Contract to Buy and Sell, part 2: title, survey, HOA documents, objections

Bottom line: title review is a short, strict window. The buyer reads what is wrong with the title, says so in writing before the deadline, and the seller either fixes it or the buyer can walk with earnest money.

Title insurance commitment

Title means who legally owns the property and what claims are on it. A title insurance commitment is a document from a title company promising to issue an owner's policy once conditions are met. It lists the owner, the legal description, requirements (things that must be done before closing, like paying off a loan) and exceptions (things the policy will not cover, like an easement). Title insurance protects against defects in title that were hidden. The seller usually pays for the owner's policy under the form's default choices, but who pays is a negotiated term; read the form. A buyer's lender normally requires a separate lender's policy.

Record title versus off-record matters

• Record title is what shows in the public records at the county clerk and recorder: deeds, mortgages, liens, easements, plat notes. The title commitment covers these.
• Off-record title (matters not in the public records) includes things like unrecorded easements, a neighbor using a path for years, tenants in possession, or rights of someone living there. The seller must disclose what they know, and the buyer finds the rest by inspection and a survey.

Title objection and resolution deadlines

The Dates and Deadlines table has dates for the buyer to deliver written objections to the title commitment and to the survey. A title objection is the buyer's written notice that something found is unacceptable. The form also has a resolution window where the seller can agree to fix it and where the parties negotiate. Each form version states the exact periods; read them. The buyer who says nothing by the deadline is treated as accepting the matter, called a waiver, except for some items the form says are never accepted, like monetary liens the seller must pay.

The broker's job: calendar the deadlines on day one and advise the buyer to examine all title exceptions and to get an attorney, but not give legal advice about them (Rule 6.14.F).

Survey

Two common documents:

• Improvement Location Certificate (ILC): a lightweight drawing by a licensed surveyor showing where the buildings sit compared to the lot lines and visible easements. Cheaper and quicker; lenders often accept it. It is not a full boundary survey.
• Land survey plat: a full, detailed survey marking the boundaries and showing easements, encroachments and improvements. It costs more and takes longer.

The form names who orders and pays for a new ILC or survey, if any. An encroachment is when a structure (a fence, a shed) crosses a boundary line.

Common interest community (HOA) documents

A common interest community is a development where owners must belong to an association and pay dues. The Colorado law requires a bold disclosure in the contract that the property is in a common interest community, the owner must join the association, pay assessments, and may need architectural approval for changes (C.R.S. 38-35.7-102). The seller delivers the association documents (declaration, bylaws, rules, budget, financial statements, and so on). The buyer has a deadline in the table to review them and object. Associations in Colorado must also keep accurate accounting records and have written policies, such as on collecting unpaid assessments (C.R.S. 38-33.3-209.5(1)). If the buyer objects within the deadline and the issue is not resolved, the buyer may terminate under the form's terms.

Special taxing districts and metro districts

A special taxing district is a local government unit (such as a water, fire, or metropolitan district) that collects its own property tax. A metropolitan district is common in new Colorado subdivisions; it can issue bonds to build roads and utilities and then taxes the homes to repay them. Every residential sale contract must carry a bold-faced disclosure that such districts may carry general obligation debt paid by annual tax levies, that owners could face increased mill levies, and that buyers should investigate by contacting the county treasurer, reviewing the certificate of taxes due, and asking other county offices (C.R.S. 38-35.7-101(1)). The duty to give this disclosure is the seller's; if the seller fails, the buyer has a claim for damages and court costs (C.R.S. 38-35.7-101(2)).

A mill levy is the tax rate: one mill is $1 of tax per $1,000 of assessed value. Your lesson on taxes comes later; for now, know a high levy raises monthly cost.

What happens if a title problem is not fixed

• If the buyer objected on time and the seller does not cure it, the buyer typically may terminate and get earnest money back, under the form's remedies.
• The buyer may instead waive the problem and close.
• Brokers: a broker is not owed a commission when a buyer refuses to close because of title defects unless the owner has the defects corrected within a reasonable time (C.R.S. 12-10-302). And the owner need not start legal proceedings to fix title until the broker secures an enforceable written contract binding the buyer to complete once the defects are fixed (C.R.S. 12-10-303).

Example with real numbers

A buyer is buying a $500,000 house with $10,000 earnest money. The title commitment shows an old $8,000 contractor's lien recorded against the property, and an easement for a power line.

1. The lien is a monetary item. Payoff is $8,000, usually taken from the seller's proceeds at closing.
2. The buyer reviews the easement. It crosses the back corner of the yard where the buyer wanted a garage. The buyer sends a written objection before the title objection deadline.
3. The seller cannot remove a public utility easement. Resolution period passes.
4. The buyer can terminate, and the $10,000 earnest money is returned, or waive the easement and close.
5. If the buyer misses the objection deadline, the easement becomes an accepted item and the buyer likely cannot terminate on that basis.

The seller's net effect of the lien: $500,000 - $8,000 lien payoff - other costs, so it simply comes out of the seller's proceeds.

The broker does not tell the buyer whether the easement is acceptable; the broker tells the buyer the deadline, suggests getting an attorney, and makes sure the objection is in writing and in time.