buyer: Due Diligence– Buyer: Condemnation– Buyer: Short Sale Addendum– Seller: Short Sale Addendum

Short Sale Addendum• Section 5 – Seller Deadline for Submission to Lien

Holder. (Fill in box with a specific number of days)Seller agrees to submit to each Lien Holder a request for a Short Sale and all documents and information requested by Lien Holder, including a copy of the Contract, any Counterproposal, this Addendum and amendments. The initial submission by seller to each Lien Holder shall be on or before Initial Submission Deadline. Any additional information or documentation requested of Seller by such Lien Holder shall be submitted within five days of such request or Buyer may terminate the Contract pursuant to 8.2 below.

Short Sale Addendum

• Place a specific date (approximately 30 to 60 days out) for the Short Sale Acceptance Deadline.

Short Addendum

• Parties can elect if this section shall apply - Section 8.3.2Both buyer and seller have the right to Terminate the Contract by written notice to the other party so long as it is received on or before Short Sale Acceptance. Additionally, Seller has the right to accept subsequent offers from other buyers prior to Short Sale Acceptance without liability to Buyer.

Closing Instructions

• Return of Earnest Money – states requirement of earnest money holder to return earnest money within five days of receipt of notice unless in possession of notice of earnest money dispute.

• Defines earnest money’s options in situations of dispute.

Counterproposal

• New Columns– No Change– Deleted

• If any item is left blank or is marked the “No Change” column it means no change to the corresponding provision of the Contract. If any item is marked in the Deleted column it means that the corresponding provision of the Contract to which reference is made is deleted.

Seller Authorization

• Expanded to include more than one lien. (up to 6 liens)

• Social Security Number of seller added.• Defines agent can have access to account

balances, account history, and etc.

Contract to Buy and Sell Real Estate

• Total Reformatting of the Contract.• Total Reformatting of the Sections.• Total Reformatting of the Date Block.

Contract to Buy and Sell Real Estate

• Seller’s name added to the front of the contract as the current owner of the property.

• “If any fixtures are attached to the Property after the date of the Contract, such additional fixtures are also included in the Purchase Price.”

New - 4.2.2 Return of Earnest Money

• If Buyer has a right to terminate this Contract and timely terminates, Buyer shall be entitled to the return of Earnest Money as provided in this Contract. If this Contract is terminated as set forth in 25 and, except as provided in 24, if the Earnest Money has not already been returned following the receipt of a Notice to Terminate or other written notice of termination, Seller agrees to execute and return to Buyer or Broker working with buyer, written mutual instructions, ie, Earnest Money Release form, within three days of Seller’s receipt of such form.

Clarification of Available Funds

• Buyer is in Default if funds are not available for disbursement by Closing Company at Closing.

• You may want to schedule closings for later in the day.

• Closing location and time should be at the mutual agreement of the parties of the contract.

Seller Concession

• “Seller Concession shall be reduced to the extent it exceeds the aggregate of what is allowed by Buyer’s lender, but in no event shall Seller pay or credit an amount for Seller Concession that exceeds the lesser of (1) the stated amount for Seller Concession or (2) the Buyer’s closing costs.”

Loan Application

• “..If required by such lender, shall make an application verifiable by such lender, on or before Loan Application Deadline and exercise reasonable efforts to obtain such loan or approval.”

Appraisal Provisions

• Did you know?– Seller may terminate this contract by delivering

written notice to terminate to Buyer on or before three days following Seller’s receipt of the Appraisal Requirements.

Appraisal

• Duh… The new contract states the Appraisal Deadline does not apply for FHA or VA loans.

Evidence of Title, Survey and CIC Documents

• Common Interest CommunityIn the event of any unsatisfactory provision in any of the CIC Documents, in Buyer’s sole subjective discretion, and written notice to terminate by Buyer, or on behalf of Buyer is delivered to Seller on or before CIC Documents Deadline this contract shall terminate. If Seller does not receive Buyer’s written notice to terminate on or before CIC Documents Objection Deadline, Buyer accepts the CIC Documents and waives the right to terminate.

Evidence of Title, Survey and CIC Documents

• Best Practice:Review the Home Owner Association minutes to search for any pending special assessments.

Evidence of Title, Survey and CIC Documents

• Buyer has right to cancel in their sole and subjective discretion.

Disclosure, Inspection and Due Diligence

• Unless otherwise provided in this contract, Buyer acknowledges that Seller is conveying the Property to Buyer in an “as is” condition, “where is” and “with all faults”. Seller shall disclose to Buyer in writing, any latent defects actually known by Seller. Buyer, acting in good faith, shall have the right to have inspections (by a third party, personally or both) of the Property and Inclusions (Inspection), at Buyer’s expense.

Disclosure, Inspection and Due Diligence

• Expands items that can be inspected (utilities, communication services, heating and plumbing)

• Buyer can terminate in Buyer’s sole subjective discretion.

Disclosure, Inspection and Due Diligence

• Due Diligence – New Section– Due Diligence/Physical Inspection – Inspection

Objection Deadline– Due Diligence/Documents – Due Diligence

Documents Delivery Deadline

Colorado Foreclosure Act Advisory

• Applies if – 1. property is residential, – 2. principal residence of seller– 3. buyer not to reside– 4. the property is in foreclosure or any loan is 30

days delinquent

Does not apply if it is a Short Sale transaction and the Short Sale Addendum is used.

Closing Provisions• Seller and Buyer shall cooperate with the closing

Company to enable the Closing Company to deliver all documents required for closing to Buyer and Seller and their designees by the Closing Documents Delivery Deadline.

• If Buyer is obtaining a new loan to purchase the Property, Buyer acknowledges Buyer’s lender shall be required to provide the Closing Company in a timely manner all required loan documents and financial information concerning Buyer’s new loan.

Closing Provisions

• Disclosure of Settlement Costs.Buyer and Seller acknowledge that costs, quality, and extent of service vary between different settlement service providers.

• Buyer acknowledges that Buyer may be obligated to pay the Association, at Closing, an amount for reserves or working capital.

General Provisions

• 19.3 Condemnation – New section requiring Seller to disclose any notice prior to Closing of any pending condemnation action.

Broker’s Acknowledgements and Compensation Disclosure

• Broker agrees that if Brokerage Firm is the Earnest Money Holder and, except as provided in section 24, the Earnest Money has not already bee returned following receipt of a Notice to Terminate or other written notice of termination, Earnest Money Holder shall release the Earnest Money as directed by the written mutual instructions. Such release of earnest Money shall be made within five days of earnest Money Holder’s receipt of the executed written instructions, provided the Earnest Money check has cleared.

Contract to Buy and Sell Land

• New form – similar to new Residential Contract

• Boxes to indicate if there is no Residence on property or if there is and the Residential Addendum will be used.

• Land Contract eliminates those items that are specific to a residence.

Contract to Buy and Sell Land

• Specific attention needs to be given to Section 10.6 which is Due Diligence-Physical Inspection.– Includes provisions for Phase I and Phase II

Environmental Assessments.– Includes provisions for compliance with Americans

with Disabilities Act.– Creation of an Environmental Inspection

Objection Deadline.

Contract to Buy and Sell Land

• Specific attention needs to be given to Section 10.8 which is Due Diligence-Documents– List of 13 specific reports and or documents– Creation of a Due Diligence Documents Condition

Deadline

Contract to Buy and Sell Land

• Specific attention needs to be given to Section 11 which is Tenant Estoppel Statements– List of specific items a buyer can review and

object to in each of the tenants leases.– Creation of a Tenant Estoppel Statement

Objection Deadline.