Rocky Mountain Real Estate Law

Colorado Apartment Vacancy/Rental Rates Suggest Market Optimism

Bill Kyriagis — Thu, 10 May 2012 13:05:11 -0700

This article in today's Denver Post discusses how, despite some regional variation in vacancy rates and rents, the statewide trends suggest optimism among property managers and landlords concerning future demand.

The recent uptick in multi-family housing construction in some parts of Colorado indicates that developers may be feeling the same way.

It will be interesting to watch whether this results in sustained multi-family growth.

Construction Contract Legislation Fails in Committee

Christopher S. Jensen — Wed, 02 May 2012 17:12:05 -0700

To update our previous post, Colorado Senate Bill 12-181 regarding construction contracts failed today in the Senate Business, Labor and Technology Committee by a vote of 6-1.

Proposed Legislation Would Profoundly Impact Colorado Construction Contracts

Christopher S. Jensen — Tue, 01 May 2012 09:33:05 -0700

A last minute bill has been introduced in the Colorado Senate. Colorado Senate Bill 12-181, introduced last week by State Senator Lois Tochtrop, proposes new requirements related to construction projects in Colorado. These proposed changes are not favorable to property owners in Colorado and will limit the ability of property owners to negotiate business terms in their construction contracts. SB 12-181 is set for a hearing before the Senate Business, Labor and Technology Committee on Wednesday, May 2, 2012.

SB 12-181 applies to “Building and Construction Contracts” which is defined as any contract subject to Title 38, Article 22 of the Colorado Revised Statutes, Colorado’s mechanics’ lien law. SB 12-181 contains the following points:

Colorado Law Must Apply. Any provision in a Building or Construction Contract for work to be performed in Colorado that makes the contract subject to the laws of another state or contains a dispute resolution provision governed by the laws of another state, is void and unenforceable.

Parties Cannot Contract Around Colorado Mechanics’ Lien Law. Any provision in a Building and Construction Contract that requires a contractor or subcontractor to waive its right to file a mechanics’ lien or claim against a payment bond prior to being paid is void and unenforceable.

Payment to Subcontractors and Suppliers Required Within 7 Days. All principals, general contractors and subcontractors must pay their subcontractors and material suppliers within seven days of receipt of services.

Mandatory Interest Penalty; Costs and Attorney Fees Award. A 1.5% monthly interest penalty applies to all unpaid amounts, and subcontractors and suppliers who successfully sue to collect this interest penalty will also be entitled to collect their costs of suit, including attorney fees.

Monthly Progress Payments Required; Retainage Amounts Capped. Property owners or parties responsible for payment must make monthly progress payments to the general contractor unless the Building and Construction Contract specifies otherwise, and owners or payment parties may only reserve as retainage a maximum of 5% of each payment.

Change Orders. General contractors must submit the costs of any change orders to owners for payment within 30 days of the change order. Owners or payment parties will be required to pay at least 50% of any disputed change order amounts.

Take Two for a Colorado Foreclosure Bill

Catherine M. Clendinning — Wed, 04 Apr 2012 15:26:22 -0700

With foreclosures on the rise, it is no wonder that Colorado’s unique public trustee approach to the bank/borrower relationship finds itself in the limelight. The CEO of RealtyTrac was quoted in a recent USA Today article suggesting that foreclosure-related sales will increase this year “as lenders start to more aggressively dispose of distressed assets held up by the mortgage servicing gridlock over the past 18 months.”

While many believe that Colorado’s foreclosure statutes afford a reasonably inexpensive and prompt remedy for lenders while providing property owners a fair chance to protect their interests, others strongly disagree. As a recent article in the Denver Post put it, “No other state allows for a foreclosure without the lender first proving it is the right entity to do so;” and those in agreement have been working on legislation to tighten Colorado’s foreclosure process.

Rep. Chris Holbert, R-Parker, however, sees these efforts as adding more unnecessary regulations to an already overregulated industry. Another recent Denver Post article quoted Rep. Holbert as saying, “Since 2005, the legislature has run and enacted 15 different bills to affect and change the foreclosure process in Colorado. Now is a good time to leave it alone and stop changing things. The process we have in place works fine. Changing things for the 16th time isn't the right solution.”

At the heart of the debate is which specific documents a foreclosing lender must provide to the public trustee, especially when that lender’s interest is based on an assignment of the debt. Currently, Colorado law allows lenders to foreclose on real property even if their interest is based on an assignment from the original lender and that assignment is not produced. Instead, all that is necessary is a statement signed by the lender, or its attorney, stating that the lender’s interest is valid. House Bill 1156, which died in committee last month, sought to tighten the rules by, among other things, striking that option for foreclosing parties.

But advocates of the bill are trying again and going further this time with a ballot proposal that would require all documents necessary to institute a foreclosure, including any endorsements, assignments, and transfers of the debt, be recorded in the real property records prior to commencing a foreclosure. If proponents of the initiative are successful, an amendment to the Colorado Constitution will be put before voters in November.

Photo by Taber Andrew Bain (Flickr)

Conservation Easement Tax Updates

Christopher S. Jensen — Mon, 02 Apr 2012 12:56:16 -0700

Important Court Decision Regarding Colorado Conservation Easement Tax Credits

On March 15, 2012, the Colorado Court of Appeals announced its decision in Kowalchik v. Brohl. The Court’s opinion in Kowalchik includes two key findings that will significantly impact the rights of Colorado taxpayers who purchased state conservation easement income tax credits from conservation easement donors. First, the Court found that a conservation tax credit transferee (or buyer) is not required to be joined as a party in litigation concerning the underlying tax credit between the tax credit transferor (or seller) and the Colorado Department of Revenue (the “Department”). In holding that the buyer’s interests are sufficiently aligned with the seller’s interests, and that the Colorado tax credit statute establishes that tax credit sellers are designated tax matters representatives of their buyers, the Court rejected the argument that failure to require the joinder of a tax credit buyer denies the buyer due process rights before the Department. Second, the Court held that tax credit buyers are “taxpayers” under the tax credit statute, and are therefore subject to liability for deficiencies, penalties and interest under the statute. We do not know whether either party plans to appeal the decision. One consequence of this decision is that tax credit buyers will be bound by the results of litigation pursued by the Department against their tax credit sellers, without the buyers having been joined as a party to the litigation. Legislation passed in 2011 to clarify the rights of tax credit sellers and buyers expressly gives tax credit buyers the right to intervene in litigation concerning tax credits they have purchased. The circumstances of each case vary in determining whether tax credit buyers should pursue intervention as an appropriate legal strategy.

Fate of Enhanced Federal Tax Incentives for Conservation Easements Remains Uncertain

The enhanced federal income tax incentives for charitable contributions of conservation easements, which were passed as a part of the Pension Protection Act of 2006, expired on December 31, 2011. These enhanced incentives raised the threshold amount of permissible income tax deductions from 30% of adjusted gross income (“AGI”) to 50%, expanded the permitted carry-forward period for the deduction from five to fifteen years, and made other important improvements benefitting farmers, ranchers, and forest landowners. The expiration of the enhanced incentives saw the federal tax benefits of conservation contributions return to their previous levels. Due to the contentious political battles surrounding the payroll tax cut and debt ceiling increase, the national conservation community was unable to get Congress to extend the enhanced incentives in 2011. Currently, bills to reinstate the enhanced incentives and make them permanent have the sponsorship of a majority of the members of both the House of Representatives and the Senate. However, the extension of the enhanced conservation incentives faces a unique political climate in 2012, with the presidential election and the expiration of several other major tax provisions. Landowners considering donating all or part of the value of a conservation easement over their property should pay close attention to this important tax benefit. We will provide updates regarding the status of the enhanced conservation incentives as they occur.

Please contact Doug Becker or Chris Jensen with inquiries regarding Colorado conservation easement income tax credits. Photo credit Chris Jensen.

The HOA Information and Resource Center - One Year Later

Amy Hansen — Thu, 09 Feb 2012 14:03:07 -0700

It has been a little over a year since the requirement that Colorado property owners' associations register with the newly created HOA Information and Resource Center went into effect. The center’s 2011 annual report is out (and a copy of it is provided below). According to the annual report, in 2011, 8,037 property owners’ associations registered, comprising a total of 838,211 units.

As reported here earlier, the registration requirement went into effect on January 1, 2011, but an emergency rule was enacted automatically registering all such associations through March 1, 2011. As we reported last year, if a property owners' association fails to register, its assessment lien power and right to enforce such liens are suspended. Most associations registered sometime in the first quarter of 2011, and so the time to renew those registrations is now. This is an annual requirement, and the ramifications of non-renewal are the same as if an association did not register in the first instance.

The legislation is not clear on whether the registration requirement applies to all property owners' associations in Colorado or only property owners' associations subject to the Colorado Common Interest Ownership Act (CCIOA). In 2011, legislation was introduced that would have clarified this point, but the legislation failed. The Division of Real Estate has promulgated a position statement clarifying that pre-CCIOA associations (associations formed prior to July 1, 1992) are not subject to registration unless that association has elected treatment under CCIOA. The position statement is authoritative but not binding, and so pre-CCIOA associations may still want to register despite the position statement.

A complaint form is now on the HOA Information and Resource Center’s website. The center has no investigative or enforcement capabilities, and the complaint form states that clearly on its face. However, the center tracks complaints and reports on them .The annual report includes, among other things, the report on complaints received which cover a variety of topics ranging from pets and parking to conflicts of interest and transparency. The annual report also comments on the ongoing confusion related to the center's power and authority to deal with complaints. For people involved with property owners' associations, whether in a development, management, board or ownership role, this information is instructive as to what the hot button issues are with owners. Whether or not it leads to further regulation of property owners' associations remains to be seen.

2011 Annual Report of the HOA Information and Resource Center Office.pdf

New Rules For Business and Real Estate Litigation in Denver Metro Area

Dimitri Adloff — Tue, 31 Jan 2012 12:03:22 -0700

On January 1, 2012, the Colorado Civil Access Pilot Project (“CAPP”) took effect, imposing new procedural rules for certain types of business disputes in Denver, Jefferson, Gilpin, Adams and Arapahoe Counties. CAPP aims to decrease the costs of litigation and to help cases move through the legal system at a faster pace. It is still too early to tell whether CAPP will accomplish its stated goals, but it will undoubtedly change the process for resolving commercial real estate disputes in the Denver metro area.

With certain exceptions, CAPP is mandatory for most commercial business disputes. The following is a brief description of some of CAPP’s most important changes:

Pleadings. CAPP requires plaintiffs to include more substantive details in their complaints and defendants to deny such allegations with specificity. The goal is to reduce the number of contested issues at the outset of the litigation process so that parties can streamline their cases and reduce discovery expenses.

Disclosures. Under CAPP the deadline for a defendant to answer a complaint begins to run from the date of service of plaintiff’s initial disclosures. This dramatically changes the standard rules of civil procedure which require the parties to simultaneously exchange disclosures thirty days after all pleadings have been served. This means that a plaintiff will need to do more work at the outset of a case to organize relevant documents and to identify individuals with knowledge of relevant facts. CAPP also makes changes to the contents of the initial disclosures themselves by requiring parties to make disclosure of information, whether it is supportive or harmful.

Active Case Management. Under CAPP, the judge initially assigned to a case will remain assigned until final resolution. CAPP also requires judges to undertake a more active role in the case by holding an initial case management conference and by continuing to monitor the case as it moves forward.

Experts. CAPP limits each party to one expert per issue, imposes new requirements for expert reports, prohibits expert depositions, and limits the expert’s testimony at trial to what is in the expert’s report. In this way, CAPP hopes to curb the litigation costs associated with experts. CAPP is silent on the question of what constitutes an “issue,” and this may be an area of dispute in applying the new rules.

Limitations on Extensions of Time. Under the standard rules of civil procedure, requests for extensions of time are usually granted as a matter of course. Under CAPP, however, such requests will be automatically denied absent extraordinary circumstances. Also, a motion to dismiss the complaint, filed by a defendant, will no longer stay that defendant’s deadline for filing an answer.

Photo by mediafury (Flickr)

Investing in Condo Units? Time to Look at FHA Approval Issues

Amy Hansen — Thu, 26 Jan 2012 09:46:02 -0700

Developers often secure FHA approval for their condominium projects, enabling buyers to obtain FHA loans. Whether or not those approvals remain in place is left to the owners’ association for the project. As investors continue to snap-up condominium units one at a time or in bulk, it is important to review the status of the FHA approval for the project. As highlighted in a recent Denver Post article, the FHA backs nearly one-third of all mortgages in the United States, up from 5% in 2005. The article also reports that nearly two-thirds of Denver metro-area condominium projects have rejected or expired FHA approvals. As the article suggests, this could be the result of many factors, including FHA’s limit on the number of renters in a project. Even for those projects with intact FHA approvals, investors should talk to the association to understand the association’s plans for renewing the registration and assuring that all the FHA requirements (such as the limit on renters) are satisfied. The association’s plans (or lack thereof) with respect to FHA registration could have serious implications for the investor’s ability to rent the condominium units or sell them to consumers.

Photo by Butterbean Man (Flickr)

An E-Mail Exchange May Create a Contract

Stefanie L. Sommers — Tue, 17 Jan 2012 15:03:41 -0700

Negotiations occurring over e-mail may, in certain circumstances, create a binding contract. Two cases out of New York have held that where a meeting of the minds is evident through email correspondence, a contract can arise.

Naldi v. Grunberg: Although the court ultimately determined there was no “meeting of the minds” of the parties and therefore no contract, the Supreme Court of New York, Appellate Division (which is an intermediate appellate court) stated that the terms “writing” and “subscribed” under the statute of frauds should be construed to include, records of electronic communication (such as e-mail) and electronic signatures (such as a name typed at the end of an e-mail).
Newmark & Co. Real Estate Inc. v. 2615 E. 17^th St. Realty: The Supreme Court of New York ruled that an e-mail under which the sending party's name is typed can constitute a subscribed writing for purposes of satisfying the statute of frauds.

In reaching these decisions the Supreme Court of New York relied on the federal Electronic Signatures in Global and National Commerce Act (“ESIGN”) and a New York statute similar to the Uniform Electronic Transactions Act (“UTEA”), a version of which has been enacted in Colorado.

Although Colorado courts have not yet interpreted ESIGN and Colorado’s adopted form of the UTEA yet, these cases are noteworthy because of their impact on interstate business transactions (and in particular transactions with parties in New York). Further, Colorado’s version of the UTEA could provide a basis for similar rulings in Colorado.

For more information, please click here for full client alert.

Tax Amnesty Programs

Erik Jensen — Fri, 04 Nov 2011 15:38:58 -0700

Currently, amnesty programs through the Internal Revenue Service, State of Colorado, and City and County of Denver are providing taxpayers the opportunity to pay various overdue taxes with limited or no interest payments and no penalties. A summary of the applicable taxes and relief provided under each program is as follows:

The IRS is permitting eligible employers that have been improperly classifying employees as independent contractors to pay ten percent of the employment tax liability that would have been paid to the worker for the most recent tax year. Upon payment, the IRS will forgive all accrued interest and penalties and will not undertake any employment tax audit regarding worker classification for such workers in prior years.
The State of Colorado is allowing individuals and businesses to pay taxes due on or prior to December 31, 2010 with one-half of the accrued interest and no penalties. This program applies for all Colorado taxes except the International Fuel Tax Agreement, the Passenger Mile Tax, and the International Registration Program.
The City and County of Denver is permitting taxpayers to pay any sales, use, and occupational privilege taxes that were incurred on or before June 30, 2011 with one-half of the accrued interest and no penalties.

Each of these programs will, or is expected to, expire soon so taxpayers wishing to take advantage of the various benefits provided should act fast. Additional information on these programs, including information on how to apply, may be found here.