On April 5th, 2011 the Colorado Real Estate Commission put out a Commission Position to formally express their feelings about Colorado Real Estate Agents and Real Estate Brokers and Lease Option, Lease Purchase or Installment Land Contracts. I suspect they would also include the four other creative buying strategies I discuss on this website that are in additional to these in the group if they knew I was talking about those as well, so it should not be assumed that the other strategies we talk about on this website should be included in what they have to say. Here are a couple of highlights from their official CP-39 Commission Position on Lease Options, Lease Purchase Agreements and Installment Land Contracts (4-5-2011) and my comments.
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.
In our current market the Commission realizes that the creative strategies that I discuss are used to help facilitate sales between buyers and sellers that need flexibility in the transaction.
The Commission has received and investigated numerous complaints pertaining to lease options, lease purchase agreements and installment land contracts.
I read this in two ways: first, there are definitely additional risks in doing creative transactions than there are with doing cash or traditional financing transactions. Second, there are people (buyers, sellers and agents/brokers) that do not understand in great enough detail all the nuances of the these complex transactions. As the commission goes on to say later in their position, agents should not be preparing the paperwork for these transactions (which I totally agree with and have been advocating even before their position letter):
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.
So, if you are considering using a lease option, lease purchase or any other creative transaction (especially in Colorado) I'd plan to have an attorney prepare the paperwork.
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.
Yes, absolutely. If you are relying on a continued relationship (making lease or other payments) beyond closing it opens up lots of additional opportunities for something to not go as planned on both sides. The seller and/or buyer could have something come up in the normal course of their lives that impacts their previous agreements. 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.
Yes, that is one of the things we discuss about installment land contracts: they are complex and you will need legal advice to make sure it is structured correctly.
In all of the above transactions, the seller retains legal title to the property while the buyer may acquire equitable title.
Yes, unlike owner financing (and related variations) where you actually get title and the seller acts like the bank, lease options, lease purchases (which includes the general descriptions of them: rent to own and lease to own) and installment land contracts (which includes agreement for deed, bond for deed and contract for deed) are all delayed transfer of 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.
Let everyone beware: the Colorado Real Estate Commission does not have approved contracts and they are not recommending you just use their standard approved contacts for these transactions. This is another way of them telling you to have an attorney prepare your paperwork for these transactions.
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 ทาวน์โฮมมือสอง กรุงเทพ 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.
And in case, their subtle language before was not enough, they are telling all real estate agents and brokers: don't do the paperwork. Get an attorney to do it. You are not qualified and you may be accused of unauthorized practice of law and could face civil penalties doing it so don't do it.
In my opinion, your local real estate agent can help you better understand some of the options available. They can help you look at your situation and definitely help you find the right property, represent you and your interests in finding and initial negotiations, but when it comes time to draft up the paperwork you need to bring in an attorney that represents you to complete this complex paperwork.
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