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July 2, 2002: Closing on a House in Colorado: An Overview

Q: I was very frustrated at closing. Nothing made sense. I did not receive a grantor's deed. In fact, I saw two different deed documents floating around. And why was everything recorded and distributed instead of being held in escrow? I did sign a contract and I was at an escrow agent's office for closing.

A: Wait, wait. Don't tell me. You are from California. What you were expecting to experience is the "contract for deed" type of closing where documents are not recorded and distributed by an escrow agent until perhaps years later, after all of the terms of the agreement have been fulfilled (primarily paying off the agreed purchase price over time). You signed a contract but this kind of contract is really an offer from a buyer and an acceptance by the seller for title to be conveyed in the immediate future. Although escrow arrangements are sometimes done, in Colorado instead of the escrow agent hanging on to the papers to be sure the contract is honored, the deed of trust is foreclosed if there is a future breaking of a contractual promise.

In a "contract for deed" arrangement the job of the closing agent is to act like a trustee and take action under the provisions in the escrow agreement. Here the escrow agent does the closing - making sure that title has been properly conveyed and money distributed. After that, its job is done.

In Colorado, terms such as grantor's deed, trust deed, Personal Representative's deed, etc. describe a kind of transaction and are merely labels. Traditionally in your kind of closing the transactional label is not used but rather the substantive deed name heads the document. There are three basic substantive deeds. Every transactional deed label is actually one of the following.

A general warranty deed carries with it all the promises that a buyer traditionally expects to receive when purchasing property - seller has title, the right to convey, no defects or clouds affecting the land, etc. A special warranty deed contains a few less promises and the seller will only stand behind what he or she has done while owning the real property but will not be responsible (usually) for what prior owners have done that might affect the ownership of the land. A quit claim deed merely promises to convey what the seller has but makes no specific warranties that can be enforced against the seller. (So while in New York if you decide to buy the Brooklyn Bridge, do not accept a quit claim deed, unless you also get a title policy, with no relevant exceptions.)

You should have received a general warranty deed, which gives you the traditional seller's promises. If the deed had been called a "Grantor's Deed," you would have had to search the wording in the deed to determine what you had really been given.

There are two ways to secure the promissory note - by mortgage or by a document called a deed of trust (this latter document is what you probably also saw as a couple of deed formats "floating around" at closing). If you break your promise under a promissory note (such as by not making payments), then the secured real property can be taken to reimburse the note holder for what is still owing on the note (foreclosure). A mortgage requires a court proceeding. To avoid Court, Colorado has an administrative proceeding designed to be quicker and cheaper by giving the Public Trustee the power to process and sell the property using the statutory procedure.

Do not be upset that you did not get the original note or the original deed of trust that you signed. Those documents are retained by the lender and are given back to you after the note is paid off, or given to the Public Trustee if you break your promise as a necessary part of the foreclosure procedure.

In some states, there is also a legal advantage for the lender to retain the recorded deed. That is not the case in Colorado, so if you only got a copy of the recorded document, do not be upset. At a subsequent sale the original deed does not have to be produced (unlike a car or stock certificate) and you can sell the property with no problem.

So relax, take a deep breath, and if need be recite your mantra. You're not back home anymore. Yes, we do "strange" things out here, unlike what you are used to doing. Change is hard. Change is frustrating. Change is unsettling. But in law, there are fifty different "individuals." Whether it is with real estate, wills and trusts, or suits when coffee is spilled onto a person's lap, diversity in doing things is not bad, just different. So forget how it is done back home. Reeducate yourself. Welcome to Colorado!

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