If the course is taken in December the information is out of date. It is often being changed by rules that take effect Jan. 1st of the coming year.

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1 CREC Annual Update Course Hours Required Continuing Education Welcome! The annual update course, which now comes out in January of each year, is designed to help real estate brokers obtain current information needed to practice for the coming year. If the course is taken in December the information is out of date. It is often being changed by rules that take effect Jan. 1st of the coming year. Contract changes are highlighted but there is not enough time for great depth if it is a year with many contract changes. Brokers should also take an additional contracts class. VanEd does offer Contracts courses for elective Continuing Education credit. You can review these options after completion of your update course. Note: This course is prepared by the Division of Real Estate. No changes are allowed to be made to the course by the provider other than those necessary to make the course compliant with rules and regulations for delivery. All students seeking credit for the update course MUST complete the course prior to the end of December in order to receive credit. The course will no longer be available after December 31st, VanEd will have all of the information regarding the new education rules available online at Please post any questions you have regarding this course or the rules in the Q&As on the left hand navigation bar and our team will be able to assist you further. Table of Contents 1. Welcome 2. Compliance Issues 3. Compliance Issues Continued (Top Five) 4. General Practice Issues 5. New Regulations 6. Consumer Protection Resources Note: the course has had been called by a number of different titles. The course per rule B- 2 and statute C.R.S (1) (c) is now known as the Annual Commission Update or A.C.U. course.

2 Welcome to the 2013 Update Course It is recommended brokers take the Annual Commission Update (ACU) Course between January and June. Brokers should also consider taking a contracts course every year. This course offers fresh information brokers need now. Unit 1 - Compliance Issues The following topics will be covered in the first two units; Continuing Education Audits New Continuing Education Rules Top 5 Common Disciplinary Actions Referral Fees Timeshare Sales Continuing Education Audits The Division of Real Estate (DRE) conducts quarterly Continuing Education (CE) Audits. Real Estate licensees are randomly selected for audit and will be notified by . The complete list of licensees being audited for that period is posted on the Division of Real Estate's Real Estate Broker Web page. For timely notification brokers should make sure to have an up-to-date address on file with the Division and verify contact information during renewal Update your address and other contact information at the time of your license renewal or send an to the DRE. Those selected for audit will need to submit copies of continuing education certificates for the 3 year license period being audited. Licensees are required to keep records documenting proof of completion of the continuing education requirements for a period of four (4) years from the date of completion. Brokerage transaction files must be kept for the same period of time - four years. Hours Required

3 Unless other options are used, a broker must have an ACU course for each year of the three year license period. A broker may take 4 ACU courses and use one as an elective but since the course will not transfer to the next renewal period the licensee is in danger of not being able to comply with the needed ACU courses for the next renewal cycle. Electives Along with the 12 hours of ACU courses brokers are required to complete 12 hours of elective education. The remaining twelve (12) hours can be any combination of Commission-approved elective courses. It is the broker's obligation to make sure the provider and course are approved by the Commission. This can be done by checking the Commission website. Ethics courses are a requirement of REALTOR Associations and, if approved for CE credit, can be used toward the licensee's 12 hour elective CE requirement. No course may be repeated for credit in the same calendar year. Courses taken as a result of disciplinary action against a licensee do not count towards the fulfillment of the CE requirement. Audit Results The DRE will not grant credit for courses that have not been approved. There are no exceptions to this rule Note: The DRE reports that 20% of all licensees audited (prior to 2013) were non-compliant.

4 New Continuing Education Rule Rule B-2 was revised and became effective January 1, As part of the revision, the Broker Transition course has been retired and replaced with a new Broker Reactivation course. The Broker Administration course is no longer available to satisfy the CE requirements in lieu of Rule B-2(a). Key Point: Completion of the Broker Administration course is worth 24 hours of elective CE credit of which only 12 hours can be used toward the full 24 hours of CE since the other 12 hours must be comprised of 3 ACU courses. Broker Administration continues to be the required course necessary to upgrade an associate or independent broker license to the employing broker license level of authority. New Broker Reactivation Course Inactive or expired licensees who are unable to comply with the education requirements in B-2(a) are permitted to use this course to satisfy their CE requirements. Key Points under the new rules; Licensee must comply with the full CE requirements even if their license was inactive part of the license cycle. Licensees who have been inactive or expired for up to 36 months may take the Broker Reactivation Course to satisfy their CE requirements. Course is comprised of 20 hours of topics covered in the Broker Reactivation outline and a current ACU course, to total 24 hours. Active licensees may use this course to satisfy their CE requirements in lieu of B-2(a). This course CANNOT be repeated in consecutive license cycles. The Broker Reactivation course is not considered to be an alternative to completing 12 hours of ACU courses and 12 hours of elective courses. However, a broker who has missed an ACU may use the course to meet the 24 hours every other license period. Alternatives There are three alternatives to the 24 hours of continuing education requirement: 1. Pass the Colorado portion of the licensing exam (exams taken for licensure do not count) 2. Complete the 24-hour Brokerage Reactivation Course 3. Complete 72 total hours in Colorado Contracts & Regulations (48 hours) and Real Estate Closings (24 hours). All continuing education must be completed prior to license expiration date when renewing an active license.

5 If a licensee is found to be non-compliant with continuing education they may have to complete disciplinary education and pay a fine. Instructor Comment: Education completed as required under a disciplinary finding does not meet continuing education hour requirements. And a reminder, VanEd's License Information Tracker can help students track their CE hours. Look for this the next time you log in to your student account. Courses taken from other providers can also be entered into your account and VanEd will assist you in meeting the CE requirements. Top 5 Most Common Disciplinary Actions The Colorado Real Estate Commission has provided us with the top five most common disciplinary actions taken against licensees. In the next section of the course we will discover what those are. Note that the Division of Real Estate staff is putting an emphasis on all of these items as they audit and investigate brokers around the state. As you review these items make note of any questions that you have. Post those in the Q&As on the left hand course navigation bar. #1. Mismanagement of Trust Accounts Causes significant consumer harm. Only employing or independent brokers may open a trust account. All brokers should be aware of trust account rules. In many of these cases the licensees absconded with the funds leaving huge deficiencies in the trust accounts. One firm was overdrawn by $300,000 in the company property management account. Broker associates who have trust access, along with employing and independent brokers, are obligated to make sure the trust funds are being deposited in compliance with the law. #2. Misrepresentation Wide range of misrepresentation to include: Fraudulent documentation Undisclosed compensation Undisclosed conflicts of interest Violations include (1)(a)(b) and (c). Click Here to view Rebates from third party vendors that are unreported (i.e. carpet company giving a broker a bonus for referring buyers) are a significant concern. #3. Dishonest Dealing on Personal Transactions

6 Not disclosing known material defects, and Not disclosing licensee s licensed status, or Providing fraudulent information on loan documents (investment vs. primary residence) are all dishonest dealings. Violations include: (1)(n) unworthiness or incompetency Relationships between brokers and the public E-25 Continuing duty to disclose conflict of interest and license status Additionally, please review CP-35: CP-35 Commission Position on Brokers as Principals The Commission regularly receives public complaints regarding real estate transactions involving a licensed real estate broker acting as a principal. Predominantly these complaints allege that the broker, who is a principal to the transaction, and may or may not also be serving as a broker in the transaction, has failed to disclose an adverse material fact; has failed to disclose brokerage relationships (when acting as more than a principal); has failed to ensure that the contract documents and/or settlement statements accurately reflect the terms of the transaction; has filed a document that unlawfully clouds the title to the property; has failed to disclose the broker s licensed status; has mismanaged funds belonging to others; and/or has falsified information used for the purpose of obtaining financing. The Commission reminds licensees that the Commission may investigate and discipline a license if a licensee is acting in the capacity of a principal in a real estate transaction and violations of the license law occur. The Commission s authority to investigate and impose discipline in these transactions was determined by the Colorado Court of Appeals. See Seibel v. Colorado Real Estate Commission, 34 Colo. App. 415, 530 P.2d 1290 (1974). The court s decision affirmed that licensed real estate brokers are subject to the real estate brokers licensing act and rules adopted by the Commission when they participate in real estate matters as principals. In such cases, licensees need to be mindful of Rule E-25 (regarding conflict of interest and license status disclosures) and position statement CP-31 (regarding acting as a transaction broker). A Reminder: Per Seibel v. Colorado Real Estate Commission Licensed agents acting on their own behalf are not exempt from the real estate license law. # 4. Brokerage Duties/Relationships Failing to disclose broker relationships and Failing to comply with required uniformed duties have both been on the rise. The Commission has also seen a rise in the number of brokers offering limited services. Key Point: a broker may not create a limited service agreement that eliminates the uniform duties as created by statute; e.g. MLS only services are not acceptable. Violations could include and CP-36. Uniform duties are required by single agency or transaction brokerage.

7 Required uniform duties are set forth in , C.R.S , C.R.S. and , C.R.S. #5. Being convicted of, or pleading nolo contendere to, a crime AND failing to report it to the Commission. The Division will receive notice from the CBI of any licensee who has been arrested. Division investigators will follow the case to its conclusion. The licensee has 30 days after a conviction to report the findings to the Commission. Background: If a licensee is convicted or enters a plea of guilty or nolo contendere to specific crimes they are subject to disciplinary action by the Commission. Moreover, they have a requirement to notify the Commission of the conviction or plea. CREC can impose disciplinary action for conviction but failure to report is separate violation. The top 3 general crimes brokers are found guilty of committing: Violations: (1)(m) and (m.6). Crimes relating to real estate transactions or particularly egregious crimes resulted in revocations. Conviction of the following crimes need to be reported to the Commission: Homicides, assaults, kidnapping and unlawful sexual behavior Offenses against property Offenses involving fraud (forgery, fraud obtaining property or services, fraudulent business practices, bribery, financial crimes, equity skimming) Computer crime offenses Offenses involving family relations Offenses relating to morals Organized crime Controlled substances Disciplinary actions taken by the Commission: Instructor Comment: The following list of commission actions is not all inclusive. In many cases the commissioners will also approve additional education, supervision or a combination of one or more of these. Substantial fines Summary suspensions Revocation Reported to authorities for criminal charges

8 Public censure Substantial fines means "up to $2500 per violation" and the potential for revocation. Violations include (1)(g.5) and Rule E-1. Property managers mismanaging trust accounts for reserves, rental income and security deposits. Go online and complete the Quiz for Unit 2: Top Five Commission Position - 2 Revised August 8, 2012 Rule E-22 (RESPA) Brokers may not pay referral fees to an unlicensed person. Brokers may not pay or receive payments from settlement service providers. Review revised CP-2 and Rule E-22 (state version of RESPA) and Section (1)(j). Brokerage functions include negotiating (the act of bringing two parties together for the purpose of consummating a real estate transaction) the purchase or sale or exchange of real estate. Settlement service providers include; title companies, lenders, inspectors, surveyors. Referral Fees Acceptable Referral Fees to active real estate licensees: An actual introduction of business has been made. A contractual referral fee relationship exists. A contractual cooperative brokerage relationship exists This is the difference between a Trip to Chile (the country) versus trip to Chili s (the restaurant). Section (2)(b)(III) defines a referral fee as any fee paid by a licensee to any person or entity, other than a cooperative commission offered by a listing broker to a selling broker or vice versa. If the payment is simply for the referral of a name to a licensee with no further activity on the part of the referrer, and the referrer is not a provider of a settlement service, the commission will not consider it to be a violation of license law. It would be a violation to pay a referral fee if the referrer performed acts that required a license (negotiating, listing, and contracting). Prohibited Fees Payment to non-licensed individual; Referral of a settlement service provider; Settlement service provider for lead generation; A referral fee which increases the costs of the settlement services.

9 Note what RESPA does permit: 1. A payment to an attorney at law for services actually rendered: 2. A payment by a title company to its duly appointed agent for services actually performed in the issuance of a policy of title insurance; 3. A payment by a lender to its duly appointed agent or contractor for services actually performed in the origination, processing, or funding of a loan; 4. A payment to any person of a bona fide salary or compensation for goods or facilities actually furnished or for services actually performed; 5. A payment pursuant to cooperative brokerage and referral arrangements or agreements between real estate brokers (all parties must be acting in a real estate brokerage capacity); 6. Normal promotional and educational activities that are not conditioned on the referral of business and that do not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement services or business incident thereto; or 7. An employer s payment to its own employees for any referral activities. CP-2 Case Study A Broker contracted with a website provider to promote his brokerage business and create lead generation. The website provider suggests, to offset the lead generation cost, the broker negotiate with a lender to pay a monthly amount. CP-2 states RESPA and Commission Rule E-22 prohibit the payment or receipt of referral fees and kickbacks which tend to increase unnecessarily the costs of settlement services. As part of this prohibition, any referral of a settlement service is not compensable. Thus, a company is not allowed to pay another company or its employees for the referral of settlement business. Moreover, it is not appropriate for a settlement service provider to pay a broker, or offset a broker s expenses, for lead generation. The Commission views this as payment for the referral of business, which would be a violation of Rule E-22. Additionally, the Commission is required by law to refer such issues the Consumer Financial Protection Bureau (CFPB). The payments from the lender offset all the costs of the brokers website. To avoid RESPA issues the website provider billed the lender directly. RESPA Section 8 and CREC Rule E-22 prohibit anyone from giving or receiving a fee, kickback, or anything of value for the referral of settlement service business associated with a federally related mortgage loan. The purpose of this and similar laws is to protect consumers from unnecessary fees that increase the cost of real estate settlement services.

10 The only financial benefit permitted to the real estate broker when a buyer or seller chooses to do business with the real estate broker s affiliated mortgage company, for example, is the fee the consumer pays the mortgage company for mortgage brokering services. Referral fees and kickbacks are not permitted. Go online and complete the exercise CP-2 - Case Study Timeshare Sales Colorado Licensure is Required if the property, broker, buyer or seller are located in Colorado. Initial Sales An Employee of a Registered Subdivision Developer, or a Licensed Real Estate Broker may complete the initial sale of a timeshare. Resale's To complete a resale of a timeshare you must be a Licensed Real Estate Broker. Key point: Report any unlicensed activity to the Commission. General Practice Issues In this section of the course we will cover the following topics; Title Insurance Inspection form changes Due Diligence and other contract issues Leasing and Property Management E&O Seller financing and loan assumptions Loan Modifications HOA Information Office Green Real Estate Personal Assistants Title Insurance and Record Title

11 What is Title and Title Insurance? Title is a broadly used term to describe matters affecting an owner s legal rights to own, possess, use, control or sell property. Title insurance is where an insurance company conducts the title search and then gives insurance regarding title. The title insurance company essentially agrees to indemnify the owner for those title issues that arise after purchase that the title company did not specifically exclude under the policy. Why is Title Insurance important? Buyers need to know what title to a property includes. Title insurance gives the buyer assurance that the title search conducted by the title company is accurate or, if not accurate, it is insured. While title insurance claims do not occur on most real estate transactions, they do occur and can be extremely costly. If the title insurance does not cover the later discovered title issue, the buyer will be stuck with the cost of the claim. Title Fact Sheet In August, the CREC created the Title Fact Sheet to give prospective buyers and sellers information about title and title insurance. You can find the Title Fact Sheet on the Division of Real Estate website under Consumer Tips. Selection of Title Company The Commission has heard about title companies who: 1. Have become insolvent and closed their doors. 2. Out-of-state title companies issuing generic exceptions. In 2012 the CREC saw issues with title insurance. Companies that close may cause issues with earnest money or 1031 proceeds. Example: title company who did refinance received wire from lender and didn t payoff current lien holder, closed and left town with the money owners ended up with two mortgages.

12 A Broker who is actively involved in title company selection and engagement is increasing his or her risk of consumer complaints with the Division. Increased risk of a civil claim for negligent referral. Negligent referral is a claim when the broker recommends a provider but was negligent in so doing, because the provider did not provide the level of service needed by the consumer. Standard practice of the Rule of 3 Brokers who wish to make recommendations of experts, including settlement service providers, should provide at minimum three (3) names and allow the consumer to choose. Rule of 3 standard of practice of providing consumers with three (3) names of settlement service providers (this is not a Commission Rule). Applies to home inspectors, contractors, mortgage lenders, and all other related real estate providers including title companies. If the broker cannot verify the company or person being recommended is qualified and will do a good job it is better to not recommend anyone than have a claim for a negligent referral. Selecting a title company: 1. Consumer needs to play an active role in the process (consumer title fact sheet posted on the Division s website). 2. Consumers need to engage the services of the title company Contract to Buy and Sell now offers two (2) choices for who will order and pay for the title insurance. EVIDENCE OF TITLE AND ASSOCIATION DOCUMENTS Seller Selects Title Insurance Company. If this box is checked, Seller shall select the title insurance company to furnish the owner s title insurance policy at Seller s expense. On or before Record Title Deadline ( 3), Seller shall furnish to Buyer, a current commitment for owner s title insurance policy (Title Commitment), in an amount equal to the Purchase Price, or if this box is checked, an Abstract of title certified to a current date. Seller shall cause the title insurance policy to be issued and delivered to Buyer as soon as practicable at or after Closing. Note: The first box when used has the seller selecting and paying for the title policy. 7.2 EVIDENCE OF TITLE AND ASSOCIATION DOCUMENTS. 7.2 Buyer Selects Title Insurance Company. If this box is checked, Buyer shall select the title insurance company to furnish the owner s title insurance policy at Buyer s expense. On or before Record Title Deadline ( 3), Buyer shall furnish to Seller, a current commitment for owner s title insurance policy (Title Commitment), in an amount equal to the Purchase Price. If neither box in 7.1 or 7.2 is checked, 7.1 applies. Key point: either the seller or buyer may choose and pay for the title policy. The purpose of this provision is to raise the buyer s awareness regarding title insurance and give the buyer a choice.

13 Additionally, many REO addendums allow for a buyer to choose the title company so long as the buyer pays for the title insurance. If the buyer wants to choose title, but also wants the seller to pay for it, the buyer can add the cost of the title insurance to paragraph #4.2 regarding Seller Concessions. Prior to increasing Seller Concessions, the buyer should consult with their lender to make sure the buyer s loan will allow for such Seller Concessions Owner's Extended Coverage (OEC). The Title Commitment Shall Shall Not commit to delete or insure over the standard exceptions which relate to: (1) parties in possession, (2) unrecorded easements, (3) survey matters, (4) unrecorded mechanics liens, (5) gap period (effective date of commitment to date deed is recorded), and (6) unpaid taxes, assessments and unredeemed tax sales prior to the year of Closing (OEC). The CREC also changed the contract regarding Owner s Extended Coverage. The contract now defines Owner s Extended coverage as the standard exceptions on most title insurance commitments Note: The title insurance company may not agree to delete or insure over any or all of the standard exceptions Premium for OEC. If the title insurance company agrees to provide an endorsement for OEC, any additional premium expense to obtain an endorsement for OEC shall be paid by Buyer - Seller - One-Half by Buyer and One-Half by Seller Other. Key point: the buyer is responsible for verifying the standard exceptions have been removed in the OEC. Note: Brokers should be aware that even if the title commitment states that the Title Commitment will insure over the standard exceptions, the title insurance company is under no obligation to do so. Buyers need to be advised to review their title commitments carefully to make sure that the standard exceptions are deleted to the buyer s satisfaction Addresses how the additional premium for Owner s Extended Coverage is to be handled. Off-Record Title What are Off-Record Title issues? Existing Surveys? Leases? Contract added: Unless disclosed in writing, Seller represents and warrants that there are no Off-Record Matters. The CREC is concerned that brokers are not advising buyers and sellers with regard to Off- Record Title matters. Off-Record Title matters are those matters known by the seller to affect title to the property but are NOT recorded with the County Clerk and Recorders office. For example: Any adverse possession claims, unrecorded easements, boundary line discrepancies, etc. This section requires the sellers to provide these documents. NOTE: Under 8.2 the contract requires the seller to deliver copies of any existing surveys in the sellers possession. Many times the seller does not know they are required to do this. Brokers should make sure the seller understands this obligation.

14 NOTE: Off-Record Title no longer includes leases which were moved to Due Diligence. Sellers are now making a representation and a warranty to the buyer that they have told the buyer EVERYTHING they know regarding off-record title matters. This means the seller could be sued if the buyer later finds out there was an off-record matter that was not disclosed. Brokers should advise sellers to think about this provision carefully before the deadline passes. Inspection Objection Key point; this form replaces the Inspection notice form and is used by the buyer to inform the seller of inspection issues; the buyer is the only signer on the form. Inspection Objection is a NOTICE. Essentially the buyer is saying seller, I have the following issues with the property. Because of lending issues, the seller resolution was removed from the form. Now, the only person who signs the Inspection Objection is the buyer. A legend was inserted into the Inspection Objection. Legend NOTE: Resolution of inspection items agreed to by the parties may alter the terms of the Contract and require disclosure by Buyer to Buyer's lender. Buyer is encouraged to consult Buyer's lender prior to entering into a final resolution on inspection matters as the resolution may (1) have a detrimental impact on the Buyer's ability to get the loan; (2) cause delays in the lender s processing and funding of the loan by Closing; and (3) require further inspections and repairs. Communication with the lender should be in writing.

15 Legend added to the 2013 Inspection Objection form Notes Note tells the buyer to disclose the issues with the buyer s lenders as they may: 1. have a detrimental impact on the Buyer's ability to get the loan; 2. cause delays in the lender s processing and funding of the loan by Closing; and 3. require further inspections and repairs. Communication with the lender should be in writing. How to address inspection issues: Other than Terminating the Contract, there are generally five alternatives to address inspection issues: 1. Seller can repair the property prior to closing. 2. Seller can agree to pay concessions or contributions at closing. 3. Buyer can make repairs after closing without assistance from seller. 4. Buyer and seller can reduce the sales price. 5. Seller can escrow funds or pay a contractor at closing. All of the above amend the Contract and must be memorialized on the Inspection Resolution or Amend/Extend (not both) and provided to the buyer s lender. Buyers should be encouraged to talk to the lender BEFORE reaching an agreement with the seller regarding inspection, as the agreement could impact the buyer s loan. Inspection Resolution was updated to clarify that the Inspection Resolution is an amendment to the contract. The form again informs the buyer to inform the lender. Note: This document amends the Contract. Buyer must provide a copy of this Inspection Resolution to Buyer's Lender. Both parties sign the form. This form is used to finalize the inspection agreement between the buyer and seller. Once again the note tells the buyer to inform the lender. Both parties sign the form. Deadlines Brokers need to work together on allowing the parties time to negotiate between objection and resolution deadlines. Contingency dies upon the deadline in the Contract-to-Buy-and-Sell. It is unacceptable to ignore the deadline, the contract should be amended to create new dates. Any resolution of the inspection will amend the contract. The Buyer needs to disclose the amendment to their Mortgage Loan Originator (MLO). Best Practice: Buyer s MLO should be involved in inspection resolution. Exercise reasonable skill and care.

16 Key point: the MLO should be involved and receive the inspection resolution form. No such thing as paying outside of closing everything must be fully disclosed on the HUD-1 or Closing Statement. New Issues Hypothetical: Buyer does an inspection on the property. Buyer provides a copy of the buyer s inspection to the seller. Buyer and seller are unable to come to an agreement on the inspection resolution deadline and the contract terminates. Key point: the seller and broker are obligated to disclose all material facts as soon as the facts are known. Any material facts or defects listed in the inspection report should be added to the seller and broker s disclosures. Inspection Case Study Questions: 1. Does the seller have an obligation to disclose the inspection report? 2. What if the seller disagrees with issues raised in the report? Best Practices: The Seller has an obligation to disclose any material defects the seller knows about the property. Issues raised in the inspection report may need to be disclosed if they are later determined to be material. Just because the seller disagrees does not mean there is nothing wrong with the property. If the subsequent buyer closes on the home without any knowledge of an issue raised in the previous buyer s report, and the issue later turns out to be real and material, the seller and the broker could be sued for failing to disclose. Broker should advise seller to disclose the first buyer s report. IF the seller disagrees with an issue raised, the seller could have their own expert refute a portion of the report. Then give both the original report and the seller s experts report to the subsequent buyer. The subsequent buyer can then make their own determination. Closing Instructions Instructor Notes: Commission approved Closing Instructions are not required when a title company is engaged to provide closing services. CP-34: Settlement Service Provider Selection, Closing Instructions and Earnest Money. The Division of Insurance requires that a title entity provide closing and settlement services only when there are written instructions from all necessary parties. See Division of Insurance Rule

17 Pursuant to (i) and Rule E-4, the broker shall retain a copy of the Closing Instructions for future use or inspection by an authorized representative of the Real Estate Commission. If a title company is engaged to provide the closing services, they are considered the Closing Company. It is the responsibility of the title company to complete the closing instructions as required by the Division of Insurance. The Broker should request a copy of the closing instructions for their transaction file. If the broker is performing closing services, they are considered the Closing Company and are responsible for completing the Commission-approved Closing Instructions at the time that the CBS is executed. Closing services include the preparation, delivery and recording of closing documents, and the disbursement of funds. Pursuant to (i) and Rule E-4, the broker shall retain a copy of the Closing Instructions for future use or inspection by an authorized representative of the Real Estate Commission. Earnest Money Receipt Earnest Money Holder acknowledges receipt of the Earnest Money in the amount of $ in the form of, to be held by Earnest Money Holder in its trust account, on behalf of both Seller and Buyer pursuant to the Contract to Buy and Sell Real Estate described below: Until Closing instructions have been signed by Buyer, Seller and Earnest Money Holder, 24 (Earnest Money Dispute) and 25 (Termination) of the Contract will apply to the holding of the Earnest Money by Earnest Money Holder. Instructor Comment: The Commission approved mandatory Earnest Money Receipt needs to be completed. The Earnest Money Receipt sets the terms of holding the earnest money until closing instructions have been signed by all parties. Due Diligence Due Diligence was updated in the Contract so that the seller is REQUIRED to deliver all Due Diligence documents listed. This Includes Leases. BEST PRACTICE? Key Point: the broker should help the seller counter any offer to include only those due diligence documents in the seller s possession, especially if presented with a laundry list of items as the new contracts require the seller to provide the documents.

18 The previous version of the contract said that the seller only had to deliver those due diligence documents listed if the seller had them in their possession. The problem was that the Due Diligence Objection Deadline was automatically extended if the seller did not deliver the due diligence documents on time, but there was no way of telling if the documents were not delivered because the seller defaulted or because the seller didn t have the documents. A Counterproposal should remove any due diligence documents not available for the seller to deliver. Failure to remove these documents could result in the seller being in default. The Seller and listing broker are to provide list of documents on a per transaction basis. Examples of due diligence documents: Permits Building plans Work and material orders Transferable warranties Other Contract Issues Loan Conditions Deadline is now Loan Objection Deadline Conditional Upon Sale of Property. This Contract is conditional upon the sale and closing of that certain property owned by Buyer and commonly known as Buyer, has the Right to Terminate under 25.1 effective upon Seller's receipt of Buyer s Notice to Terminate on or before Conditional Sale Deadline ( 3) if such property is not sold and closed by such deadline. This 10.8 is for the sole benefit of Buyer. If Seller does not receive Buyer s Notice to Terminate on or before Conditional Sale Deadline ( 3), Buyer waives any Right to Terminate under this provision. The term Loan Conditions Deadline was confusing to brokers, buyers and sellers. Many thought that the buyer must have all of the loan conditions met by this deadline. Therefore the term was changed to Loan Objection Deadline to clarify that the last date the buyer can reject their loan, regardless of where it is in the process. Conditional Sale Deadline was added to the contract and a more detailed contingency was added to Section 15 - Closing Costs, Closing Fees, Association Fees and Taxes

19 Section 15 of the Contract discusses many different fees that are to be paid at closing. Record Change Fee Record Change fee relates to changing the ownership name with the HOA is a Record Change fee. Local Transfer Tax A tax that is imposed at the transfer of property by local government. Currently, no new Local Transfer Taxes can be imposed in Colorado. The ones currently in place are typically in the mountain communities. Private Transfer Fee Fee imposed by a private entity such as a community association, developer or foundation. The clause was changed to allow for more than just one private transfer fee. Water Transfer Fee Added to the contract to explain how any water transfer fee is to be paid at closing. Sales and Use Tax Tax charged on personal property that is being purchased in the transaction. Forms Committee

20 Forms Committee encourages input from industry stakeholders on Colorado real estate contracts and forms. Please input and suggestions to Leasing vs Property Management Key point: leasing is not a long term relationship while property management is. Questions to help define leasing versus property management are: Who does the tenant call? Who collects the rent? Who holds the security deposit? Who orders work?

21 If the above are answered "broker" or "property manager" then the relationship is one of management and should have the proper agreements with the property owners. Competency in Leasing & Property Management 1. Leasing and Property Management require specialized knowledge. 2. A broker who does not possess the requisite knowledge should either decline to provide brokerage services or seek assistance of another broker who does have that experience or training. Leasing & Property Management is a niche area of real estate practice and should not be undertaken without serious thought and discussions with the employing broker. CP 41- must be competent to perform the duties. Education to gain Knowledge: NARPM: National Association of Residential Property Managers IREM: The Institute of Real Estate Management CAI: The Community Associations Institute BOMA: The Building Owners and Manager Association NAA: The National Apartment Association Instructor Comment: This list is not comprehensive. Other education directed at property management will also suffice. Property Management or Leasing - the Devil Is In The Details On occasion, the broker receives a verbal inquiry about acting as a leasing broker for the property in addition to selling it. The broker at this point must have the necessary level of competency and approval of the employing broker to move forward. Brokers need to competently assist the seller/landlord with: 1. The residential lease requires information about the rent, and security deposit. These issues should be agreed upon (between agent and owner/landlord) prior to any negotiations with the would be tenant. It is likely that the owner/would be landlord will

22 either provide a lease or ask the agent to find one. Once the agent becomes involved with providing the lease itself, he/she may be practicing law. Such a practice of law would be in violation of commission rules. 2. The seller/landlord is most likely to request the agent to assist in tenant screening. Which would include checks on credit, criminal, employment and landlord references. What training does the agent have in regard to evaluation of applications (who provides the application?). Go online and complete the Exercise: Leasing The Devil in the Details Broker Associates must have the consent of their employing broker to manage any property or perform any management duties if it is not owned by the broker associate. Additional E&O Insurance may be either required or desirable. Some standard policies cover property management activities, others do not. Check with yours to determine if additional coverage is necessary. Brokers may not, without employing brokers permission: Negotiate a lease without an agreement. Help a friend or family member. Hold any funds. Set up a separate property management company. Bodily injury & the property may not be covered by your E&O insurance policy. Speak with your insurance agent to ensure you are properly covered. State and Federal Property Concerns Lead based paint requirements Carbon Monoxide Detectors Warranty of Habitability Brokerage Relationship Disclosure Fair Debt Collection Act Illegal drug laboratories All of the items listed are issues a property manager is well versed in and fully understands. A leasing agent should be as well. Lead based disclosures are required to be signed by the owner, tenant and property manager. Reminder: The Lead-Based Paint, Renovation, Repair and Painting Rule must be followed or parties face fines up to $37,500 per violation. The EPA pushed for this rule. Download and read the EPA brochure on this rule using the link below if you are involved in property management.

23 Carbon Monoxide Alarms - Required in all properties per HB Warranty of Habitability Act should be reviewed by property managers. Rule E-35 - Broker must disclose the relationship they have with the owner to a tenant. Property Management Case Study Big Time Property Management Company is owned and operated by employing broker J.P. Big. The company has a large portfolio (100+ properties) of single and multi family rentals under management. The company advertises as a full service property manager set-up to administer all aspects of management including advertising, leasing, rent collections, security deposit, and property maintenance and repair issues. The property management agreements in use by the company state; Big Time represents the landlord as an agent. The Division of Real Estate has received multiple complaints from owners using Big Time Property Managers alleging that: Security deposits were not being handled properly; Owners were being overcharged for maintenance of their properties; and Rental proceeds owed to owners were being paid late or in some instances not at all. Property Management Case Study: Part 2 A Financial Examiner was assigned to conduct an audit of the company s records. The audit found the security deposit trust account had been used to advance funds to the owner of the company on several occasions in the past three years. Checks were written to the owner, Mr. Big in the amounts of $5,000 on six separate occasions. The audit showed the funds were usually returned to the trust account, however not all of the funds were accounted for. Examination of the accounts showed that owners accounts had been charged for repairs & maintenance by a separate company, ABC Maintenance Company. The Examiner confirmed that the ABC Maintenance Company was owned by Mr. Big. ABC arranged for contractors to conduct repairs on units when ordered by Big Time. ABC took a mark-up of 25%-35% on the work done by other contractors. For example if a unit needed new carpet that cost $1,000, ABC would charge Big Time $1,300. Big Time would then deduct the charge from the owner s proceeds. The markups collected by ABC amounted to several thousand dollars per year to Mr. Big. The examiner further noted: The Big Time property management agreement did not include a provision for the property management company to assess the mark-up. None of the files contained brokerage relationships disclosures to tenants. The Big Time property management agreements did not include the Brokerage Duties Addendum to Property Management Agreement. Mr. Big argued that ABC was a separate company and the markups charged for those services were not covered by the management agreement or the license law. Go online and complete the Exercise: Property Management Case Study

24 Apartment Building or Complex Management The Commission recognizes that owners of apartment buildings or complexes will engage the services of real estate brokerages or unlicensed, on-site managers, or both. CP- 42 addresses this issue. CP-42 Commission Position on Apartment Building or Complex Management The Commission recognizes that owners of apartment buildings or complexes will engage the services of real estate brokerages or unlicensed, on-site managers, or both. An owner includes either a person or an entity recognized under Colorado law. The owner must have a controlling interest in the entity formed by the owner to manage the apartment building or complex. In the instance of an entity, the owner may form a separate entity to manage the apartment building or complex. The ownership entity and the entity formed by the owner to manage the apartment building or complex must be under the control of the same person or persons. Customary Duties Both owner-owned management companies and real estate management companies can hire (salaried) unlicensed persons to perform customary duties (e.g. an on-site manager). Pursuant to (2)(b)(XII), C.R.S., a regularly salaried employee of the owner of an apartment building or complex is permitted to perform customary duties for his or her employer without a real estate broker s license. The unlicensed, on-site manager must either report directly to the owner or to the real estate broker, if a real estate broker is engaged to manage the property. Employing brokers need to be especially aware of their supervisory duties under the license law. Supervisory duties apply whether the on-site manager is an employee or independent contractor of the broker or brokerage firm, or if the on-site manager is a regularly salaried employee of the apartment building or complex owner. The employing broker should have a written office policy explaining the duties, responsibilities and limitation on the use of onsite managers. This policy should be periodically reviewed with all employees Customary Duties of an Unlicensed, On-site Manager: 1. Performance of clerical duties, including gathering information about competing projects. 2. Obtain information necessary to qualify perspective tenants for a lease. This includes obtaining and verifying information regarding employment history, credit information, references and personal information as necessary. 3. Provide access to a property available for lease and distribute preprinted, objective information prepared by a broker as long as no negotiating, offering or contracting is involved. 4. Distribute preprinted, objective information at an on-site leasing office that is prepared by an owner or broker, as long as no negotiating, offering or contracting is involved. 5. Quote the rental price established by the owner or the owner s licensed broker.

25 6. Act as a scrivener to the owner or the broker for purposes of completing predetermined lease terms on preprinted forms as negotiated by the owner or broker. 7. Deliver paperwork to other brokers. 8. Deliver paperwork to landlords and tenants, if such paperwork has already been reviewed by the owner, or a broker or has been prepared in accordance with the supervising broker s instructions. 9. Collect and deposit rents and security deposits in accordance with the owner s lease agreement or the brokerage firm s written office policy. 10. Schedule property maintenance in accordance with the brokerage firm s management agreement or the owner s lease agreement. Unlicensed on-site managers: CANNOT HELP IN NEGOTIATIONS The unlicensed on-site manager may schedule maintenance for the property, qualify tenants and complete predetermined lease terms on preprinted forms. They may NOT negotiate lease terms or do anything requiring a brokers license. Entity E&O Requirements Key point: an independent broker, who is not allowed to hire other licensees, who has a corporate entity will need to only have one E & O policy not two as was the previous requirement. The license prefix will indicates the license level. If the license number prefix begins with I it indicates Independent level license, E indicates Employing level license. E&O Entity insurance is required once an employed licensee joins the company. An employing broker submitting an application to employ the firm s first employee, should include a copy of the entity E&O policy with the employee s application.

26 Note: Brokers should discuss and understand the policy limits with their E&O provider. Seller Financing & Loan Assumptions What actions or conduct requires a mortgage loan originators (MLO) license? Providing ancillary guidance on topics that involve mortgage financing does not require a MLO license. Any exemption from the license requirement belongs to the seller not the broker. Following acts are required to be licensed as loan originators: Taking a residential loan application; Offering terms of a residential mortgage loan; or Negotiating terms of a residential mortgage loan Ancillary Guidance includes: Offering general underwriting guidelines and constraints of various mortgage products is considered ancillary guidance. Discussing mortgage insurance premiums required on FHA loans. How much down payment may be required of different mortgage products. General knowledge about mortgage lending is provided as a service to clients from brokers. Definition of Taking a residential mortgage application occurs if the individual receives a loan application for the purpose of facilitating a decision. MLO license required if an individual Offers or negotiates terms of a residential mortgage loan. This occurs if the individual: 1. Presents for consideration to a borrower or prospective borrower particular residential mortgage loan terms; 2. Communicates directly or indirectly with a borrower for the purpose of reaching a mutual understanding about prospective residential terms; or 3. Recommends, refers, or steers a borrower to a particular lender or set of residential mortgage loan terms, in accordance with a duty to or incentive from any person other than the borrower. Loan Modifications All loan modifications must be done by a licensed mortgage loan originator (MLO). It is important to note that by asserting jurisdiction, these individuals are considered to be mortgage loan originators and are thus required to be licensed as state-licensed loan originators. They must then also abide by all disclosure requirements and all other provisions included in Colorado mortgage loan originator laws.