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Backup Real Estate Contracts

Backup Real Estate Contracts

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.

Transferable Development Rights, Part II

Transferable Development Rights, Part II

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.

Urban Renewal Act

Urban Renewal Act

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:

  1. The area is a slum, has deteriorated, or contains deteriorating structures;
  2. The area has a street layout that is either defective or inadequate;
  3. Faulty lot layout in relation to size, adequacy, accessibility, or usefulness;
  4. The conditions in the area or property are either unsanitary or unsafe;
  5. There is deterioration of site or other improvements;
  6. The area or property has an unusual topography or lacks adequate public improvements or utilities;
  7. The area has defective or unusual conditions of title that renders the title unmarketable;
  8. The area or property has conditions that may endanger life or property by either fire or other causes;
  9. 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;
  10. The area or property has environmental contamination;
  11. 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.

 

Withholding Rent

Withholding Rent

Withhold Rent in Colorado

Colorado landlord/tenant law was designed to protect both landlords and tenants who engage in a deal. While the initial purpose of the rental is presumably for the benefit of both parties, misunderstandings, disputes, and the like can and do occur. One party may not be living up to its obligations. With this in mind, the Colorado legislature created a body of law that addresses these and other issues when a landlord and tenant are involved. Many of these laws are found in the Warrant of Habitability Act from 2008.

According to the U.S. census, there are approximately 500,000 people in Colorado who rent. This is equal to around 32% of the population. As such, Colorado landlord/tenant law covers a significant number of residents.

A major portion of the law deals with situations wherein one party has a grievance against the other party and remedies for such grievances. One such tenant remedy is to withhold rent. Provided that the circumstances are correct and the qualifications have been satisfied, a tenant may legally withhold rent and the landlord has no legal right to evict the withholding tenant.

Notice to a Landlord

Each tenant has the right to a safe habitat that complies with health standards. If the rental unit does not meet those standards, Colorado law provides a tenant with the recourse of withholding rent. However, before withholding rent, the tenant needs to provide the landlord with notice of the defect and the landlord needs time to remedy that defect. This is based on the Warrant of Hospitability Act of 2008. For residential tenants, there must be a substantial lack of critical elements. Examples of defeciancy in these critical elements are:

● Walls;
● Roofing;
● Plumbing;
● Doors;
● Floor;
● Stairway;
● Locks;
● Heating;
● Electrical;
● Gas.

These deficiencies must be materially adverse or unhealthy. A tenant must supply the landlord with written notice to trigger a legal remedy. If supplied in writing, the landlord must repair the rental unit in a “reasonable” time. if not remedied, the tenant can withhold rent.

Lead Paint

An issue that arises is when the house contains lead paint and presents a hazard to the tenant. Prior to 1978, it was common for interior paint to be lead-based paint. When the lead paint chips and when there is dust from the paint then the tenant faces a health hazard. Depending on the circumstances, the tenant may be allowed to withhold rent until the hazard is removed.

In general, it is the landlord’s duty to maintain the apartment in good shape. However, if there is peeling paint and chips then a tenant should call the health department to inspect the premises and draft a report. It is the landlord’s duty to inform the tenant about any lead on the premises.

For questions about landlord/tenant law 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.

Slander of Title

Slander of Title

The tort of slander of title, codified under the Colorado Code, takes on many forms. It can be similar to libel in that it someone defames property that leads to some sort of damage. In addition to basic libel, the tort of slander of title includes various claims against a property that are untrue. These claims can range from improper representation of ownership to other claims, which will be discussed in this article. Damages are generally pecuniary in nature and is evaluated based on damaged suffered, though it is sometimes difficult to assess.

Elements of Slander of Property

To properly prove the tort of slander of title, the plaintiff must demonstrate the following elements:

  • The defendant published a statement about the plaintiff’s property;
  • Such statement was untrue; and
  • The defendant knew or should have known that such statement was untrue;
  • Damages to the property.

 

Lowering Property Values

Suppose a seller puts his house up for sale because the seller is having difficulty with some of the neighbors. Prospective buyers come to view the property and make inquiries with the neighbors about the house. Some of the neighbors tell prospective buyers about several problems with the house or property that are false because they want to hurt the seller. This causes potential buyers to not bid or make low bids on the house. Eventually, the seller feels compelled to sell the house at a significantly lower price than the asking price. Upon discovery that the neighbors disparaged the house and caused him damage, the seller can sue those who made untrue comments under the tort of slander of title. The damages would be assessed based on the depreciation of the house value.

False Representation of Ownership

If a person files a deed that he owns a certain property that he really does not own, then the real property owner can sue the person filing a false deed for the tort of slander of title. The deed filing would be removed though damages may only be nominal.

Mechanic’s Lien

Suppose a homeowner hires a contractor to perform home remodeling on the homeowner’s house. They sign a contract that states that the contractor must provide service that is equal or better than the industry and local standard for such type of work. The contractor does sub-standard work. Due to the poor remodeling job, the homeowner refuses to pay the contractor. Upset about doing work without pay, the contractor obtains a mechanic’s lien against the homeowner’s property for non-payment of services. The homeowner, to counter the mechanic’s lien, can sue the contractor for slander of title for improperly placing a mechanic’s lien against the house when the contractor did not live up to his side of the bargain. If successful, the mechanic’s lien would be removed.

Are you active in complex real estate transactions in Colorado? You need an attorney who knows the law and knows the market. For questions about slander of title 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.

Eminent Domain

Eminent Domain

When the government wants to build a highway, school, or other piece of infrastructure, it has the legal right to take your house and pay you fair market value so that it can do those things. Article II, Section 15 of the Colorado Constitution provides:

Taking property for public use compensation, how ascertained. Private property shall not be taken or damaged, for public or private use, without just compensation. Such compensation shall be ascertained by a board of commissioners, of not less than three freeholders, or by a jury, when required by the owner of the property, in such manner as may be prescribed by law, and until the same shall be paid to the owner, or into court for the owner, the property shall not be needlessly disturbed, or the proprietary rights of the owner therein divested; and whenever an attempt is made to take private property for a use alleged to be public, the question whether the contemplated use be really public shall be a judicial question, and determined as such without regard to any legislative assertion that the use is public.”

Note the language in the Constitution that “[p]rivate property shall not be taken or damaged…without just compensation,” which means that any possible damage through eminent domain must be taken into account. Therefore, a government taking only part of a property, which may damage the remaining property, is taken into account. Say a property is worth $200,000 and the government takes half, thereby causing the other half of the property to be worth $100,000 instead of $125,000; the government would pay $125,000 for half the property plus an extra $25,000 for damaging the other half.

Public Use

As stated, this Colorado takings right is limited to a public use standard. There is, however, no specific standard, test, or formula to determine what is considered public use. It is reasonable to assume that a taking to build a highway is public use, but a taking for a planting shrubs next to a highway is questionable.

At the federal level, the 2005 United States Supreme Court case of Kelo v. City of New London is telling about the extent of eminent domain. In that case, the city of New London, Connecticut sought to use eminent domain so that it can condemn a residential neighborhood and use that land to build a large complex for pharmaceutical giant Pfizer. The idea was to spur economic growth for the city by bringing in a large employer. The city claimed that this was for the public good. The residents fought the city and the case went to the Supreme Court. The Supreme Court ruled in favor of the city, demonstrating that public good need not be strictly where the government operates something like a highway. Even greater economic good can be a public use. It is unknown whether such an argument works on a state level, but this case is persuasive. Eminent domain questions? You need an attorney who knows the law. For questions about real estate legal needs in Colorado, contact the Law Offices of Eric L. Nesbitt, P.C. at 303-741-2354 or Info@NesbittLawOffices.com.

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