April 22, 2019

James Johnson: Colorado Restricts Private Transfer Fees

In May, Governor Hickenlooper signed into law Senate Bill 11-234 – Concerning Residential Real Property Transfer Fee Covenants.  The bill is targeted at prohibiting fees payable upon the transfer of residential real property to individuals and entities where such fees do not touch and concern the real property.  The common law likely already prohibited such fees.  Nevertheless, the bill became effective immediately, the General Assembly having determined that such was necessary “for the immediate preservation of the public peace, health and safety.”  Apparently, the General Assembly identified a rising popularity trend for such fees, and it wanted to thwart their growth in Colorado.

The bill does essentially four things.  First, it prospectively prohibits fees payable upon the conveyance of residential real property, except for transfer fees that touch and concern residential real property, including payments to lenders, brokers, lessors, governmental and quasi-governmental entities, homeowner’s associations, and certain non-profit entities.  Second, it narrows the circumstances under which prohibited fees established prior to the effective date of the bill are payable.  Third, it provides penalties for recording documents requiring the payment of such fees.  And fourth, under certain circumstances, it provides a quick mechanism for removing covenants requiring the payment of such fees.

Here’s how it works. The bill contains a number of definitions that identify what constitutes a (1) conveyance of residential real property, (2) transfer fee, (3) transfer fee covenant, and (4) fee excluded from the definition of prohibited transfer fee covenants. Conveyance is defined to include sales, gifts, assignments, inheritance and any other transfer of an interest in residential real property. Residential real property means real property containing residential improvements and real property upon which construction of residential improvements has commenced. A transfer fee is a fee required to be paid either partially or fully upon conveyance of residential real property. A transfer fee covenant is a provision in a recorded or unrecorded document that requires payment of a transfer fee, but not including the excluded fees. Excluded fees essentially include those transfer fees that touch and concern residential real property, including payments to lenders, brokers, lessors, governmental and quasi-governmental entities, homeowners’ associations, and certain non-profit entities.

Having set forth the relevant terms, the bill makes any transfer fee covenant recorded on or after May 23, 2011, unenforceable. Any person who records a transfer fee covenant on or after May 23, 2011, and fails to release the covenant when requested to do so, is liable for all damages resulting from the transfer fee covenant, including the amount of the transfer fee, reasonable attorney fees related to recovering the transfer fee, quiet title actions, and show cause matters.

For those transfer fee covenants pre-dating May 23, 2011, the bill requires that the person or entity entitled to receive payment record a specified notice against the residential real property in question. If such notice is not recorded on or before October 1, 2011, then the transfer fee covenant is unenforceable. Where the notice is timely recorded, the owner of the residential real property subject to the transfer covenant may send a written request to the beneficiary of the payment identified in the notice inquiring about the amount of the payment due upon transfer. If the beneficiary does not timely respond to the inquiry, upon the recording of an affidavit by the owner indicating the lack of a response, the transfer fee covenant becomes unenforceable.

Any individuals or entities that have either considered or implemented a transfer fee should be aware of the enforceability issues raised by this bill.

James Johnson is a Shareholder in Otten Johnson’s land use, real estate, and litigation groups. He represents clients in all aspects of real estate development and related issues, including disputes regarding entitlement approvals and eminent domain. He contributes to the firm’s Rocky Mountain Real Estate Law blog, where this post (and a client alert) originally appeared on August 17, 2011.

Governor Hickenlooper Signs Seventeen More Bills into Law

On Monday, seventeen more bills reached Governor John Hickenlooper’s desk and were signed into law while the Governor visited Sterling, Fort Collins, Louisville, and Arvada; he also signed bills while traveling between various stops in eastern and northern Colorado. The bills were the twenty-second group to emerge from the 2011 General Assembly.

  • SB 11-199
    • Sponsored by Sen. Tochtrop and Rep. Riesberg. Concerning Workers’ Compensation.
  • SB 11-191
    • Sponsored by Sen. Bacon and Reps. B. Gardner and Levy. Enactment of the “Colorado Uniform Limited Cooperative Association Act.”
  • SB 11-234
    • Sponsored by Sen. Jahn and Rep. Massey. Concerning Residential Real Property Transfer Fee Covenants.
  • SB 11-232
    • Sponsored by Sen. Jahn and Rep. B. Gardner. Concerning the Child Abuse Investigation Surcharge.
  • SB 11-245
    • Sponsored by Sen. Bacon and Rep. Murray. Educator Preparation Programs at Institutions of Higher Education.
  • SB 11-241
    • Sponsored by Sens. S. King and Carroll and Reps. B. Gardner and Kagan. Charges Related to the Operation of the Parole Board, and Making Appropriations in Connection Therewith.
  • SB 11-261
    • Sponsored by Sen. Roberts and Rep. B. Gardner. Publication of the Colorado Revised Statutes by Persons Other than the General Assembly.
  • SB 11-076
    • Sponsored by Sen. Steadman and Rep. Becker. Continuation of a Temporary Modification to the Contribution Rates for Certain Divisions of the Public Employees’ Retirement Association.
  • SB 11-066
    • Sponsored by Sen. Jahn and Rep. B. Gardner. Issuance of Special Event Permits to Serve Alcoholic Beverages.
  • SB 11-091
    • Sponsored by Sen. Brophy and Rep. McKinley. Continuation of the State Board of Veterinary Medicine, and Implementing the Recommendations in the Sunset Review.
  • SB 11-125
    • Sponsored by Sen. White and Rep. Sonnenberg. Concerning Medicaid Nursing Facility Provider Fees.
  • SB 11-111
    • Sponsored by Sen. K. King and Rep. Massey. Creation of a Task Force to Address the Provisions of Educational Services to Support Students’ Academic Success.
  • SB 11-166
    • Sponsored by Sen. Johnston and Rep. Wilson. Concerning the “Uniform Disclaimer Property Interest Act.”
  • SB 11-195
    • Sponsored by Sen. Brophy and Rep. Sonnenberg. Concerning the Residency of a Health Care Provider Who Verifies a Person’s Disability for the Purpose of Obtaining Credentials to Park in Reserved Spaces.
  • SB 11-133
    • Sponsored by Sens. Hudak and Newell and Rep. Nikkel. A Study of Disciplinary Actions Taken in Public Schools.
  • HB 11-1005
    • Sponsored by Reps. Sonnenberg and Becker and Sen. Brophy. Repeal of HB 10-1195 Regarding a Suspension of the Exemption from the State Sales and Use Taxes.
  • HB 11-1045
    • Sponsored by Rep. Kefalas and Sen. Newell. Modifications to the Colorado Innovation Investment Tax Credit.

For a complete list of Governor Hickenlooper’s 2011 legislation decisions click here.