The Affordable Housing Blame Game

April 10, 2018

By: Andrew J. Helm

As the City and County of Denver seeks a resolution to the still-developing controversy regarding non-compliance with its affordable housing restrictions, link, Colorado’s regulated professionals are likely all too aware that they currently sit at the bottom of a proverbial hill, and the blame is about to start rolling down.  The progression of blame in these circumstances goes something like this: if you can’t blame the seller, blame the title company; if you can’t blame the title company, set your sights on the real estate brokers.  And with the very real possibility that non-compliant homeowners will need to sell their houses—at a significant loss in many cases—there will be a lot of blame searching for a place to land.

Title companies and agents are typically the first source of disclosure when it comes to deed restrictions and other covenants affecting homes.  If a restriction such as an affordability covenant is recorded in the public records, odds are it is shown one way or another as an exception on a buyer’s title commitment.  Given the lack of economic incentive for lay persons to decipher exactly what a title exception is, and to go even further and read through covenants that could be hundreds of pages long, and especially given the title industry’s justified reluctance to point out specific restrictions within covenants (for fear of accusations of interference with contracts or the unauthorized practice of law), it is unlikely that covenants and restrictions on a title commitment are going to raise alarms for all but the most sophisticated of buyers.

Turn then to the real estate brokers.  While brokers are required to disclose adverse material facts relating to a property, this disclosure is only required for facts actually known by the broker.  While this may appear simple on the surface—if you know about it, disclose it—there is actually a complex calculus involved in determining whether or not to disclose a fact relating to a property.  Is the fact “material”?  Is it adverse?  If a broker is representing the seller, does the disclosure obligation belong to the client instead (bearing in mind that Commission Position Statement CP-46 advises that brokers “should refrain from advising clients about clients’ disclosure duties, which may be different”)?

One thing is almost certain: a homeowner faced with the possibility of selling his or her house at a loss due to governmental regulation is going to have no shortage of attorneys lining up to file court cases or complaints with the Department of Regulatory Agencies (DORA).  Effective representation for regulated professionals—title, real estate, or mortgage—is vitally important, therefore, to assist in reviewing the facts of each case, and in crafting appropriate responses in order to protect licenses and livelihoods.

This Article is published for general information, not to provide specific legal advice. The application of any matter discussed in this article to anyone's particular situation requires knowledge and analysis of the specific facts involved.

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