by Gabrielle Owens | Blog
A Denver couple has been charged with running an illegal short-term rental business through Airbnb, a move industry watchers said is a warning to others who might be breaking the rules.
The felony charges stem from what has become a recurring complaint from residents across the city, and the new criminal case escalates the city’s attempts to rein in short-term rental hosts.
Alexander Neir, 45, and Stacy Neir, 43, live in Stapleton but were renting out a home in the Berkeley neighborhood and another north of Broncos Stadium at Mile High, near Jefferson Park. The two allegedly falsified documents to claim those rental homes as their primary residences, according to their arrest affidavits.
Under a city rule created in 2016, an owner or leaser of a short-term rental is required to use the place as their full-time residence.
The Neirs signed affidavits of primary residence stating they lived full time at properties on Tennyson Street and Eliot Street. But investigators found evidence the couple actually lived in Stapleton, where Stacy Neir serves as a block captain in the neighborhood, the affidavit said.
The Tennyson Street home has been used as a short-term rental since 2016, while Eliot Street has been rented out since 2013, the DA’s office said.
Alexander Neir is listed as a managing broker at Kentwood Real Estate. Stacy Neir is listed as a broker associate at the same company.
The Neirs each have been charged with one count of attempting to influence a public servant.
But the couple’s attorney said the city is going too far with the criminal charges.
“This is a misguided and wrong-headed prosecution,” said Daniel Recht, the couple’s attorney. “We are confident that the Neirs will receive a favorable outcome once all facts come to light in a court of law.”
Carolyn Tyler, spokeswoman for the Denver District Attorney’s Office, could not confirm whether the case is the first time the city ordinance has resulted in felony charges. Denver routinely prosecutes attempt to influence a public servant cases, she said, but rarely for short-term rental violations.
James Carlson, a Denver real estate agent who teaches courses on how to be a successful Airbnb host, said the felony charges “certainly seem like an escalation,” but the city has been moving in this direction.
“This has been a long time coming,” Carlson said. “A lot of people have flouted this law for a while. They’ve been waiting to start cracking down.”
The city has been pushing people to get in compliance, Carlson said.
“I guess this is a shot across the bow to let everyone else know,” he said.
Homeowners flouting Denver’s short-term rental residency requirements are the most common complaints from residents received by the city’s Department of Excise and Licenses, said Eric Escudero, the spokesman.
“The challenge is that some people aren’t renting them responsibly,” Escudero said. “It’s something we’re taking very seriously.”
Since January 2018, Denver has received 368 non-resident complaints — roughly three per week, according to numbers provided by the licenses department.
As complaints roll in, the number of short-term rentals skyrockets.
Denver on Tuesday hit an all-time record for active short-term rental licenses with 2,691, according to city numbers. That’s a 60 percent increase in short-term rental licenses in just two years.
Despite the complaints, the majority of people offering short-term rentals are complying with city code, Escudero said. The compliance rate for those who advertise online and disclose their license number as required is 74 percent — a record high. The compliance rate in June 2018 was 52 percent.
“We’ve had a lot of progress,” Escudero said.
After more than two years of debate, Denver City Council in June 2016 passed the measure to allow short-term rentals in private residences, including a provision meant to restrict owners with second homes from using them only as short-term rentals.
In February 2017, Denver licensing officials started going after short-term rental hosts, sending more than 1,000 violation notices around the city. Most of those warned of a failure to include a license number in the home’s online listing.
And four months ago, Denver yanked the short-term rental license of a wealthy man after neighbors complained about rowdy parties at the $5 million mansion. The city claimed that Garth Yettick didn’t actually live at the manor, as required by law. It was the first time the city had revoked a license.
For questions about vacation rental legalities or other real estate legal needs in Colorado, contact the Law Offices of Eric L. Nesbitt, P.C. at 303-741-2354 or Info@NesbittLawOffices.com.
by Gabrielle Owens | Blog
David, a real estate investor, calls his lawyer. David relates that he found a property that he thinks is at a low but predicts the price will soon soar. To finance the purchase of the new property, he wants to sell a different investment property, which he just purchased a year ago. Since the purchase, the value of that property has increased significantly. David is concerned that if he sells the old property now, then he will have to somehow absorb a large tax hit because that property doubled in value over the past year.
David’s lawyer tells him that he might not have to absorb any tax hit at all. Instead, the proceeds from the sale of one investment property that is used to purchase another investment property might not be taxed at all because they may qualify as a 1031 like-kind exchange. As a 1031 exchange, explains the lawyer, the tax would be “deferred,” or pushed until a different time, perhaps when David sells the new property.
Armed with this information, David calls his real estate broker to request that he put the old property up for sale. David then calls the broker on the new property to discuss a sales price.
1031 Basics
The substance of a 1031 exchange is that it provides taxpayers neither gain nor loss, in tax terms. when property is exchanged for “like-kind” property. A 1031 exchange usually does not apply to a person’s residence, but to investment properties.
In our example above, suppose David purchased the old property for $500,000 and due to soaring Colorado real estate prices, he can easily sell it today for $1,000,000. This means that David would make a profit $500,000, which is generally taxable. However, because David sold the old investment property and purchased a new investment property, it qualifies as a like-kind exchange. As a like kind exchange, David would not owe the IRS anything at this time for the sale of the property, despite profiting $500,000.
Now, David purchases the new property for $1,000,000. Suppose that in 2020 he decides to sell the property because he does not want to be in the real estate business any longer. Suppose also that the price of the new property is now $1,100,000. David profited on $100,000 on this sale and he will be responsible for taxes on that $100,000. In addition, he will now be responsible for taxes against the $500,000 on the sale of the old property because the tax against that property was deferred, not forgiven. Since the sale of the new property in 2020 is not for a like-kind property, the 1031 advantage goes away, leaving David responsible for all tax obligations owed as a result from the sale of the old property.
In sum, a 1031 exchange is advantageous because it defers taxes on the sale and purchase of similar properties; it is only a deferment, however, so if you take advantage of it now, it does not mean that you will never pay any taxes against it.
As mentioned above, a 1031 exchange is a tax deferment tool wherein a party selling a property will not be assessed tax on the sale of the property provided that such party exchanges that property for a similar property. If such party sells the property at a later date not within the 1031 exchange context, the party will then pay taxes against the sale of that property.
This article provides more detail about the qualifications for a 1031 exchange. The following elements are required for a sale to qualify as a 1031 exchange:
- Interdependence;
- Same taxpayer;
- Receipt; and
- Identification.
Interdependence
This element requires that the sale of the first property and the acquisition of the second property be interdependent, which means that one does not happen without the other. This is based on the Fifth Circuit ruling in the Bell Lines case from 1973 (a case in which a company sold trucks and then purchased new trucks). The court in that case did not provide specifics of how to determine what qualifies as interdependence, and therefore, the exact definition of “interdependence” is not entirely clear. To definitively attain interdependence, it is good practice to obtain the assistance of an experienced real estate attorney.
Same Taxpayer
The taxpayer selling the property must be the same taxpayer who purchases the new property. As a result, a taxpayer who sells property and later forms a partnership to purchase the new property does not fall under the 1031 exchange guidelines.
There is an exception when an individual sells a property and then purchases a new property as a single-member LLC. In that case, both the sale of the old property and subsequent purchase of the new property will constitute a 1031 exchange.
Receipt
To properly effect a 1031 exchange, the taxpayer cannot take receipt of the proceeds that will be used to make the exchange. That is to say, if the taxpayer is attempting to make the exchange, the taxpayer or anyone who would be considered the taxpayer’s agent must not hold the money from the sale of the old property. Instead, a qualified third party must hold the money in escrow and then use that money to pay for the purchase of the new property.
The taxpayer’s agent includes family members and the taxpayer’s lawyer. Therefore, when attempting a 1031 exchange, the money from the sale must go directly to someone who is qualified. It is a good idea to appoint someone to hold the money long before the sale. The experienced attorneys at the Nesbitt Las Offices can assist in identifying qualified third parties.
Identification
The taxpayer must identify the new property within 45 days of closing on the old property. Therefore, even though a qualified third party is holding the proceeds of the sale, the taxpayer does not have an unlimited amount of time to act. It is therefore a good practice to have an idea about the new property prior to the closing of the old property.
A later article will discuss exchange values of the properties.
For questions about 1031 exchanges or other real estate legal needs in Colorado, contact the Law Offices of Eric L. Nesbitt, P.C. at 303-741-2354 or Info@NesbittLawOffices.com.
by Gabrielle Owens | Blog
Even the most amicable divorce can be an emotionally trying experience. A once happily married couple now finds themselves at odds and enduring the difficult task of dividing up their once shared property. Suppose the parties agree to an arrangement to divide the property, per the divorce settlement. Say the parties own real property and suppose that property is in the husband’s name. Per the judgment of divorce, the husband must convey title to the real estate to his soon to be ex-wife. The easiest way to accomplish this is by the husband granting the wife the real property via a quitclaim deed.
Quitclaim Deed
The philosophy of a quitclaim deed is that the grantor of the real property “quits” his or her claim to the property, thereby allowing another party to take the property via a transfer. A quitclaim deed requires that the grantor signs it and states a grantee. A notary must notarize the deed. There is no need for the grantee to sign the deed. Once accomplished, the deed is valid. The grantee can then provide the fully executed deed to the county clerk and recorder where the property is located to record the real estate as property of the grantee.
Quitclaim in a Divorce
Suppose a piece of real property is in the name of the husband and wife and the husband agrees to transfer the property to the wife. A husband can simply provide her with a quitclaim deed that he no longer has interest in the property. This is quick and easy and allows for a smoother transition.
Quitclaim in a Marriage
Similarly, suppose two people marry. As one unit, they want to have joint ownership of their property. To that end, each one can devise his or her personal real property to the other for joint ownership via a quitclaim deed to the new spouse.
Quitclaim deeds can be relevant in tenancy in common and not as relevant for joint tenancy. A tenancy in common is where people, say a husband and wife, own a property. It can be that each enjoys full and equal use of the property despite one party actually owning a larger piece of that property. Upon the death of one party, the interest of that person will go to that person’s heirs. A quitclaim deed prior to death can help for a smooth and easy transition to the surviving spouse. By contrast, a joint tenancy means that upon the death of one spouse, the other spouse automatically owns the entire property.
In Colorado, a tenancy in common is assumed unless the parties stipulate that the property is owned in joint tenancy.
Other Considerations
Colorado law requires that those who devise a property via quitclaim deed valued at $500 or more attach a form TD-1000 to the quitclaim deed when submitting to the county clerk. A TD-1000 is a Real Property Transfer Declaration. This document is used by the Tax assessor, who determines taxes in part based on property value.
For questions about quitclaim deeds or other real estate legal needs in Colorado, contact the Law Offices of Eric L. Nesbitt, P.C. at 303-741-2354 or Info@NesbittLawOffices.com.
by Gabrielle Owens | Blog
The Colorado real estate market is hot. Prices are soaring, even in areas that were “left for dead.” In such a hot market, it is common to have a contract with a second buyer that is contingent on the deal falling apart with a first buyer called a backup contract. That is to say, a seller will negotiate the sale of his or her home with buyer #1, the primary buyer. In the contract, it will target a closing date with that buyer. At the same time, the seller will negotiate a contract for sale of the same property with buyer #2, the backup buyer. The contract will state that in the event the sale with buyer #1 fails, buyer #2 will then be in contract for the purchase of the property. In “normal” markets, such a circumstance is unlikely to occur; in a hot market where demand far outstrips supply, such a circumstance is more likely.
There are circumstances wherein a seller will negotiate multiple backup contracts with various buyers. Later offers from potential buyers would be in order of when those backup buyers signed backup contracts.
Sandstone Case
In 2001, an issue before Colorado courts was when the seller and buyer #1 extended the closing date. In the meantime, buyer #2, who signed a backup contingent contract, claimed that because the deal was not consummated by the date in the contract, which was the term of the contract between the seller and buyer #1, he is therefore placed into the first position. This is the case of Sandstone Investments v. Edward Williams.
In that case, the Colorado Appeals Court ruled that, based on the language of the contract, the seller agreed to a contract with buyer #2 if the sale was not “consummated” by the closing date. As such, buyer #1 took first position and the seller was now obligated to sell the property to buyer #2.
Issues with Backup Contracts
Buyer #2 may believe that he or she will be next in line in the event that the deal fails, which is a common occurrence. In reality, however, negotiating a backup contract will increase the likelihood that buyer #1 closes the deal with the seller. By negotiating a backup real estate sales contract, buyer #2 is sending the message that there is no comparable property on the market to the property being negotiated. As a result, for reasons that a buyer may pull out of a contract, e.g. price too high, better property elsewhere, better neighborhood elsewhere, buyer #1 is less likely to believe that a better deal exists.
In addition, if the issue is air conditioning problems or similar infrastructure issues, buyer #1 is less likely to pull out if he or she knows that others want it. Without a backup, buyer #1 would not clinch the deal; now, with others wanting the same property, buyer #1 is more likely to forgo these issues.
Colorado real estate is red hot. You need an attorney who knows the law and knows the market. For questions about property rights or other real estate legal needs in Colorado, contact the Law Offices of Eric L. Nesbitt, P.C. at 303-741-2354 or Info@NesbittLawOffices.com.
by Gabrielle Owens | Blog
Transferable Development Rights, Part II
According to reports, part of why the city of Houston has been so devastated in the wake of Hurricane Harvey is because of the discrepancy between the city’s depression-era water and flood system and its modern-day buildings. While the city of Houston, with its large population, aggressively sought to be ranked as a premiere city, its infrastructure was less than premiere, according to those reports. Instead of areas of wetlands absorbing much of the water, those areas are now covered in concrete and are unable to absorb any water. As developers planned buildings and traffic patterns, they did not plan for drainage.
When planning a community or a city, thought must be given to wetlands and open space. Those planning can employ transferable development rights, or TDRs. As mentioned in the first article, TDRs are sellable rights wherein a landowner who owns a right to develop on a property, called a sending area, can sell that right to another landowner who can use those rights, called a landing area. This commonly occurs in an area that discourages development so the landowner can profit from the sale of the TDR while the buyer can develop in an area that encourages such development. Under a TDR transaction, both the buyer and seller retain title to their respective properties; it is the developmental rights that are transferred.
Contesting a TDR
Often, developers who seek to build in areas encouraging high-density face opposition from the locals, who point to local zoning laws that do not permit such building. In truth, TDRs are a powerful tool to further preservation of wetlands and agricultural areas while providing services in high-density areas. When this occurs, it is often the job of the attorney representing the developer to explain this concept to those in the opposition. TDRs are not meant to circumvent existing zoning laws; instead, they are used as part of a plan to properly allocate space.
Upzoning v. TDR
When planning, the parties should be careful not to undermine the purpose of a TDR program. Sometimes, a zoning board, in its zeal to see the success of the plan, will upzone, or grant rights beyond the zoning ordinances, to the developers. While it may score points for a specific project, upzoning undermines the TDR program because it ignores that right. As mentioned, TDRs, unlike specific zoning ordinances, can be used to allocate open space and density. By maintaining the developmental right by the selling area and not transferring it to the landing area, the selling area is at risk of being developed.
Floor Area
Pitkin County, Colorado has a TDR program that developers use constantly. Under the baseline in some areas, residential homes must be at least 5,750 square feet of floor space. However, such floor space can be transferred in increments of 2,500 square feet of floor space.
In Houston, Texas, it seems that developers never instituted a comprehensive TDR program, where developers would purchase TDRs of a wetlands and use that to build elsewhere while leaving the wetlands intact.
For questions about transferrable development rights or other real estate legal needs in Colorado, contact the Law Offices of Eric L. Nesbitt, P.C. at 303-741-2354.
by Gabrielle Owens | Blog
During the Great Recession of 2007-2009, a slew of houses across the country fell into foreclosure. The foreclosure epidemic triggered an avalanche of defaults in the financial and other sectors. In turn, there was financial chaos.
The foreclosures triggered blight wherein dark, unkempt houses dotted cities across Colorado. This further contributed to the difficult economic times in which people had difficulty selling their homes to get out of debt because there were no takers. Colorado felt the sting of the recession and acted to reduce and eradicate blight.
Urban Renewal Act
To combat blight, Colorado passed the Urban Renewal Act, or the Act. In 2016, the Colorado Legislature updated the Act, in Colorado Revised Statute 31-25-103, to prevent blight. Under the Act, a municipality can declare an area or a property blighted, provided that five of the following 11 factors are satisfied:
- The area is a slum, has deteriorated, or contains deteriorating structures;
- The area has a street layout that is either defective or inadequate;
- Faulty lot layout in relation to size, adequacy, accessibility, or usefulness;
- The conditions in the area or property are either unsanitary or unsafe;
- There is deterioration of site or other improvements;
- The area or property has an unusual topography or lacks adequate public improvements or utilities;
- The area has defective or unusual conditions of title that renders the title unmarketable;
- The area or property has conditions that may endanger life or property by either fire or other causes;
- There are structures that are unsafe or unhealthy for people to live or work in due to building code violations, dilapidation, deterioration, defective design, physical construction, or faulty or otherwise inadequate facilities;
- The area or property has environmental contamination;
- There are high levels of municipal services or significantt physical underutilization or vacancy of sites, buildings, or other improvements;
In addition to these 11 factors, the Act also provides that “[i]f there is no objection by the property owner or owners and the tenant or tenants of such owner or owners, if any, to the inclusion of such property in an urban renewal area, ‘blighted area’ also means an area that, in its present condition and use and, by reason of the presence of any one of the factors specified in paragraphs (a) to (k.5) of this subsection (2), substantially impairs or arrests the sound growth of the municipality, retards the provision of housing accommodations, or constitutes an economic or social liability, and is a menace to the public health, safety, morals, or welfare. For purposes of this paragraph (1), the fact that an owner of an interest in such property does not object to the inclusion of such property in the urban renewal area does not mean that the owner has waived any rights of such owner in connection with laws governing condemnation.”
For questions about blight, urban renewal or other real estate legal needs in Colorado, contact the Law Offices of Eric L. Nesbitt, P.C. at 303-741-2354 or Info@NesbittLawOffices.com.
