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Caveat Builder: Common Interest Community Disclosures

Author: Karl A. Berg, Jr., Esq.

Diligent homebuilders periodically review and revise their sales contracts so that the contracts comply with various statutory requirements (and in order to protect themselves in light of the significantly reduced coverage they have under their commercial general liability insurance policies these days). For instance, most builders are familiar with the requirement they disclose in their contracts that property may be in special taxing districts. Continuing to operate under the assumption that potential home purchasers are unable to make rational decisions or adequately protect themselves, the Colorado legislature recently imposed new disclosure obligations on those who sell property in common interest communities. This column will address those new obligations.

As of January 1st of this year, sellers of residential real estate in common interest communities became obligated to provide buyers with a laundry list of documents with respect to the community’s association including, among others, the association’s bylaws, covenants, meeting minutes, and certain financial information. Further, sellers were obligated to provide the purchaser with a disclosure containing specific language in bold type. Presumably the bold type has mandated by the legislature since people know something in bold must be important and thus will read it.

Apparently not content with its recent work, the legislature has enacted new disclosure requirements effective January 1, 2007, and removed some of the 2006 requirements. Like the current statute, the new disclosure dictates that specific language be included in contracts for the sale of residential real estate in common interest communities. However, the substances of the disclosure is somewhat different. Rather than focusing on the documents which the seller was previously obligated to provide, the new statute focuses on the financial obligations which the purchaser will have if they purchase the property and the possibility that the association will put a lien on their property if assessments are not paid.

In the event a seller does not make the required disclosure, they are liable for the actual damages the purchaser suffers as a result of the failure to disclose. Those damages might include the assessments the purchaser must pay the association. Therefore, builders in common interest communities should modify their sales contracts before January 1, 2007, so as to avoid any problems. Oh, and while they are at it, they shouldn’t forget to include the insulation disclosure required by federal law if it isn’t already there.


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