Colorado Foreclosure Act-Short Sale Double Closings

If you are in the pre-foreclosure business you should already know about the huge changes to the Colorado Foreclosure Protection Act that took effect on January 1, 2011.   Please read this article very thoroughly because there are some important changes to the law that will affect your business.  Please note that I am not an attorney, and the information contained in this newsletter is for educational purposes only.  Do not take any information I am giving you as legal advice.  The consequences of violating the FPA could be anything from fines up to $25,000 to imprisonment up to a year or both so always consult the advice of your attorney.

First I’m going to over some definitions:

Equity Purchaser-A person who buys a pre-foreclosure property that has equity.

Subsequent Purchaser-A person who buy a property from an investor (AKA C in an A-B, B-C transaction) and it must be sold under 14 days.

Foreclosure Protection Act will be abbreviated as FPA

When does the FPA apply for an investor?

The foreclosure protection act now only applies when the property is not a short sale and the home has equity.  The old law said that all properties, whether a short sale or not the FPA applies.  If the FPA applies to your transaction you must follow the law.

If you are considered an Equity Purchaser, what must you do?

Use the Colorado Foreclosure Protection Act Contract.  Include the Notice of Cancellation, and Seller Warning.  If you use the Colorado approved forms you done need to worry about the font size, etc listed below.  They have already done this to comply with the law.  It is best to just use their contracts.

Every contract shall be in writing in at least  nine-point font, legible type and fully completed, signed, and dated by the  home owner and equity purchaser prior to the execution of any instrument  quit-claiming, assigning, transferring, conveying, or encumbering an interest  in the residence in foreclosure.

Every contract shall contain the entire agreement of the parties and shall include the following terms

• The name, business address, and telephone number of the equity purchaser
• The street address and fill legal description of  the residence in foreclosure
• Clear and conspicuous disclosure of any financial or legal obligations of the home owner that will be assumed by the equity purchaser.  If the equity  purchaser will not be assuming any financing or legal obligations of the  homeowner, the equity purchaser shall provide the homeowner with a separate  written disclosure that substantially complies with the Equity Skimming or Real  Property statute
• The total consideration to be paid by the equity  purchaser including the terms of payment and any services to be provided to the  home owner either before or after the sale
• The date and time possession is to be  transferred to the equity purchaser
• The contract shall be written in English, and if the equity purchaser has actual of constructive knowledge that the homeowner’s principal language is other than English, the homeowner shall be provided with  a fairly short notice in the homeowner’s principal language.
• The terms of any rental or lease agreement
• Attach Notice of Cancelation-The homeowner has  until 12:00 midnight of the third business day following the day on which the  homeowner signs the contract or until 12:00 noon on the day before the  foreclosure sale, whichever comes first
  • Cancellation occurs upon personal delivery of  notice of cancellation of deliver of such notice to the U.S. Postal Service  with prepaid postage
  • Notice of cancellation from the homeowner need  not take any particular form but only needs to express the homeowner’s  intention to cancel the contract
• All terms of any right to repurchase
  • An option to repurchase the property may only be offered in a very limited set of circumstances.   I would not resell the property to the homeowner; you are opening up a big can of worm if you do.  The following must apply:
    • The contract must have significant protections  for the homeowner in the event of default, and
    • All liens are to be fully discharged or assumed  in full compliance with the note and deed of trust, and
    • The homeowner must be able to afford the  payments, and
    • An increase in the price in excess of 25% is considered unconscionable.

Who is exempt from  being an Equity Purchaser? 

• It will be a short sale transaction
• Must use the current Colorado Real Estate  Commission approved Short Sale Addendum is part of the contract
• The transaction complies with the new Double  Closing section of the FPA

What is required by the new Double Closing section of the FPA?

If the equity  purchaser in a short sale transaction intends to resell the residence in  foreclosure to a Subsequent Purchaser, the equity purchaser shall  provide full disclosure to the homeowner and  all holders of evidence of debt on the residence in foreclosure (or such  holders’ representative) of the terms of the agreement with the subsequent  purchaser including but not limited to the purchase price within one business  day of identifying the subsequent purchaser and not later than the closing of  the short sale transaction.  This is only  if you plan on reselling the property within 14 days.  So my suggestion to you is to not resell the  property to a retail buyer until after day 15.   Get a hard money loan or transactional funding and then resell the  property.

If you plan to resell the property within 14  days you must

• Provide full disclosure to the subsequent  purchaser and subsequent purchaser’s lender (or such lender’s representative)  of the terms of the agreement with the homeowner including but not limited to  the purchase price within one business day of identifying the subsequent  purchaser and not later than the closing of the short sale transaction
• Comply with all rules adopted by the Colorado  Real Estate Commission with regard to short sales
• Comply with all good funds laws.