Colorado Foreclosure Protection Act Updated with New Disclosures
The Colorado Legislature passed House Bill 10-1133, signed by Governor Ritter in June 2010 and effective January 1, 2011 which mandates new disclosures for investors (called “Equity Purchasers” in the Foreclosure Act legislation) who are flipping short sale properties. The key text from the actual bill is below, the most dramatic changes are as follows:
- Investors must disclose to the home owner and lender within one day if they find a “subsequent purchaser” as a flip
- Investor must disclose to the homeowner and lender accepting the short sale the subsequent purchase price for which the property will sell as a flip.
- Investors must disclose to the subsequent purchaser and the subsequent purchaser’s lender the purchase price the investor paid for the property as a short sale, and the profit margin.
- The time frame associated with a “flip” is 14 days.
In effect, the legislature has created a 14 day seasoning period for investors that will not allow for a contract to be signed between the investor and the end user of the property. This is a different type, and in addition to, the seasoning period by lenders selling properties (most notably Bank of America) who are disallowing any change of ownership for a short sale property for 30 days up to one year.
It will be interesting to see how this affects short sale transactions, if it just adds more holding time to short sale investors who think that these disclosures will kill deals, or it really has the affect of stopping the “flips.”
NOTE: ALL CAPS text indicates new language that will be added to the Colorado Revised Statutes.
6-1-1121. Short sales – subsequent purchaser – definition.(1) WITH RESPECT TO ANY SHORT SALE TRANSACTION IN WHICH AN EQUITY PURCHASER INTENDS TO RESELL THE RESIDENCE IN FORECLOSURE TO ASUBSEQUENT PURCHASER, THE EQUITY PURCHASER SHALL:
(a) PROVIDE FULL DISCLOSURE TO THE HOME OWNER AND TO THE HOLDERS OF THE EVIDENCE OF DEBT ON THE RESIDENCE IN FORECLOSURE, OR SUCH HOLDERS’ REPRESENTATIVES, OF THE TERMS OF THE AGREEMENT BETWEEN THE EQUITY PURCHASER AND ANY SUBSEQUENT PURCHASER,INCLUDING BUT NOT LIMITED TO THE PURCHASE PRICE TO BE PAID BY THE SUBSEQUENT PURCHASER FOR THE RESIDENCE IN FORECLOSURE, WHICH DISCLOSURE SHALL BE MADE WITHIN ONE BUSINESS DAY OF IDENTIFYING ANY SUCH SUBSEQUENT PURCHASER AND IN NO EVENT LATER THAN CLOSING ON THE SHORT SALE TRANSACTION;
(b) PROVIDE FULL DISCLOSURE TO ANY SUBSEQUENT PURCHASER AND TO ANY SUBSEQUENT PURCHASER’S LENDER, OR SUCH LENDER’S REPRESENTATIVE, AT THE TIME OF CONTRACT WITH THE EQUITY PURCHASER,OF THE TERMS OF THE AGREEMENT BETWEEN THE EQUITY PURCHASER ANDTHE HOME OWNER, INCLUDING BUT NOT LIMITED TO THE PURCHASE PRICE PAID BY THE EQUITY PURCHASER FOR THE RESIDENCE IN FORECLOSURE;
(c) COMPLY WITH ALL APPLICABLE RULES ADOPTED BY THE COLORADO REAL ESTATE COMMISSION WITH REGARD TO SHORT SALES; AND(d) COMPLY WITH SECTION 38-35-125, C.R.S.
(2) AS USED IN THIS SECTION, A “SUBSEQUENT PURCHASER” MEANS ANY PERSON WHO ENTERS INTO A CONTRACT WITH AN EQUITY PURCHASER PRIOR TO THE DISBURSEMENT OF THE SHORT SALE TRANSACTION TO ACQUIRE THE RESIDENCE IN FORECLOSURE AND WHO ACQUIRES THE RESIDENCE IN FORECLOSURE WITHIN FOURTEEN DAYS AFTER THE DISBURSEMENT OF THE SHORT SALE TRANSACTION.
Download Complete H.B. 1133 Colorado Foreclosure Protection Act Update
This new legislation is part of a trend of increased scrutiny and regulation in the business of real estate investing. Investors are adapting to these new rules and learning to add value using new tools and products. Most recently, title company rule changes now prevent investors from using simultaneous closings to flip properties. A group of transactional funding companies is creating a cottage industry to help investors adapt to these changes. Additional products and services will likely become necessary as the regulation increases in this area.
