Closing documents and deeds

Bottom line: A closing is a stack of papers, each with one job. If you know the job, you can spot a missing or wrong one. Then you can do the math on the fees that depend on the price.

The deed

A deed is the signed paper that moves ownership (title) from the grantor (the person giving) to the grantee (the person receiving). The kind of deed decides how many promises the grantor makes about the title:

• General warranty deed. The strongest. The grantor promises the title is good against any claim, including problems from before the grantor owned it.
• Special warranty deed. The grantor promises only that nothing went wrong during the grantor's own time owning it. This is the usual deed in a Colorado residential sale.
• Bargain and sale deed. Says the grantor is conveying the property, but makes few or no promises about defects.
• Quitclaim deed. No promises at all. It passes whatever interest the grantor happens to have, which may be nothing. It is often used to clear up a name or a doubt.
• Personal representative's deed. Signed by the person appointed by a court to handle a dead person's estate. That person only promises what they did as representative, not the dead owner's history.

Which deed the contract requires is written in the contract, so check it against the deed the title company prepares.

Other documents you will see

• Bill of sale. Transfers personal property (movable things like a washer or a hot tub) that is included in the sale. The deed covers only the real estate.
• Promissory note. The borrower's written promise to repay a loan, with the amount, interest rate, and payment schedule.
• Deed of trust. The document that makes the house the security for the loan. In Colorado, the borrower gives a deed of trust to a public trustee (an official in each county) who can sell the property if the borrower defaults. The note is the promise; the deed of trust is the collateral. Two papers, two jobs.
• Closing instructions and closing statement. Covered in lesson c3-01 and c3-04.
• Payoff letter. The seller's old lender states the exact amount needed to clear the old loan on the closing date.

The Real Property Transfer Declaration (TD-1000)

A conveyance document presented for recording must come with a declaration prescribed by the property tax administrator, completed and signed by the grantor or the grantee (C.R.S. 39-14-102(1)(a)). People call it the TD-1000. It reports the price and details of the sale to the county assessor. The county clerk does not record it; it goes to the assessor (C.R.S. 39-14-102(1)(c)). If it is missing, the clerk still records the deed and tells the assessor. The assessor then sends the grantee a notice. If the grantee does not file within thirty days of the notice being mailed, the assessor may charge a penalty of $25 or 25 one-thousandths of one percent (0.025%) of the sale price, whichever is greater (C.R.S. 39-14-102(1)(b)(II)).

Colorado documentary fee

The documentary fee is a state fee paid when a deed is recorded. It is charged on the price, in addition to the normal recording fee (C.R.S. 39-13-102(1)). The rate is "one cent for each one hundred dollars, or major fraction thereof" of the total consideration (C.R.S. 39-13-102(2)(b)). Consideration means the value given for the property. A major fraction is more than half. If the consideration is $500 or less, there is no fee (C.R.S. 39-13-102(2)(a)). The county clerk and recorder collects it (C.R.S. 39-13-102(3)). The contract decides who pays it; many contracts split it or put it on one side, so read the form.

The recording fee is a separate charge for filing each document, set by law and county schedules, and billed per document and per page. Look up the current schedule when you prepare a statement.

Withholding when the seller lives out of state

If the seller's last-known street address is outside Colorado, the closing agent must withhold two percent of the sales price or the net proceeds, whichever is less (C.R.S. 39-22-604.5(1)). There are exceptions, including no withholding when the sales price does not exceed $100,000 (C.R.S. 39-22-604.5(2)(a)). Think of it as money held back toward the seller's Colorado income tax so the state can reach someone who has left.

FIRPTA (federal)

The Foreign Investment in Real Property Tax Act (FIRPTA, 26 U.S.C. 1445) requires the buyer or closing agent to withhold a share of the price when the seller is a foreign person. The general rate is 15% of the amount realized. A reduced rate of 10% applies if the buyer will use the home as a residence and the price is over $300,000 but not over $1,000,000, and no withholding applies if the buyer will use it as a residence and the price is $300,000 or less. A signed certificate of non-foreign status avoids it. Brokers do not give tax advice; they flag it and send the parties to the closing agent and a tax professional.

Example with real numbers

A $500,000 Boulder County house sold by a Texas resident, net proceeds $180,000.

1. Documentary fee. $500,000 / $100 = 5,000 hundreds. 5,000 x $0.01 = $50. Check: 500,000 x 0.0001 = 50. Same.
2. Major fraction. Had the price been $500,060: 500,060 / 100 = 5,000 hundreds plus $60 left over. $60 is more than half of $100, so it counts as another hundred: 5,001 x $0.01 = $50.01. At $500,040 the leftover $40 is less than half, so the fee stays $50.00.
3. Colorado withholding. 2% of $500,000 = $10,000. Net proceeds are $180,000. The lesser is $10,000, so $10,000 is held back. If net proceeds were only $6,000, the lesser would be $6,000, so $6,000 is held.
4. If the seller were foreign: 15% x $500,000 = $75,000. If the buyer will live there, the 10% rate applies: 10% x $500,000 = $50,000.
5. TD-1000 late penalty: 0.025% x $500,000 = 500,000 x 0.00025 = $125, which is greater than $25, so the penalty is $125.

Each of these lands on the closing statement (next lessons). Wrong numbers here cause wrong statements.