The newly created Closing Instructions forms will be mandatory for use by licensed real estate professionals as of July 1, 2019.
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Due to the passage of Colorado House Bill 19-1098 known as “the deeds bill,” changes have been made to the Colorado Division of Real Estate’s standard form, Contract to Buy and Sell Real Estate (Residential). In addition to the changes to this contract, House Bill 19-1098 also necessitated changes to the Closing Instructions form used in Colorado real estate transactions. The newly created forms will be mandatory for use by licensed real estate professionals as of July 1, 2019.
What is the Closing Instructions form?
The Closing Instructions form is a document signed by the buyer, seller and real estate brokers in a real estate transaction. Essentially, it lays out the details of how the real estate closing will be handled, acts as an employment agreement with the title company, and it clarifies many issues that are important to buyer and seller.
What’s new in the Closing Instructions form?
The new form includes most of the elements of the old one. While there are several “housekeeping” changes, there are three major changes to the document. There are updated sections on the Preparation of Documents by the Closing Company, Wire and Other Frauds, and FIRPTA and Colorado Withholding.
Preparation of documents
In the past, title companies acted as a scrivener for real estate brokers in the preparation of real estate documents. A scrivener is someone who writes a document, such as a deed in this case, for another party, in return for a fee. The Closing Instructions form authorizes the title company to prepare three different documents.
The first document is the Deed. The Deed is the document that conveys ownership from seller to buyer. The new Closing Instructions form authorizes the title company to prepare the Deed, without being a scrivener to the real estate brokers in the transaction as long as the contract calls for one of the statutory forms of deed. The section in the old Closing Instructions form engaging the title company to act as a scrivener for the real estate broker has been removed.
The second document is the Bill of Sale. The Bill of Sale is the document that conveys ownership of any personal property in the transaction. Authorization is given by buyer and seller to the title company to prepare the Bill of Sale. In this case, the title company is acting as a scrivener for the buyer and seller in the preparation of this document.
The third document is the Buyer and Seller Closing Statement. The old Closing Instructions also gave authorization to the title company to prepare the closing statements. The new Closing Instructions provide further clarification that the statement must be prepared in exact accordance to the contract, or an Amend/Extend Contract must be executed.
Wire and other frauds
In the past few years, hackers have worked hard to steal money being transferred for real estate transactions. The new Closing Instructions form gives all parties involved in a real estate transaction a warning. The warning reminds everyone that any time confidential information is being conveyed, it must be done in person to a known person or in a manner with a secure source and recipient.
Withholding of funds for Foreign Investment in Real Property Act (FIRPTA) and Colorado Withholding
There is nothing worse than going to a real estate closing and finding that the seller is surprised by the withholding of a large amount of funds they weren’t expecting. The new Closing Instructions form clarifies the situations when a seller may have funds withheld. There are two situations when withholding might be required:
First, when the seller is a foreign person. In that case, the provisions of FIRPTA apply and 15% of the sales price could be withheld at the closing table. That kind of number can definitely be a show-stopper if the seller had not been reminded of that liability before listing and contracting to sell.
The second situation is when the seller is an out-of-state resident and selling Colorado property. Unless exempt for some reason, 2% of the sales price would be required to be withheld.
Now these warnings are given in both the Contract to Buy and Sell AND the Closing Instructions. This is a reminder for buyers and sellers to discuss these items with the appropriate legal or tax professionals to see if either of these withholdings apply to them.
No need to wait until July 1, 2019
Even though the new forms are not mandatory until July 1, 2019, they are available now and can be used. That potentially will create some confusion for the last week of June, but after July 1, all systems will be go for using the new forms.
By Duane Duggan.
Duane Duggan has been a Realtor for RE/MAX of Boulder in Colorado since 1982 and has facilitated over 2,500 transactions over his career, the vast majority from repeat and referred clients. He has been awarded two of the highest honors bestowed by RE/MAX International: The Lifetime Achievement Award and the Circle of Legends Award. Living the life of a Realtor and being immersed in real estate led to the inception of his book, Realtor for Life. For questions, e-mail Duane at DuaneDuggan@boulderco.com, call 303.441.5611 or visit www.BoulderpropertyNetwork.com .