Denver City Attorney Kristin Bronson on Tuesday went before the Colorado Real Estate Commission to ask for help in clearing up the thick fog that has enveloped the city’s affordable housing program and allowed hundred of families to purchase homes they weren’t qualified to buy.
“Many of these owners are coming to the closing table not realizing that these homes are affordable,” she said. “There is confusion in the market.”
Denver’s Office of Economic Development estimates that around 300 out of 1,302 homes in its affordable for-sale housing program are out of compliance with requirements. Those homes, mostly in Green Valley Ranch, Lowry and Stapleton, have income limits on who can buy them, caps on the annual price appreciation allowed at the time of sale and restrictions on their use as short-term rentals.
The affordable home covenants were recorded in the public record, and the city expected that sellers would inform buyers and title insurers would make compliance a condition of obtaining a policy. Instead, many buyers and sellers and the agents representing them have acted as if the covenants never existed — and may not have known that they existed — and title insurers have buried disclosures deep in sale documents.
The city is working with homeowners who are out of compliance with the program’s rules, but those who are unable to prove they qualified under the income limits at the time of purchase may have to sell their properties to a qualified buyer.
One request Bronson made to the commission to avoid future problems is to include language in the disclosure forms that sellers provide to buyers detailing the condition of a home and any problems or defects.
Sellers should have disclosed the affordability covenants under a section called L3, which is a catch-all for “Notice of any adverse conditions from any governmental or quasi-governmental agency that have not been resolved.”
Bronson asked for a new and more specific line item to require disclosure of any affordable housing covenants attached to a house, which would let a potential buyer know to dig deeper.
But disclosure forms assume sellers are aware of an issue. The commission on Tuesday discussed a change in the real estate sales contract that would move information about exclusions listed on the title policy into the deed, where it would be more accessible to the general public.
Denver Mayor Michael Hancock, in a letter to the Land Title Association of Colorado last week, argued that title insurers should have made compliance with the covenants a condition of issuing a policy. Instead, the common practice was to make the program an exception and not cover it.
But even then, if the exceptions were included in a more accessible public record like the deed, that could have boosted the odds that someone paying attention might have caught the affordable housing covenants, supporters of the new language argue.
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“The language doesn’t solve every problem related to preparation of the deed. It does improve the current situation,” said Scott Peterson, general counsel with the Colorado Association of Realtors, which is in favor of the change along with the Colorado Bar Association.
But the title insurance industry is opposed, for a variety of reasons. Different insurers might cover or exclude different things on the same property. Sometimes that’s because a buyer asks for a specific coverage or it could reflect a competitive strategy.
Different exceptions would get conveyed onto the deed depending on who is writing the policy. Some items simply might be missed, and if the information is conveyed improperly, it has the potential to leave the seller and agent liable.
*If the broker instructs the title company to put the exceptions into the deed, they become liable,” said Brian Phillips, a Denver attorney specializing in title underwriting.