What do I need to know as a seller about Senate Bill 100 ("SB100"), the law which requires sellers to provide homeowners' association governing documents and other financial information to buyers?

Response:

The Colorado Real Estate Commission Update course for 2005 educated REALTORS® about the basic information which real estate brokers need to know to comply with SB100. The most significant impacts of SB100 for REALTORS® are: (1) the bill requires sellers to provide the governing and financial documents for a common interest community to buyers on or before the Title Deadline, along with a disclosure statement regarding the documents; (2) it also requires the seller to obtain an acknowledgment from the buyer confirming the buyer's receipt of these documents on or before closing; and (3) the seller is also obligated to provide this receipt to the owners' association as soon ". . . as is practicable . . ." after closing. The Real Estate Commission has promulgated its form entitled, "Common Interest Community (CIC) Documents Receipt and Disclosure to Buyer" (having form number CIC33-10-05) to help real estate licensees comply with SB100.

The purpose of this article is to go beyond the basics and address some of the nuances and uncertainties surrounding the effect of SB100. This article does not purport to be a comprehensive discussion of SB100. It is a complicated bill which addresses many things of interest to anyone who lives or owns property in a common interest community, anyone who is involved in the governance of common interest communities, and anyone involved in developing common interest communities. This article limits itself to addressing issues which are relevant to the practice of real estate brokerage. This Part 1 addresses seven questions. Part II, addresses six remaining questions about Senate Bill 100.

Question 1:

In the Colorado Real Estate Commission's disclosure form, the buyer is acknowledging receipt of the Declaration, Covenants, Bylaws and Rules of Regulations of the homeowners' association. Is this a comprehensive list of all the documents which a seller is required to provide to the buyer under SB100?

Response 1:

No. The Real Estate Commission's disclosure form precisely mirrors the language of the disclosure form required by SB100. However, SB100 is not internally consistent. Section 38-33.3-223 of the statute requires the seller to provide the following list of documents to a buyer:


the bylaws and the rules of the association;
the declaration;
the covenants;
any party wall agreements;
Minutes of the most recent annual unit owners' meeting and of any executive board meetings that occurred within the six months immediately preceding the Title Deadline;
the association's operating budget;
the association's annual income and expenditures statement; and
the association's annual balance sheet.
The disclosure form makes no mention of party wall agreements, minutes of meetings, or the financial documents of the association (items (d) through (h) identified above). Brokers should assist sellers in striving to provide all the documents on the longer list identified in Section 223.

Question 2:

Are all developments which have ownership associations "common interest communities" which require this disclosure form?

Response 2:

No. An association is a common interest community if owners are required to pay expenses, such as real estate taxes and maintenance costs, of other real estate described in the declaration (usually the "common areas" of the development). While the vast majority of ownership associations are common interest communities, not all of them are. For example, there are owners' associations whose sole purpose is to enforce architectural control restrictions, use restrictions, or other land use regulations.

Question 3:

What if the owners' association refuses to produce all of the required documents?

Response 3:

SB100 places the burden on the sellers, not the owners' associations, to provide such documents to buyers. But it also requires the associations to use "best efforts to accommodate a request by the seller" for the documents that are within the associations' control. [CRS §38-33.3-223 (2).] If the association fails to comply with this "best efforts" standard, sellers should be advised to consult legal counsel.

Question 4:

What if the association is willing to provide available documents, but the association does not have all of the documents which a seller is required to produce?

Response 4:

SB100 requires sellers to produce the required documents " . . . in the most current form available." (C.R.S. § 38-33.3-223.) The penalty provisions (C.R.S. § 38-35.7-102) provide that the seller will not be liable if the buyers' damages resulted from the associations' failure or refusal to provide the documents.

Question 5

Does the statute place the burden on the seller or the seller's broker to provide these documents?

Response 5:

The burden is on the seller to provide these documents to the buyer. However, whether the listing broker is a seller's agent or a transaction-broker, the listing agent has the duty to educate the seller about the need for compliance. The real estate broker cannot compel the seller to comply with SB100, but if a seller does not comply with SB100, the listing broker will want to have a good record establishing that the listing broker attempted to educate the seller about the importance of complying with SB100.

Question 6:

By when should the documents be provided to the buyer?

Response 6:

On or before the Title Deadline identified in the contract.

Question 7:

What if the contract is not on the Real Estate Commission approved form and does not have a "Title Deadline?"

Response 7:

One of the statute's flaws is that it identifies a deadline which is not in all contracts (e.g. some new construction contracts). For FSBO transactions, the law requires disclosure at least ten days before closing. Perhaps this standard will become a fall back deadline for deals which do not have a title deadline? Affected parties should address this question on a case-by-case basis with their lawyers.


Question 8:

What is the seller supposed to do with the receipt from the buyer acknowledging the buyer's receipt of the delivered documents?

Response 8:

The seller is obligated to deliver the receipt to the association ". . . as soon as practicable after closing."

Question 9:

What are the consequences to a seller if the seller does not comply with SB100?

Response 9:

The purchaser shall have a claim against the seller for all damages resulting to the purchaser, plus court costs. Attorney's fees are omitted from this section of the statute, suggesting that the buyer is not entitled to recover attorney's fees. The extent of the buyer's damages are murky. Suppose a buyer was not given the documents and the notice and the association has dues of $200 per month. Does the buyer have any damages if the buyer receives good value for his dues of $200 per month?

Question 10:

What if the owners' association no longer exists or functions in a particular subdivision?

Response 10:

The provision cited in the answer to Question 4 above relieves the seller from the obligation to provide documents which don't exist. Brokers should, however, still assist sellers in obtaining a receipt from buyers. The receipt could acknowledge that the buyers have been informed they had a right to receive such documents had they existed, that such documents do not exist, and that they will not hold the seller responsible for the lack of documents. This approach should not be used to circumvent the spirit of SB100, but it should work when there is a bona fide situation where the documents are not available.

Question 11:

How can sellers and real estate brokers cope with the situation where the buyer refuses to sign acknowledging receipt of the documents?

Response 11:

The statute does not address this question. The Hotline suggests that brokers address this situation in two ways. When buyers refuse to sign, brokers can still establish a record through e-mails, faxes, and letters to the selling broker and/or buyer that the documents have been delivered but that the buyer has refused to sign the receipt. Secondly, brokers are encouraged to insert a provision into the buy/sell contract obligating the buyer to sign the receipt.

Question 12:

Brokers do not have the ability to compel associations to provide these documents. How can brokers protect themselves from sellers who are not sufficiently aggressive to extract the documents from the owners' association?

Response 12:

The Hotline encourages brokers to have a provision in their listing agreement educating sellers about the need to obtain these documents and obligating sellers to do so immediately after the listing is taken.

Question 13:

If the buyer doesn't receive the covenants or acknowledge receipt of them, is the buyer still bound by them?

Response 13:

Yes; Buyers are on notice of, and take their title subject to, the burdens of the covenants (whether they have received paper copies of them or not), so long as they are recorded in the Clerk and Recorder's Office in the county in which the property is located. Buyers cannot avoid being bound by the covenants by refusing receipt of the covenants or refusing to acknowledge receipt of them

Copyright ©2006 Frascona, Joiner, Goodman and Greenstein, P.C. All rights reserved.