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Terms in this set (1004)

Quitclaim deed

quitclaim deed (sometimes erroneously referred to as a "quick-claim" deed) is a legal instrument by which the owner of a piece of real property, called the grantor, transfers his interest to a recipient, called the grantee. The owner/grantor terminates ("quits") his right and claim to the property, thereby allowing claim to transfer to the recipient/grantee.



More info on deeds:



In Colorado real estate, there are several types of deeds, depending on the type/amount of protection given and received from the seller and buyer. From the Colorado Real Estate Manual:



Types Of Deeds

There are four major classifications of deeds:

(1) General warranty deed,

(2) Special warranty deed,

(3) Bargain and sale deed,

(4) Quitclaim deed.



The types of deeds differ solely in the degree of protection that the grantor (seller) promises or warrants to the grantee (buyer). No type of deed transfers any greater or lesser interest than another. For example, if a grantor conveys title in fee simple by a general warranty deed, the same fee simple ownership is conveyed as if he or she had used a quitclaim deed.



However, the general warranty deed grantor promises to defend against any loss incurred due to any title defect, whereas transfer by quitclaim deed contains no such warrant.



1. General Warranty Deed.

A deed in which the grantor warrants or guarantees title against defects that existed before the grantor acquired title or that arose during the grantor's ownership. It does not warrant against encumbrances or defects arising from the grantee's own acts. The usual covenants or warranties contained in a general warranty deed are:



a. Covenant of seizin. Guarantees the grantor's ownership and that he or she has the right to convey it. The fact that the property is mortgaged or is subject to some restriction does not breach this covenant.

b. Covenant against encumbrances. Guarantees that there are no encumbrances or claims against the property except those specifically excluded in the deed.

c. Covenant of quiet enjoyment. Guarantees that the grantee will not be evicted or disturbed in possession of the property. Threats or claims by a third party do not breach this covenant. The grantee would have to actually be dispossessed before being entitled to seek recovery under this covenant against the grantor.

d. Covenant of further assurance. Guarantees that the grantor will procure and deliver any other instruments that are subsequently necessary to make the title good.

e. Covenant of warrant forever. Guarantees that the grantee shall have title and possession to the property. Sometimes considered part of "quiet enjoyment".



The first two covenants relate to the past, and generally do not generally "run with the land" - meaning that only the current grantee may sue the grantor for a breach. The last three covenants protect against future defect and are said to run with the land - allowing any subsequent grantee to seek remedy for breach against any previous grantor. According to Colorado statute, "Covenants of seizin, peaceable possession, freedom from encumbrances, and warranty contained in any conveyance of real estate, or of any interest therein, shall run with the premises, and inure to the benefit of all subsequent purchasers and encumbrancers." (38-30-121 C.R.S.)



2. Special Warranty Deed.

The grantor of a special warranty deed warrants the title only against defects arising after the grantor acquired the property and not against defects arising before that time.



3. Bargain and Sale Deed.

Technically, any deed that recites a consideration and purports to convey the real estate is a bargain and sale deed. Thus, many quitclaim and warranty deeds are also deeds of bargain and sale. Bargain and sale deeds often contain a covenant against the grantor's acts, whereby the grantor warrants only that the grantor has done nothing to harm the title.



This covenant would not run with the land. Examples of bargain and sale deeds with a covenant against the grantor's acts are an executor's deed, an administrator's deed, and a guardian's deed.



4. Quitclaim Deed.

The grantor of a quitclaim deed warrants absolutely nothing. A quitclaim deed conveys the grantor's present interest in the land, if any. A quitclaim deed is frequently used to clear up a technical defect in the chain of title or to release lien claims against the property. Examples of such deeds are correction deeds, and deeds of release.
words of conveyance

For a valid transfer of property you need words of conveyance, such as, "I hereby grant and convey- - - -".



Although it is recommended that a deed be recorded, in Colorado it is not required. The grantee protects his interest in the property by recording it - making the ownership transfer a matter of public record. Acknowledgement is also recommended, and usually required for it to be recorded. Required is: the signature of the grantor, words of conveyance (granting clause), that it be in writing, that the grantee is named, consideration (payment), a description of the ownership interests being conveyed, a legal desciption, delivery of the deed and acceptance by the grantee.



More info on Deeds:



In Colorado real estate, there are several types of deeds, depending on the type/amount of protection given and received from the seller and buyer. From the Colorado Real Estate Manual:



Types Of Deeds

There are four major classifications of deeds:

(1) General warranty deed,

(2) Special warranty deed,

(3) Bargain and sale deed,

(4) Quitclaim deed.



The types of deeds differ solely in the degree of protection that the grantor (seller) promises or warrants to the grantee (buyer). No type of deed transfers any greater or lesser interest than another. For example, if a grantor conveys title in fee simple by a general warranty deed, the same fee simple ownership is conveyed as if he or she had used a quitclaim deed.



However, the general warranty deed grantor promises to defend against any loss incurred due to any title defect, whereas transfer by quitclaim deed contains no such warrant.



1. General Warranty Deed.

A deed in which the grantor warrants or guarantees title against defects that existed before the grantor acquired title or that arose during the grantor's ownership. It does not warrant against encumbrances or defects arising from the grantee's own acts. The usual covenants or warranties contained in a general warranty deed are:



a. Covenant of seizin. Guarantees the grantor's ownership and that he or she has the right to convey it. The fact that the property is mortgaged or is subject to some restriction does not breach this covenant.

b. Covenant against encumbrances. Guarantees that there are no encumbrances or claims against the property except those specifically excluded in the deed.

c. Covenant of quiet enjoyment. Guarantees that the grantee will not be evicted or disturbed in possession of the property. Threats or claims by a third party do not breach this covenant. The grantee would have to actually be dispossessed before being entitled to seek recovery under this covenant against the grantor.

d. Covenant of further assurance. Guarantees that the grantor will procure and deliver any other instruments that are subsequently necessary to make the title good.

e. Covenant of warrant forever. Guarantees that the grantee shall have title and possession to the property. Sometimes considered part of "quiet enjoyment".



The first two covenants relate to the past, and generally do not generally "run with the land" - meaning that only the current grantee may sue the grantor for a breach. The last three covenants protect against future defect and are said to run with the land - allowing any subsequent grantee to seek remedy for breach against any previous grantor. According to Colorado statute, "Covenants of seizin, peaceable possession, freedom from encumbrances, and warranty contained in any conveyance of real estate, or of any interest therein, shall run with the premises, and inure to the benefit of all subsequent purchasers and encumbrancers." (38-30-121 C.R.S.)



2. Special Warranty Deed.

The grantor of a special warranty deed warrants the title only against defects arising after the grantor acquired the property and not against defects arising before that time.



3. Bargain and Sale Deed.

Technically, any deed that recites a consideration and purports to convey the real estate is a bargain and sale deed. Thus, many quitclaim and warranty deeds are also deeds of bargain and sale. Bargain and sale deeds often contain a covenant against the grantor's acts, whereby the grantor warrants only that the grantor has done nothing to harm the title.



This covenant would not run with the land. Examples of bargain and sale deeds with a covenant against the grantor's acts are an executor's deed, an administrator's deed, and a guardian's deed.



4. Quitclaim Deed.

The grantor of a quitclaim deed warrants absolutely nothing. A quitclaim deed conveys the grantor's present interest in the land, if any. A quitclaim deed is frequently used to clear up a technical defect in the chain of title or to release lien claims against the property. Examples of such deeds are correction deeds, and deeds of release.
By deed or will

Either of these can create a joint tenancy as long as the ownership is equal and that there is a right of survivorship


More info on joint ownership -


There are three types of concurrent ownership, or ownership of property by two or more persons: Tenancy by the Entirety, Joint Tenancy, and Tenancy in Common. A Tenancy by the Entirety can be created only by married persons. Anybody regardless of married status may choose to create a Joint Tenancy or a Tenancy in Common.


First of all Tenancy by the Entirety is not used in Colorado we use Joint Tenancy for this purpose instead. Still, the term occasionally makes an appearance on the National side of the licensing exam as some state do use it. So, it is best to know it. Tenancy by the Entirety allows spouses to own property together as a single legal entity. Under a tenancy by the entirety, creditors of an individual spouse may not attach and sell the interest of a debtor spouse: only creditors of the couple may attach and sell the interest in the property owned by tenancy by the entirety.


The most important difference between a tenancy by the entirety and a joint tenancy or tenancy in common is that a tenant by the entirety may not sell or give away his interest in the property without the consent of the other tenant. Upon the death of one of the spouses, the deceased spouse's interest in the property devolves to the surviving spouse, and not to other heirs of the deceased spouse. This is called the right of survivorship.


Tenants in common do not have a right of survivorship. In a tenancy in common, persons may sell or give away their ownership interest. Joint tenants do have a right of survivorship, but a joint tenant may sell or give away her interest in the property. If a joint tenant sells her interest in a joint tenancy, the tenancy becomes a tenancy in common, and no tenant has a right of survivorship. A tenancy by the entirety cannot be reduced to a joint tenancy or tenancy in common by a conveyance of property. Generally, the couple must Divorce, obtain an Annulment, or agree to amend the title to the property to extinguish a tenancy by the entirety.
invalid, the deed needed to be directly delivered or recorded while Mrs. Brown was alive.

A deed cannot be delivered after the death of the grantor (Mr's Brown) . Since there was not proper delivery, Mrs. Brown's Last Will and Testament shall decide who gets her share of the property. The niece could go to court to have the will overturned claiming she had "color of title". This means that although the deed was defective it was written evidence of Mrs Brown's intention that she receive the property. Given the circumstances, Mr Brown might disagree and a judge would need to decide.

More info on joint ownership -


There are three types of concurrent ownership, or ownership of property by two or more persons: Tenancy by the Entirety, Joint Tenancy, and Tenancy in Common. A Tenancy by the Entirety can be created only by married persons. Anybody regardless of married status may choose to create a Joint Tenancy or a Tenancy in Common.


First of all Tenancy by the Entirety is not used in Colorado we use Joint Tenancy for this purpose instead. Still, the term occasionally makes an appearance on the National side of the licensing exam as some state do use it. So, it is best to know it. Tenancy by the Entirety allows spouses to own property together as a single legal entity. Under a tenancy by the entirety, creditors of an individual spouse may not attach and sell the interest of a debtor spouse: only creditors of the couple may attach and sell the interest in the property owned by tenancy by the entirety.


The most important difference between a tenancy by the entirety and a joint tenancy or tenancy in common is that a tenant by the entirety may not sell or give away his interest in the property without the consent of the other tenant. Upon the death of one of the spouses, the deceased spouse's interest in the property devolves to the surviving spouse, and not to other heirs of the deceased spouse. This is called the right of survivorship.


Tenants in common do not have a right of survivorship. In a tenancy in common, persons may sell or give away their ownership interest. Joint tenants do have a right of survivorship, but a joint tenant may sell or give away her interest in the property. If a joint tenant sells her interest in a joint tenancy, the tenancy becomes a tenancy in common, and no tenant has a right of survivorship. A tenancy by the entirety cannot be reduced to a joint tenancy or tenancy in common by a conveyance of property. Generally, the couple must Divorce, obtain an Annulment, or agree to amend the title to the property to extinguish a tenancy by the entirety.
all of the above

Mechanics liens are levied against a specific parcel of land, not all the owners assets. It is involuntary because the owner has no choice. It is equitable because the lien holder does not have possession of the property the lien is against.


Mechanic's Lien: The right of a craftsman, laborer, supplier, architect or other person who has worked upon improvements or delivered materials to a particular parcel of real estate (either as an employee of the owner or as a sub-contractor to a general contractor) to place a lien on that specific property for the value of the services and/or materials if not paid.


With certain exceptions, the Colorado Mechanic's Lien Act requires that a mechanic's lien be recorded within four months of the date that the contractor, subcontractor or supplier performed its last work or last supplied material or equipment. The priority date is as of the date material was delivered or work began, rather than the date recorded. Recording a mechanic's lien assists in securing the real property upon which improvements were made as collateral. The lien claimant has six months from the date that last work was performed or material supplied to file a lawsuit to foreclose its lien and to record notice of its lawsuit (this notice is called a "lis pendens") with the Clerk and Recorder of the County where the real property is located.


Mechanics' Liens are classified as an Involuntary lien because the owner has no choice. They are also classified as an Equitable lien because the lien holder does not have possession of the property the lien is against.
after 18 years

In Colorado an easement by prescription can be exercised in 18 years. Easement by prescription can vary by state from a period of 7 years up to 21 years.


The similarities between adverse possession and prescriptive easements far outweigh the differences. Both result from the operation of the statute of limitations for trespass. In addition, both require that the following elements are satisfied: open and notorious, adverse, continuous and uninterrupted, for the statutory period.


The differences lie primarily in determining what is accomplished by satisfying those elements. With adverse possession, the goal is to acquire title to real property. For that reason, in addition to the elements above, an additional element is actual and exclusive possession of the property. If x has actual and exclusive possession which is open and notorious, adverse, continuous and uninterrupted for the statutory period, and the owner of the property does not take action to eject x within that time, then title to the property will vest in x.


Acquiring an easement by prescription, however, is not directed towards the goal of acquiring title to property. Rather, it's directed towards acquiring an easement, even though the formalities usually required to create an easement (for example a writing signed by the grantor) are not present. So, if x uses (rather than possesses) the land of y, and the use is open and notorious, adverse, continuous and uninterrupted, for the statutory period, the x has acquired an easement and can continue to use that land in the same manner as his previous use.
The mechanic's lien has priority over the mortgage lien

How the priority date of Mechanic's liens are determined is different than any other lien. The date labor ensued or when supplies were delivered and not the date the lien was recorded is the priority date of a Mechanics lien. In this question - the labor was provided before the mortgage lien was filed of record - therefore the Mechanics lien would take precedence. .

Mechanic's Lien: The right of a craftsman, laborer, supplier, architect or other person who has worked upon improvements or delivered materials to a particular parcel of real estate (either as an employee of the owner or as a sub-contractor to a general contractor) to place a lien on that specific property for the value of the services and/or materials if not paid.


With certain exceptions, the Colorado Mechanic's Lien Act requires that a mechanic's lien be recorded within four months of the date that the contractor, subcontractor or supplier performed its last work or last supplied material or equipment. The priority date is as of the date material was delivered or work began, rather than the date recorded. Recording a mechanic's lien assists in securing the real property upon which improvements were made as collateral. The lien claimant has six months from the date that last work was performed or material supplied to file a lawsuit to foreclose its lien and to record notice of its lawsuit (this notice is called a "lis pendens") with the Clerk and Recorder of the County where the real property is located.


Mechanics' Liens are classified as an Involuntary lien because the owner has no choice. They are also classified as an Equitable lien because the lien holder does not have possession of the property the lien is against.


BTW - this is why at closings, good Buyer's agents always insist on seeing paid receipts for work the Sellers perform on the property. Nothing will ruin a new homeowners day than to find out the Seller never paid for that new roof and under the rules of a Mechanics Lien, the roofer has slapped a lien on the property. Ultimately, the new homeowner is not responsible for the roof obligation, but they are now going to have to go to court to clear the lien.
ovenant against encumbrances

his covenant is easy to remember, since the title is the same as what it protects against - encumbrances

More about covenents and the General Warranty Deed


A general warranty deed is one in which the grantor warrants or guarantees title against defects that existed before the grantor acquired title or that arose during the grantor's ownership. It does not warrant against encumbrances or defects arising from the grantee's own acts. The usual covenants or warranties contained in a general warranty deed are:


1. Covenant of seisin. Guarantees the grantor's ownership and that he or she has the right to convey it. The fact that the property is mortgaged or is subject to some restriction does not breach this covenant.


2. Covenant against encumbrances. Guarantees that there are no encumbrances or claims against the property except those specifically excluded in the deed.


3. Covenant of quiet enjoyment. Guarantees that the grantee will not be evicted or disturbed in possession of the property. Threats or claims by a third party do not breach this covenant. The grantee would have to actually be dispossessed before being entitled to seek recovery against the grantor under this covenant.


4. Covenant of further assurance. Guarantees that the grantor will procure and deliver any other instruments that are subsequently necessary to make the title good.


5. Covenant of warrant forever. Guarantees that the grantee shall have title to and possession of the property. Sometimes considered part of "quiet enjoyment."
No, $83,333

Here is the formula: Income Generated / Rate = Value. Therefore $20,000 / .12 = $166,667 as a value for the property. The list price of $250,000 seems high. Seller would have to lower his price by:$250,000 - $166,667 = $83,333


More about Cap Rate:


Since Cap Rate uses income, it is only used for income producing properties, not for example, the home you are buying for yourself. First let's define cap rate AKA Capitalization Rate: Cap rate indicates how fast an investment will pay for itself. For example, a 10% Cap Rate means you will get 10% of your purchase price back each year. If a commercial apartment building is purchased for $5,000,000 and it generates $500,000 a year in net operating income (the dollars left over after operating costs are subtracted from your gross income), then:


$500,000 / $5,000,000 = 10% cap rate


This means 10% of the building's purchase price is paid each year by the proceeds. Another way of saying this - the property will pay for itself in 10 years.


How do you use this tool?


Way one; it allows investors a fairly easy and quick method of comparing investment properties. For example: take two properties as identical as the cute twins you flirted with in high school, with the same net operating income. One has a cap rate of 8% (same income, priced higher) and the other a cap rate of 15% (same income, priced lower). The 15% cap rate property MIGHT just be a heck of a deal or the 8% one overpriced. BUT you have to dig deeper, because it might be that the higher cap rate property is in a bad neighborhood and the owner has to discount the price to get it sold. Higher risk means you as a buyer get more bang for the buck with the 15% cap rate property, but you are going to have to work harder for it and your spouse is mad because you haven't been able to take a vacation in years because of that "dang" property you bought. The 8% cap rate property may be more expensive and have a longer payback period, but that is because there is less risk and more investors want to buy it. The rents just come in without grief and it could save your marriage.


Way two: Cap Rate is also used in the Income Method of appraisals to value a property. Generally, investors could care less if a property is pretty; they want to know how much they are going to make off it. The Income Method allows an investor to value a property based on its income. If most like investment properties in an area have an average cap rate of 7%. You can divide the net operating income of the property your client is interested in (provided by the listing agent) by the average cap rate in the area (digging in sold comps of various MLS's) and it will give you the approximate market value of the property. For example: $225,000 net operating income / 7% = $3,214,285 market value. If the property is listed for $5,000,000 you might want to pass it by because it is overpriced for the neighborhood. If it is listed for $2,500,000 you call your client quick because you think you found a good deal.


So, If you want to play with investors you will need to make cap rates your well understood best buddy.
stigmatized properties

The Colorado Real Estate Commission's position on psychologically stigmatized properties is events that would cause this are NOT TO BE disclosed and agents are protected from legal actions resulting from nondisclosure. Stigmatized property is a controversial term used in the real estate business for a property which buyers or tenants may shun for reasons that are unrelated to its physical condition or features. These can include events invloving murder or suicide or AIDS in addition to a belief that a house may be haunted. Material facts such as the foundation is bad or the house tested high for Radon ARE required to be disclosed.

Nondisclosure of Information Psychologically Impacting

Real Property

§ 38-35.5-101, C.R.S. Circumstances psychologically impacting real property - no duty for broker or salesperson to disclose.

(1) Facts or suspicions regarding circumstances occurring on a parcel of property which could psychologically impact or stigmatize such property are not material facts subject to a disclosure requirement in a real estate transaction. Such facts or suspicions include, but are not limited to, the following:

(a) That an occupant of real property is, or was at any time suspected to be, infected or has been infected with human immunodeficiency virus (HIV) or diagnosed with acquired immune deficiency syndrome (AIDS), or any other disease which has been determined by medical evidence to be highly unlikely to be transmitted through the occupancy of a dwelling place; or

(b) That the property was the site of a homicide or other felony or of a suicide.

(2) No cause of action shall arise against a real estate broker or salesperson for failing to disclose such circumstance occurring on the property which might psychologically impact or stigmatize such property.
in all cases

Material facts must be disclosed even if it kills a deal.


A material fact in real estate is defined as a fact that, if known, might have caused a buyer or seller of real estate to make a different decision with regards to remaining in a contract or to the price paid or received. The question is - when is a fact a material fact that must be disclosed?


The seller's broker must disclose to the buyer any adverse material facts known by the broker. This requirement does not include facts that should have been known by the broker, as is the law in some other states. In other words, while a broker in some states should, arguably, check on why there's a water stain on the hardwood floor (perhaps a sign of leakage?) a broker in Colorado might not need to investigate any further. "Adverse material facts" may include facts pertaining to the property's title, physical condition, and material defects, and any environmental hazards affecting the property.


Psychological impacts to the property are not, however, considered material defects. (C.R.S. § 12-61-804.) Examples of psychological impacts might include crimes committed on the property or a rumor that the property is haunted. Neither Seller or Buyer's Agents may disclose psychological impacts which may stigmatize a property.


In any State, the Buyer or Seller's agent's opinion as to whether a neighborhood is "good" or "bad" because of crime is not considered to be a material fact which should be disclosed. In fact, it is illegal for an agent to make such a disclosure as that would be considered "steering".
one person behaves toward another in a way that suggests or implies that he is acting as that other person's agent

An agency may be created by implication (implied agency) when one person behaves toward another in a way that suggests or implies that he is acting as that other person's agent. If the other person reasonably believes that there is an agency relationship, and the supposed agent fails to correct that impression, he may owe the other person agency duties.



More info:



Under general agency law, an agency relationship may be formed in four ways: by express agreement, by ratification, by estoppel, or by implication. Most agencies are created by express agreement: the principal appoints someone to act as her agent, and the agent accepts the appointment. An agency is created by ratification when the principal gives approval after the fact to acts performed by another. Under the legal doctrine of estoppel, a person is not allowed to take a position that contradicts her previous conduct, if someone else has relied on the previous conduct. An agency can be created by estoppel when it would be unfair to a third party to deny the agent's authority, because the principal has allowed the third party to believe there was an agency relationship. An agency may be created by implication when one person behaves toward another in a way that suggests or implies that he is acting as that other person's agent. If the other person reasonably believes that there is an agency relationship, and the supposed agent fails to correct that impression, he may owe the other person agency duties.
$4,800 debit seller, $2,400 debit buyer, $7,200 credit broker

300,000 X 80% = $240,000 loan amount. The seller is paying 2% (2 discount points) of the loan amount so $240,000 x .02 = $4,800 debit seller. The buyer is paying 1% (1 discount point) of the loan amount, so $240,000 x .01 = $2,400 debit buyer. This money needs to be placed into the escrow account for the transaction, so $7,200 credit broker.


On the "Broker" column:

The "broker" debit and credit columns in the six column worksheet for closings represents the escrow account for the closing. Although it is referred to as the "broker" columns, generally it is the closing agent who has control of the escrow account as the closing agent was hired by the broker to conduct the closing. Hiring a closing agent does not absolve the broker from legal responsibility for the escrow account, hence the name of those columns are "broker debit" and "broker credit".



On 'Discount Points':

Discount Points are a form of prepaid interest. A borrower buys a point and in return gets a lower interest rate on the loan. Each discount point generally costs 1% of the total loan amount and depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of your interest rate. As the IRS considers discount points to be prepaid interest they are tax deductible in the year in which they were paid.



For example, on a $300,000 loan, each point would cost $3,000. Assuming the interest rate on the mortgage is 5% and each point lowers the interest rate by 0.25%. Buying 2 points will cost $6,000 and will result in an interest rate of 4.50%.



Both lenders and borrowers gain benefits from discount points. Borrowers gain the benefit of lowered interest payments down the road, but the benefit applies only if the borrower plans on holding onto the mortgage long enough to save money from the decreased interest payments. Lenders benefit by receiving cash upfront instead of waiting for money in the form of interest payments over time, which enhances the lenders liquidity situation.



On a practical basis; discount points are most often purchased by sellers as an incentive to prospective buyers. For most sellers, discount points are a cost of selling and thus tax-deductible. Buyers usually do not see enough benefit to purchase discount points. In the earlier example; spending $6,000 to reduce the interest rate to 4.5%, would have reduced the monthly payment by about $90. It would have taken a buyer 67 months to cover the cost of the points.
mortgagor

The Mortgagor is the owner of the property. The owner placed the voluntary lien on the property which the mortgage represents to secure a loan for the property. Money left over from the sale of the foreclosed property, after all obligations were settled, would have been returned to the Mortgagor (AKA foreclosed owners).



The IRS views a foreclosure sale as a normal sale of the property. The owners would need to consider the tax consequences of the sale as the excess money may be viewed by the IRS as a capital gain and thus subject to capital gain taxes.



More information about foreclosures in Colorado:



Foreclosures: Foreclosure is the act of selling, by legal proceedings, real property to satisfy the obligations of the landowner to a third party. It is the procedure whereby property pledged as security is sold to pay the debt in the event of default in payment.



There are three main types of foreclosure in the State of Colorado:

The Public Trustee System: The Public Trustee, by law, serves as the neutral, intermediate party between the lender and the borrower to assure that each party can exercise its legal rights in a foreclosure action. The Public Trustee is NOT an attorney and cannot provide legal advice to any parties involved in the foreclosure action. A foreclosure conducted by the Public Trustee's office is authorized by a deed of trust containing a power of sale (right to sell property at public auction in the event of default). The procedure for conducting the foreclosure is set by statute and must be followed precisely. The deed of trust is an agreement between three parties: the Grantor (owner), the Public Trustee (who has the power of sale) and the Beneficiary (lender). The



Judicial Foreclosure:

Foreclosure conducted through the Court system on a mortgage, deed of trust, or judgment. The procedure for conducting the foreclosure is under Rule 105 of the Colorado Rules of Civil Procedure. A mortgage is an agreement between two parties: the Mortgagor (owner) and the Mortgagee (lender).



The Tax Sale:

The Tax Sale Sale of real property by the Treasurer for failure to pay real estate taxes. The procedure for conducting the sale is set by statue.
Judicial

Since it is a private trustee it must be done through a judicial process, were it held by the public trustee than it could be conducted by the county trustee



More information about foreclosures in Colorado:



Foreclosures:

Foreclosure is the act of selling, by legal proceedings, real property to satisfy the obligations of the landowner to a third party. It is the procedure whereby property pledged as security is sold to pay the debt in the event of default in payment. There are three main types of foreclosure in the State of Colorado: The Public Trustee System: The Public Trustee, by law, serves as the neutral, intermediate party between the lender and the borrower to assure that each party can exercise its legal rights in a foreclosure action. The Public Trustee is NOT an attorney and cannot provide legal advice to any parties involved in the foreclosure action. A foreclosure conducted by the Public Trustee's office is authorized by a deed of trust containing a power of sale (right to sell property at public auction in the event of default). The procedure for conducting the foreclosure is set by statute and must be followed precisely. The deed of trust is an agreement between three parties: the Grantor (owner), the Public Trustee (who has the power of sale) and the Beneficiary (lender).



The Judicial Foreclosure:

Foreclosure conducted through the Court system on a mortgage, deed of trust, or judgment. The procedure for conducting the foreclosure is under Rule 105 of the Colorado Rules of Civil Procedure. A mortgage is an agreement between two parties: the Mortgagor (owner) and the Mortgagee (lender).



The Tax Sale:

The Tax Sale Sale of real property by the Treasurer for failure to pay real estate taxes. The procedure for conducting the sale is set by statue.
upon satisfaction of the installment land contract

Title does not pass until the loan has been paid off.



More info on Installment Land Contracts:



Installment Land Contracts AKA "Land Contracts" is a purchase agreement in which the owner retains legal title to a property while the buyer, usually a tenant, makes payments. ONCE THE BUYERS COMPLETES THESE PAYMENTS, THE SELLER DEEDS THE PROPERTY TO THE BUYER. Two big points here: 1) Since the buyer does not take legal ownership until they complete payments, this means the buyer, who usually has possession of the property, has no legal rights to the property beyond that of a renter. THEY DO NOT OWN IT - THE SELLER DOES. 2) Because of the number of creeps who have used installment land contracts to defraud unknowing buyers, the real estate commission does not have an approved form for us as agents to use. These contracts are not illegal, if you have clients who want to enter into such an agreement, they (notice the "they" here - I for one would not touch a land contract transaction for all the tea in China) need to bring in an attorney to draw up the necessary paperwork.



The real estate commission feels so strongly about this, they issued a position statement on it. Here it is: CP-39 Commission Position on Lease Options, Lease Purchase Agreements and Installment Land Contracts (4-5-2011)



The Commission recognizes that in order to maintain the resilience of the real estate market during times when conventional lending requirements are rigorous, alternative funding practices are utilized to sustain the market conditions of supply and demand. The Commission has received and investigated numerous complaints pertaining to lease options, lease purchase agreements and installment land contracts. Although the Commission does not have the authority to prohibit the types of real estate transactions that real estate brokers participate in, the Commission strongly cautions real estate brokers to utilize the services of an attorney licensed to practice law within the State of Colorado. It has been the Commission's observation, based on complaints received, that lease option and lease purchase transactions are complex and generally contain provisions with significant financial risk posed to the prospective buyer and seller. Installment land contracts and the other transactions mentioned in this position statement afford buyers the opportunity to take possession of the real property and make installment payments to the seller. There is a significant potential for harm to the seller, buyer or assignee if the installment land contract is not properly drafted. In all of the above transactions, the seller retains legal title to the property while the buyer may acquire equitable title. The Commission does not have an approved contract form necessary to memorialize the terms and nuances related to these complex transactions, or any jurisdictional regulations that may be germane. Pursuant to Rule F, the appropriate provisions of the license law and the brokerage relationship act (§§12-61-113, 12-61-804, 805 and 807, C.R.S.), real estate brokers are prohibited from drafting a contract document that would reflect the terms of such a transaction as it would exceed their level of competency and is a matter requiring the expertise and advice of an attorney. Additionally, such behavior may be construed as the unauthorized practice of law by the real estate broker and subject to civil penalties. The contracts for these transactions should not be prepared by a real estate broker; rather, the documents should be drafted by a licensed Colorado attorney-at-law engaged for each particular transaction.
Trustor (borrower) holds title to the property during the term of the mortgage

Trustor (AKA buyer or borrower) has title to the property. The loan is secured by a lien created through a Trust Deed and held by the Public Trustee. As the lender benefits from this lien, the lender is referred to as the "beneficiary".


More about this topic:


Mortgage Theory, Lien Theory, Deed of Trust and Naked Rights


Many people (not our students, they are being educationally uplifted) think that the only parties involved in a mortgage are the lender and the borrower. In a Mortgage Theory state (spoiler alert - not Colorado) this is true. The lender and the borrower have a promissory note between them that outlines the terms of the loan. In it, the lender gets legal title to the property as security for the loan. Once the borrower pays it off, the lender conveys legal title to the property.


But there's another party involved whenever a Deed of Trust is used and this is how most loans are secured in Colorado and in most other states. These are called "Lien Theory" states.


Lien Theory states bring a neutral third party into the picture called the Public Trustee.


When a loan is secured by a Deed of Trust, three parties are involved: the borrower (called the trustor), the lender (the beneficiary) and the Public Trustee (surprisingly called - "the trustee")


The lender makes a loan to the borrower and they both sign a promissory note outlining the terms and conditions of the loan. The borrower then secures the loan by putting a lien on the property through a Deed of Trust given to the Public Trustee. It is the Deed of Trust which gives the Public Trustee "naked title" (phew....finally getting to your question) to the property. The Deed of Trust is recorded in the county where the property is located.


This "title" the borrower gives to the trustee is sometimes referred to as a naked title.


It iss "naked" because as long as the borrower makes required payments, there's nothing the trustee can do with the "naked" title because there are no ownership rights in it -- it is naked.


The one right the Public Trustee does have, is to sell your property in response to a Notice of Election and Demand filed by the lender with the trustee claiming you have violated the terms of your promissory note. That's called a foreclosure.
A means of selling a property whereby the buyer pays for the property in regular installments while the seller retains title to the property.

An installment land contract can be very risky for the buyer but does allow the buyer to get into a property which they may not qualify for. Can be used to avoid the acceleration clause in a mortgage.



More info on Installment Land Contracts:



Installment Land Contracts AKA "Land Contracts" is a purchase agreement in which the owner retains legal title to a property while the buyer, usually a tenant, makes payments. ONCE THE BUYERS COMPLETES THESE PAYMENTS, THE SELLER DEEDS THE PROPERTY TO THE BUYER. Two big points here: 1) Since the buyer does not take legal ownership until they complete payments, this means the buyer, who usually has possession of the property, has no legal rights to the property beyond that of a renter. THEY DO NOT OWN IT - THE SELLER DOES. 2) Because of the number of creeps who have used installment land contracts to defraud unknowing buyers, the real estate commission does not have an approved form for us as agents to use. These contracts are not illegal, if you have clients who want to enter into such an agreement, they (notice the "they" here - I for one would not touch a land contract transaction for all the tea in China) need to bring in an attorney to draw up the necessary paperwork.



The real estate commission feels so strongly about this, they issued a position statement on it. Here it is: CP-39 Commission Position on Lease Options, Lease Purchase Agreements and Installment Land Contracts (4-5-2011)



The Commission recognizes that in order to maintain the resilience of the real estate market during times when conventional lending requirements are rigorous, alternative funding practices are utilized to sustain the market conditions of supply and demand. The Commission has received and investigated numerous complaints pertaining to lease options, lease purchase agreements and installment land contracts. Although the Commission does not have the authority to prohibit the types of real estate transactions that real estate brokers participate in, the Commission strongly cautions real estate brokers to utilize the services of an attorney licensed to practice law within the State of Colorado. It has been the Commission's observation, based on complaints received, that lease option and lease purchase transactions are complex and generally contain provisions with significant financial risk posed to the prospective buyer and seller. Installment land contracts and the other transactions mentioned in this position statement afford buyers the opportunity to take possession of the real property and make installment payments to the seller. There is a significant potential for harm to the seller, buyer or assignee if the installment land contract is not properly drafted. In all of the above transactions, the seller retains legal title to the property while the buyer may acquire equitable title. The Commission does not have an approved contract form necessary to memorialize the terms and nuances related to these complex transactions, or any jurisdictional regulations that may be germane. Pursuant to Rule F, the appropriate provisions of the license law and the brokerage relationship act (§§12-61-113, 12-61-804, 805 and 807, C.R.S.), real estate brokers are prohibited from drafting a contract document that would reflect the terms of such a transaction as it would exceed their level of competency and is a matter requiring the expertise and advice of an attorney. Additionally, such behavior may be construed as the unauthorized practice of law by the real estate broker and subject to civil penalties. The contracts for these transactions should not be prepared by a real estate broker; rather, the documents should be drafted by a licensed Colorado attorney-at-law engaged for each particular transaction.
Susan Seller give her agent a 60 days listing to sell her home for $200,000. The seller specified in the Exclusions section of the listing agreement that her prized Iris plants would be removed prior to close and the iris bed repaired to eliminate the damage of plant removal.

Public records indicates the home is 2,400 square feet, has 3 bedrooms, 2 bathrooms, a 90% finished basement and a two car garage. Last year's taxes were $1,832 and have been paid.

An offer was made and accepted with a sales price of $190,000. . The buyers submitted earnest money of $3,000 under liquidated damages. The inspection objections must be made by March 27. The survey must be completed by April 10. Review of title must be completed by April 10.

The Sellers indicated in the seller's property disclosure that the water heater had leaked. The water heater was replaced and all water damage repaired. The sellers further disclosed that the concrete basement floor had lifted due to expansive soils creating a crack in the concrete floor.

Although closing was set for May 1st, a delay in the lender processing of the buyer's loan forced a change in close to May 10th. This change was accepted by both parties. The cost of the survey was $450. The closing fee charged by the closing company is $150 to be split by both parties.

The buyers inspector noticed the damage to the basement floor and communicated this information to the buyer on March 20th.

-The purchase contract is still binding as the listing broker guarantees the floor will be repaired by closing
-The purchase contract is still binding as the crack was disclosed in the seller property disclosure
-The buyer may terminate the purchase contract in writing. The buyer also has the option to negotiate a repair cost with the seller
0.08

$24,000 (Net Income) / $300,000 (Value) = 8% (Rate)


More on cap rates:


Since Cap Rate uses income, it is only used for income producing properties, not for example, the home you are buying for yourself. First let's define cap rate AKA Capitalization Rate: Cap rate indicates how fast an investment will pay for itself. For example, a 10% Cap Rate means you will get 10% of your purchase price back each year. If a commercial apartment building is purchased for $5,000,000 and it generates $500,000 a year in net operating income (the dollars left over after operating costs are subtracted from your gross income), then:


$500,000 / $5,000,000 = 10% cap rate


This means 10% of the building's purchase price is paid each year by the proceeds. Another way of saying this - the property will pay for itself in 10 years.


How do you use this tool?


Way one; it allows investors a fairly easy and quick method of comparing investment properties. For example: take two properties as identical as the cute twins you flirted with in high school, with the same net operating income. One has a cap rate of 8% (same income, priced higher) and the other a cap rate of 15% (same income, priced lower). The 15% cap rate property MIGHT just be a heck of a deal or the 8% one overpriced. BUT you have to dig deeper, because it might be that the higher cap rate property is in a bad neighborhood and the owner has to discount the price to get it sold. Higher risk means you as a buyer get more bang for the buck with the 15% cap rate property, but you are going to have to work harder for it and your spouse is mad because you haven't been able to take a vacation in years because of that "dang" property you bought. The 8% cap rate property may be more expensive and have a longer payback period, but that is because there is less risk and more investors want to buy it. The rents just come in without grief and it could save your marriage.


Way two: Cap Rate is also used in the Income Method of appraisals to value a property. Generally, investors could care less if a property is pretty; they want to know how much they are going to make off it. The Income Method allows an investor to value a property based on its income. If most like investment properties in an area have an average cap rate of 7%. You can divide the net operating income of the property your client is interested in (provided by the listing agent) by the average cap rate in the area (digging in sold comps of various MLS's) and it will give you the approximate market value of the property. For example: $225,000 net operating income / 7% = $3,214,285 market value. If the property is listed for $5,000,000 you might want to pass it by because it is overpriced for the neighborhood. If it is listed for $2,500,000 you call your client quick because you think you found a good deal.


So, If you want to play with investors you will need to make cap rates your well understood best buddy.
signs the note and gives the mortgage

The borrower is the mortgagor; the lender is the mortgagee.

Here is a great explanation from realtytimes.com:

Buyers, sellers, real estate brokers, even bankers get confused, sometimes, by the difference between "mortgagor" and "mortgagee". The confusion arises because they're mixed up about who actually does the mortgaging.

Most homebuyers say they'll go to a lender "to get a mortgage" and real estate brokers do the same: "We'll find a bank to give you a mortgage". That's all wrong, though. You're the one who will give a mortgage to the bank. A mortgage is a financial claim against your property. You sign a document giving that claim (a lien) to the lender, and in return they give you -- money. You give the lending institution two things: first a note or bond, which is a personal promise to repay the loan, just like any promissory note. Then you also sign another document, a trust deed (in some states, a mortgage), which says "and if I don't pay as promised, you can take the property." It's you who mortgages the property. The lender takes the mortgage and holds it (until the debt is paid off.)

So you don't look for a bank to give you a mortgage. You do the giving. You're looking for a bank that will take your mortgage.

The person who performs the action is the "or" or "er" actor. Think of "employer" or "donor". That makes the you, the borrower, the "mortgagor". You're doing the mortgaging. The bank, or other lender, takes your mortgage. And the recepient is always the "ee" figure. That makes the bank the "mortgagee". Real estate students remember the difference by noticing that "borrower" has two "o"s in it, and so does "mortgagor." "Lender", on the other hand, has two "e"s, and so does "mortgagee".
His license and all associate brokers working for him are inactivated

We have various questions floating around related to what happens when a broker fails to notify the real estate commission of a business address change. Any licensee who does not notify the Commission of an address change will have their license inactivated. When the licensee is also the mama or poppa bear of the office (the employing broker) the penalty goes up. Since an employing broker with an inactive license cannot have licensees reporting to him/her AND a licensee who is not independent cannot have an active licensee without reporting to an employing broker - the effect is catastrophic. Everybody's license in the office is inactive. Here are the applicable statues:


From chapter in real estate manual on License Law


§ 12-61-109, C.R.S. Change of license status - inactive - cancellation.


(1) Immediate notice shall be given in a manner acceptable to the commission by each licensee of any change of business location or employment. A change of business address or employment without notification to the commission shall automatically inactivate the licensee's license.


§ 12-61-110, C.R.S


(5) The suspension, expiration, or revocation of a real estate broker's license shall automatically inactivate every real estate broker's license where the holder of such license is shown in the commission records to be in the employ of the broker whose license has expired or has been suspended or revoked pending notification to the commission by the employed licensee of a change of employment.
never
The real estate commission's position on psychologically stigmatized properties is that they are NOT TO BE disclosed and agents are protected from legal actions resulting from nondisclosure. Stigmatized property is a controversial term used in the real estate business for property which buyers or tenants may shun for reasons that are unrelated to its physical condition or features. These can include events invloving murder or suicide or AIDS in addition to a belief that a house may be haunted. Material facts such as the foundation is bad or the house tested high for Radon ARE required to be disclosed.


Nondisclosure of Information Psychologically Impacting

Real Property


§ 38-35.5-101, C.R.S. Circumstances psychologically impacting real property - no duty for broker or salesperson to disclose.


(1) Facts or suspicions regarding circumstances occurring on a parcel of property which could psychologically impact or stigmatize such property are not material facts subject to a disclosure requirement in a real estate transaction. Such facts or suspicions include, but are not limited to, the following:


(a) That an occupant of real property is, or was at any time suspected to be, infected or has been infected with human immunodeficiency virus (HIV) or diagnosed with acquired immune deficiency syndrome (AIDS), or any other disease which has been determined by medical evidence to be highly unlikely to be transmitted through the occupancy of a dwelling place; or


(b) That the property was the site of a homicide or other felony or of a suicide.


(2) No cause of action shall arise against a real estate broker or salesperson for failing to disclose such circumstance occurring on the property which might psychologically impact or stigmatize such property.
the broker must notify the commission in a manner acceptable to the commission or the license will become inactive

The employing broker must notify the commission of the address change in writing or all licenses will be inactive until the change is made. One notification will suffice for the broker and all associated licensees.


Any licensee who does not notify the Commission of an address change will have their license inactivated. When the licensee is also the mama or poppa bear of the office (the employing broker) the penalty goes up. Since an employing broker with an inactive license cannot have licensees reporting to him/her AND a licensee who is not independent cannot have an active licensee without reporting to an employing broker - the effect is catastrophic. Everybody's license in the office is inactive. Here are the applicable statues:


From chapter in real estate manual on License Law


§ 12-61-109, C.R.S. Change of license status - inactive - cancellation.


(1) Immediate notice shall be given in a manner acceptable to the commission by each licensee of any change of business location or employment. A change of business address or employment without notification to the commission shall automatically inactivate the licensee's license.


§ 12-61-110, C.R.S


(5) The suspension, expiration, or revocation of a real estate broker's license shall automatically inactivate every real estate broker's license where the holder of such license is shown in the commission records to be in the employ of the broker whose license has expired or has been suspended or revoked pending notification to the commission by the employed licensee of a change of employment.
must satisfy the continuing education requirement before they apply to activate an inactive license or to reinstate an expired license to active status

This answer is a two-edged sword. To convert an inactive or expired license to active status the licensee must be current on or otherwise satisfy the CE requirements, pay a renewal fee and get Errors and Omissions insurance.


If the licensee has no intention of ever activating their inactive or expired license they do not need to take continueing education, pay a renewal fee or purchase insurance.


CE requirements are listed in Commission Rule B-2 below:


B-2. Methods of completing continuing education.


Licensed brokers must satisfy the continuing education requirement before they apply to renew an active license, activate an inactive license or to reinstate an expired license to active status. Licensed brokers may satisfy the entire continuing education requirement through one of the following options:


a) Complete the twelve hours required bysection 12-61-110.5 (1) (c), C.R.S., and required by this rule in annual 4-hour increments developed by the Commission, otherwise referred to as the "Annual Commission Update Course." Licensees who choose this option must complete an additional 12 hours of elective credit hours to meet the 24-hour total continuing education requirement during the license period in subject areas listed in section 12-61-110.5(3), C.R.S. Please note that a licensee may not take the same version of the Annual Commission Update Course more than once. If a licensed broker takes more than 12 hours of the Annual Commission Update Course during a license period, the licensee will receive elective credit hours for any additional hours.


b) Completing the Commission-approved 24-hour "Broker Reactivation Course." This option is available to licensees under one of the following conditions:


(1) Licensee is currently active and did not use the Broker Reactivation Course to satisfy the Rule B-2(a) requirements in the previous license year


(2) Licensee is inactive or expired for up to thirty-six months prior to active status and unable to comply with the education requirements listed in Rule B-2(a).


c) Pass the Colorado state portion of the licensing exam.


d) Completing 72 total hours of pre-licensure education concerning the understanding and preparation of Colorado real estate contracts (48 hours) and real estate closings (24 hours). The courses and course providers are required to comply with the requirements as described at section 12-61-103(4)(a), C.R.S. Any inactive or expired licensees who cannot meet the education requirements listed in Section 4(a), (b), or (c) must comply with the education requirements found in Section 4(d) before activation or reinstatement of the license.
24 hours of approved continuing education, of which 12 hrs must consist of the 4 hour Annual Commission Update Course taken each year

The licensee must complete 24 hours of approved continuing education during the three year license period. Twelve of those hours must consist of taking 4 hour Annual Commission Update Course each year.



CE requirements are listed in Commission Rule B-2 below:

B-2. Methods of completing continuing education.



Licensed brokers must satisfy the continuing education requirement before they apply to renew an active license, activate an inactive license or to reinstate an expired license to active status. Licensed brokers may satisfy the entire continuing education requirement through one of the following options:



a) Complete the twelve hours required bysection 12-61-110.5 (1) (c), C.R.S., and required by this rule in annual 4-hour increments developed by the Commission, otherwise referred to as the "Annual Commission Update Course." Licensees who choose this option must complete an additional 12 hours of elective credit hours to meet the 24-hour total continuing education requirement during the license period in subject areas listed in section 12-61-110.5(3), C.R.S. Please note that a licensee may not take the same version of the Annual Commission Update Course more than once. If a licensed broker takes more than 12 hours of the Annual Commission Update Course during a license period, the licensee will receive elective credit hours for any additional hours.



b) Completing the Commission-approved 24-hour "Broker Reactivation Course." This option is available to licensees under one of the following conditions:



(1) Licensee is currently active and did not use the Broker Reactivation Course to satisfy the Rule B-2(a) requirements in the previous license year



(2) Licensee is inactive or expired for up to thirty-six months prior to active status and unable to comply with the education requirements listed in Rule B-2(a).



c) Pass the Colorado state portion of the licensing exam.



d) Completing 72 total hours of pre-licensure education concerning the understanding and preparation of Colorado real estate contracts (48 hours) and real estate closings (24 hours). The courses and course providers are required to comply with the requirements as described at section 12-61-103(4)(a), C.R.S. Any inactive or expired licensees who cannot meet the education requirements listed in Section 4(a), (b), or (c) must comply with the education requirements found in Section 4(d) before activation or reinstatement of the license.
the broker must notify the commission in a manner acceptable to the commission, or the brokerage license will become inactive.

The broker must notify the commission in a manner acceptable to the commission, or the brokerage license will become inactive.


Any licensee who does not notify the Commission of an address change will have their license inactivated. When the licensee is also the mama or poppa bear of the office (the employing broker) the penalty goes up. Since an employing broker with an inactive license cannot have licensees reporting to him/her AND a licensee who is not independent cannot have an active licensee without reporting to an employing broker - the effect is catastrophic. Everybody's license in the office is inactive. Here are the applicable statues:


From chapter in real estate manual on License Law


§ 12-61-109, C.R.S. Change of license status - inactive - cancellation.


(1) Immediate notice shall be given in a manner acceptable to the commission by each licensee of any change of business location or employment. A change of business address or employment without notification to the commission shall automatically inactivate the licensee's license.


§ 12-61-110, C.R.S


(5) The suspension, expiration, or revocation of a real estate broker's license shall automatically inactivate every real estate broker's license where the holder of such license is shown in the commission records to be in the employ of the broker whose license has expired or has been suspended or revoked pending notification to the commission by the employed licensee of a change of employment.
delivered to the grantee (Buyer) at the closing then recorded at the County by the title company

At a closing, the deed is signed by the grantor, given to the grantee (delivery) then the title company takes the deed from the grantee(acceptance) and mails it to the county for recording. The county returns the original deed to the grantee after it has been recorded. Title passes at the moment of delivery and acceptance.



More info on Deeds:



In Colorado real estate, there are several types of deeds, depending on the type/amount of protection given and received from the seller and buyer. From the Colorado Real Estate Manual:



Types Of Deeds

There are four major classifications of deeds:

(1) General warranty deed,

(2) Special warranty deed,

(3) Bargain and sale deed,

(4) Quitclaim deed.



The types of deeds differ solely in the degree of protection that the grantor (seller) promises or warrants to the grantee (buyer). No type of deed transfers any greater or lesser interest than another. For example, if a grantor conveys title in fee simple by a general warranty deed, the same fee simple ownership is conveyed as if he or she had used a quitclaim deed.



However, the general warranty deed grantor promises to defend against any loss incurred due to any title defect, whereas transfer by quitclaim deed contains no such warrant.



1. General Warranty Deed.

A deed in which the grantor warrants or guarantees title against defects that existed before the grantor acquired title or that arose during the grantor's ownership. It does not warrant against encumbrances or defects arising from the grantee's own acts. The usual covenants or warranties contained in a general warranty deed are:



a. Covenant of seizin. Guarantees the grantor's ownership and that he or she has the right to convey it. The fact that the property is mortgaged or is subject to some restriction does not breach this covenant.

b. Covenant against encumbrances. Guarantees that there are no encumbrances or claims against the property except those specifically excluded in the deed.

c. Covenant of quiet enjoyment. Guarantees that the grantee will not be evicted or disturbed in possession of the property. Threats or claims by a third party do not breach this covenant. The grantee would have to actually be dispossessed before being entitled to seek recovery under this covenant against the grantor.

d. Covenant of further assurance. Guarantees that the grantor will procure and deliver any other instruments that are subsequently necessary to make the title good.

e. Covenant of warrant forever. Guarantees that the grantee shall have title and possession to the property. Sometimes considered part of "quiet enjoyment".



The first two covenants relate to the past, and generally do not generally "run with the land" - meaning that only the current grantee may sue the grantor for a breach. The last three covenants protect against future defect and are said to run with the land - allowing any subsequent grantee to seek remedy for breach against any previous grantor. According to Colorado statute, "Covenants of seizin, peaceable possession, freedom from encumbrances, and warranty contained in any conveyance of real estate, or of any interest therein, shall run with the premises, and inure to the benefit of all subsequent purchasers and encumbrancers." (38-30-121 C.R.S.)



2. Special Warranty Deed.

The grantor of a special warranty deed warrants the title only against defects arising after the grantor acquired the property and not against defects arising before that time.



3. Bargain and Sale Deed.

Technically, any deed that recites a consideration and purports to convey the real estate is a bargain and sale deed. Thus, many quitclaim and warranty deeds are also deeds of bargain and sale. Bargain and sale deeds often contain a covenant against the grantor's acts, whereby the grantor warrants only that the grantor has done nothing to harm the title.



This covenant would not run with the land. Examples of bargain and sale deeds with a covenant against the grantor's acts are an executor's deed, an administrator's deed, and a guardian's deed.



4. Quitclaim Deed.

The grantor of a quitclaim deed warrants absolutely nothing. A quitclaim deed conveys the grantor's present interest in the land, if any. A quitclaim deed is frequently used to clear up a technical defect in the chain of title or to release lien claims against the property. Examples of such deeds are correction deeds, and deeds of release.
not legally enforceable

A void contract, also known as a void agreement, is not actually a contract. A void contract cannot be enforced by law. Void contracts are different from voidable contracts, which are contracts that may be (but not necessarily will be) nullified.


An agreement to carry out an illegal act is an example of a void contract or void agreement. For example, a contract between drug dealers and buyers is a void contract simply because the terms of the contract are illegal. In such a case, neither party can go to court to enforce the contract. A void contract is void ab initio, i e from the beginning while a voidable contract can be voidable by one or all of the parties.


A voidable contract, unlike a void contract, is a valid contract. At most, one party to the contract is bound. The unbound party may repudiate the contract, at which time the contract is void. An option to purchase is a voidable contract as the holder (buyer) of the option can choose to execute or not execute the agreement whereas the seller of the option is bound to its terms.


Another way to look at it is: an agreement which is enforceable by law at the option of one or more parties but not at the option of the other or others is a Voidable Contract.


A contract can become voidable when the consent of one or more of the parties to a contract is obtained by coercion, undue influence, misrepresentation or fraud an agreement which is enforceable by law at the option of one or more parties but not at the option of the other or others is a voidable contract. This is the reason a contract with a minor is a voidable contract by the minor or a minor's legal representatives (the minor by him/herself does not have legal capacity to enter a contract) and not a void contract.
the seller

The seller (vendor) retains legal title until the debt is paid in full; the buyer (vendee) has equitable title.



More info on Installment Land Contracts:



Installment Land Contracts AKA "Land Contracts" is a purchase agreement in which the owner retains legal title to a property while the buyer, usually a tenant, makes payments. ONCE THE BUYERS COMPLETES THESE PAYMENTS, THE SELLER DEEDS THE PROPERTY TO THE BUYER. Two big points here: 1) Since the buyer does not take legal ownership until they complete payments, this means the buyer, who usually has possession of the property, has no legal rights to the property beyond that of a renter. THEY DO NOT OWN IT - THE SELLER DOES. 2) Because of the number of creeps who have used installment land contracts to defraud unknowing buyers, the real estate commission does not have an approved form for us as agents to use. These contracts are not illegal, if you have clients who want to enter into such an agreement, they (notice the "they" here - I for one would not touch a land contract transaction for all the tea in China) need to bring in an attorney to draw up the necessary paperwork.



The real estate commission feels so strongly about this, they issued a position statement on it. Here it is: CP-39 Commission Position on Lease Options, Lease Purchase Agreements and Installment Land Contracts (4-5-2011)



The Commission recognizes that in order to maintain the resilience of the real estate market during times when conventional lending requirements are rigorous, alternative funding practices are utilized to sustain the market conditions of supply and demand. The Commission has received and investigated numerous complaints pertaining to lease options, lease purchase agreements and installment land contracts. Although the Commission does not have the authority to prohibit the types of real estate transactions that real estate brokers participate in, the Commission strongly cautions real estate brokers to utilize the services of an attorney licensed to practice law within the State of Colorado. It has been the Commission's observation, based on complaints received, that lease option and lease purchase transactions are complex and generally contain provisions with significant financial risk posed to the prospective buyer and seller. Installment land contracts and the other transactions mentioned in this position statement afford buyers the opportunity to take possession of the real property and make installment payments to the seller. There is a significant potential for harm to the seller, buyer or assignee if the installment land contract is not properly drafted. In all of the above transactions, the seller retains legal title to the property while the buyer may acquire equitable title. The Commission does not have an approved contract form necessary to memorialize the terms and nuances related to these complex transactions, or any jurisdictional regulations that may be germane. Pursuant to Rule F, the appropriate provisions of the license law and the brokerage relationship act (§§12-61-113, 12-61-804, 805 and 807, C.R.S.), real estate brokers are prohibited from drafting a contract document that would reflect the terms of such a transaction as it would exceed their level of competency and is a matter requiring the expertise and advice of an attorney. Additionally, such behavior may be construed as the unauthorized practice of law by the real estate broker and subject to civil penalties. The contracts for these transactions should not be prepared by a real estate broker; rather, the documents should be drafted by a licensed Colorado attorney-at-law engaged for each particular transaction.
0.08

Gross rents $50,000 - vacancy (5%) $50,000 x .05 - 2,500 = $47,500 (Maintenance $1,000/mo x 12 =) $12,000 + (Property taxes) $3,500 + (Insurance) $2,500 + (Reserve acct. $200/mo x 12 =) $2,400 = Total $20,400 $47,500 - $20,400 = $27,100 R = I / V R = $27,100 / $338,750 = .08 = 8%



The mortgage payment is not applicable when determining the value of a property using the Capitalization Rate. The reason for this is - given two potential buyers for a property, one paying cash and the other getting a loan, the value of the property does not change because they are each using two different methods to pay for it. All the other expenses listed in the question are fixed expenses that both parties would need to pay regardless of whether they have a loan or not and therefore have an impact on the value.



More on Cap Rate:



Since Cap Rate uses income, it is only used for income producing properties, not for example, the home you are buying for yourself. First let's define cap rate AKA Capitalization Rate: Cap rate indicates how fast an investment will pay for itself. For example, a 10% Cap Rate means you will get 10% of your purchase price back each year. If a commercial apartment building is purchased for $5,000,000 and it generates $500,000 a year in net operating income (the dollars left over after operating costs are subtracted from your gross income), then:



$500,000 / $5,000,000 = 10% cap rate



This means 10% of the building's purchase price is paid each year by the proceeds. Another way of saying this - the property will pay for itself in 10 years.



How do you use this tool?



Way one; it allows investors a fairly easy and quick method of comparing investment properties. For example: take two properties as identical as the cute twins you flirted with in high school, with the same net operating income. One has a cap rate of 8% (same income, priced higher) and the other a cap rate of 15% (same income, priced lower). The 15% cap rate property MIGHT just be a heck of a deal or the 8% one overpriced. BUT you have to dig deeper, because it might be that the higher cap rate property is in a bad neighborhood and the owner has to discount the price to get it sold. Higher risk means you as a buyer get more bang for the buck with the 15% cap rate property, but you are going to have to work harder for it and your spouse is mad because you haven't been able to take a vacation in years because of that "dang" property you bought. The 8% cap rate property may be more expensive and have a longer payback period, but that is because there is less risk and more investors want to buy it. The rents just come in without grief and it could save your marriage.



Way two: Cap Rate is also used in the Income Method of appraisals to value a property. Generally, investors could care less if a property is pretty; they want to know how much they are going to make off it. The Income Method allows an investor to value a property based on its income. If most like investment properties in an area have an average cap rate of 7%. You can divide the net operating income of the property your client is interested in (provided by the listing agent) by the average cap rate in the area (digging in sold comps of various MLS's) and it will give you the approximate market value of the property. For example: $225,000 net operating income / 7% = $3,214,285 market value. If the property is listed for $5,000,000 you might want to pass it by because it is overpriced for the neighborhood. If it is listed for $2,500,000 you call your client quick because you think you found a good deal.



So, If you want to play with investors you will need to make cap rates your well understood best buddy.
0.0419

First multiply the monthly rent $1,500 by 12 = Annual rental income $18,000. Then divide this by the property value $430,000 = the cap rate 4.19%


More on Cap Rate:


Since Cap Rate uses income, it is only used for income producing properties, not for example, the home you are buying for yourself. First let's define cap rate AKA Capitalization Rate: Cap rate indicates how fast an investment will pay for itself. For example, a 10% Cap Rate means you will get 10% of your purchase price back each year. If a commercial apartment building is purchased for $5,000,000 and it generates $500,000 a year in net operating income (the dollars left over after operating costs are subtracted from your gross income), then:


$500,000 / $5,000,000 = 10% cap rate


This means 10% of the building's purchase price is paid each year by the proceeds. Another way of saying this - the property will pay for itself in 10 years.


How do you use this tool?


Way one; it allows investors a fairly easy and quick method of comparing investment properties. For example: take two properties as identical as the cute twins you flirted with in high school, with the same net operating income. One has a cap rate of 8% (same income, priced higher) and the other a cap rate of 15% (same income, priced lower). The 15% cap rate property MIGHT just be a heck of a deal or the 8% one overpriced. BUT you have to dig deeper, because it might be that the higher cap rate property is in a bad neighborhood and the owner has to discount the price to get it sold. Higher risk means you as a buyer get more bang for the buck with the 15% cap rate property, but you are going to have to work harder for it and your spouse is mad because you haven't been able to take a vacation in years because of that "dang" property you bought. The 8% cap rate property may be more expensive and have a longer payback period, but that is because there is less risk and more investors want to buy it. The rents just come in without grief and it could save your marriage.


Way two: Cap Rate is also used in the Income Method of appraisals to value a property. Generally, investors could care less if a property is pretty; they want to know how much they are going to make off it. The Income Method allows an investor to value a property based on its income. If most like investment properties in an area have an average cap rate of 7%. You can divide the net operating income of the property your client is interested in (provided by the listing agent) by the average cap rate in the area (digging in sold comps of various MLS's) and it will give you the approximate market value of the property. For example: $225,000 net operating income / 7% = $3,214,285 market value. If the property is listed for $5,000,000 you might want to pass it by because it is overpriced for the neighborhood. If it is listed for $2,500,000 you call your client quick because you think you found a good deal.
Broker and Seller would split the funds

It specifically is stated in the contract that the Broker and Seller will split the funds.



More on the process of returning Earnest Money:

The Colorado Contract to Buy and Sell Real Estate (AKA Purchase Contract) says the agent holding earnest money has 5 days to return earnest money to whomever is supposed to get it after receipt of written instructions to do do. This is covered in the Broker Acknowledgements sections of the purchase contact.

The actual language reads like this - "Broker agrees that if Brokerage Firm is the Earnest Money Holder and, except as provided in § .., if the Earnest Money has not already been returned following receipt of a Notice to Terminate or other written notice of termination, Earnest Money Holder will release the Earnest Money as directed by the written mutual instructions. Such release of Earnest Money will be made within five days of Earnest Money Holder's receipt of the executed written mutual instructions, provided the Earnest Money check has cleared."

BUT!!!!!! to make it even more fun for you, the Real Estate has issued Commission Position 6, whereby they say that if there is no controversy over who gets the earnest money, they want the money returned as quickly as possible and the agent does NOT have to get writen permission from all parties to do so.

Most companies as a prudent measure have both parties sign that they agree who gets the earnest money, before they release it. This just makes sense, woe to the agent who releases the earnest money and one of the parties throws a fit over it. Safer to get the parties to agree in writing first.

However, sometimes the party that is giving up the earnest money and their agent makes this a pretty low priority on their things-to-do-list. Keep in mind, they are grumpy the deal is dead and even if they know they need to release the earnest money, they are not happy about it. In the meantime, the other party wants their money. Buyers in particular are anxious as they are back on the market looking for a property and can't make an offer until they get their earnest money returned. Therefore, the Commission has made is very clear, that they do not want slow paperwork to hold things up when there is no controversy.

Does this occasionally put us in an awkward position? Yup. Smart agents who do not like to even get within sniffing distance of having to write out a personal check to cover a perceived, if not actual screw up (that be me, except my wife would probably dispute the "smart" assertion) will move heaven and earth to get quickly signed releases by both parties before releasing earnest money.

If you find that one of your parties due to the stress of the failed deal ran instantly to consult with the yogi on the mountaintop and are not returning messages. You need to have a talk with your managing broker before doing something you may regret. It is always cooler to share the love and say "my managing broker said to do it and will make it good" then "how do I spell your name on my check".
Dates and deadlines will be strictly interpreted

The legal phrase is that timing is important to the contract, and every date and deadline must be taken care of on or before that time.



From the Contract to Buy and Sell:



Please note the numbers in the following clause may change periodically although the language remains essentially the same....



TIME OF ESSENCE, DEFAULT AND REMEDIES. Time is of the essence hereof. 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 obligation hereunder is not performed or waived as herein provided, there shall be the following remedies:

xx.x. If Buyer is in Default:

xx.x.x. Specific Performance. Seller may elect to treat this Contract as canceled, in which case all Earnest Money (whether or not paid by Buyer) shall be paid to Seller and retained by 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.

Liquidated Damages, Applicable. This § xx.x.x shall apply unless the box in § xx.x.x. is checked. All Earnest Money (whether or not paid by Buyer) shall be paid to Seller, and retained by Seller. Both parties shall thereafter be released from all obligations hereunder. It is agreed that the Earnest Money specified in § x.x is LIQUIDATED DAMAGES, and not a penalty, which amount the parties agree is fair and reasonable and (except as provided in §§ xx.x, xx, xx and xx), said payment of Earnest Money shall be 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.

If Seller is in Default: Buyer may elect to treat this Contract as canceled, in which case all Earnest Money received hereunder shall be returned and Buyer may recover such damages as may be proper, or Buyer may elect to treat this Contract as being in full force and effect and Buyer shall have the right to specific performance or damages, or both.
void and not binding as it was withdrawn before acceptance was communicated to the Buyer

Standard contract law states that a contract must be signed and accepted to be binding. The Buyer has every right to withdraw an offer at no penalty before the signed contract was accepted. A signature alone is not sufficient to constitute valid acceptance: the accepting party must also communicate acceptance to the party who made the last offer or counteroffer. Since acceptance was not communicated, the purchase contract was not binding and either party could withdraw at no penalty.



More info:



To have a valid contract, it must be signed and accepted and that acceptance must be communicated to the person making the offer before the contract deadline.



There is no question that written notification is preferable to a verbal one. In real life a savvy agent would have followed up the verbal withdrawal with a written one. However, in this case they are both legal.



The disadvantage of a verbal notification is the difficulty in enforcing it in a court of law, not that it is illegal.



The terms of the purchase contract are not in force until it has been signed AND accepted by both parties. Even though it has been signed, absent acceptance the purchase contract is not fully in force, general contract law is in charge and says that verbal works.



Please note that once the purchase contract is in force it specifies all sorts of places where written notification is mandatory and verbal will not do.



The preferred form of acceptance is returning the signed contract. The popularity of electronic contact has made this easy 24/7 - click and you delivered it to everybody.



BTW..interestingly enough, if the Seller agent also had called the buyer agent before the withdrawal and indicated that they had signed and accepted the contract. That would have also constituted legal acceptance and the buyer could not then withdraw the offer as it would be binding. Of course by then we possibly could have dueling verbal notifications and that is why lawyers drive nice cars.
Buyer Brown has no obligation whatsoever to Seller Smith

A counter offer is a formal rejection of the original offer, thus relieving the purchaser of all obligations to perform under the original offer.

More info on Counterproposals:

Can you counter a counter? This is one of the eternal questions in real estate that has been asked by students and agents for years.

To describe this in simpleez, what this question addresses is the situation whereby the Buyer sends the Seller an offer, the Seller is mostly but not entirely agreeable, so the Seller sends the Buyer a Counterproposal, most often asking for more money. Now here is the big moment! If the Buyer wants to bargain a bit, but not to the extent the Seller wants, should they send the Seller another Counterproposal or a brand new purchase contract?

And why does this blow agents and students heads up for so many years?

The reason is not a legal issue. It is perfectly legal to respond to a Counterproposal with another Counterproposal. However, it is considered a bad practice. Through the years the Real Estate Commission has swung from emphasizing this as such a bad idea many agents thought it was forbidden, to saying it is still a bad idea, but since it is legal and we despair of ever getting agents not to do this, we will not beat you up for it.

Why is it a bad practice?

Playing dueling Counterproposals makes it really easy to confuse the parties as to what exactly are the final terms of an agreed contract.

For example, let's assume the original offer was for $200k closing January 31, Earnest Money of $1,000, Inspection Objection in 30 days. The Seller sends a Counter asking for $210k, closing January 1, Earnest Money of $5,000, Inspection in 10 days. The Buyer Counters the Counter with $205K and closing on January 15. The last Counter is accepted.


What are the final terms of this agreement? What are the odds that someone is confused?

That is why Countering a Counter is a bad idea. Much better to finish up with a clean contract containing the final agreed terms and conditions than hope everybody has the same understanding.

BTW What are the final terms and condition of our example?

Whelp, the first Counterproposal constitutes a rejection of the original offer as it stands. The second Counterproposal constitutes a rejection of the first Counterproposal in its entirety, however the terms of the original offer as amended by the second Counterproposal still stands. The final terms and conditions look like this: Price is $205k, the Earnest Money is $1,000, Inspection is 30 days, the Closing is January 15.

Are you confused?

Countering a Counter is a bad idea.