Tulsa, OK asked in Real Estate Law for Colorado

Q: Can we get our earnest money back if Association changes covenants after approval but before closing.

Signed a contract to build house in Colorado. Received Association doc's after deadline. When received we approved. Before closing the Association approved new covenants. When we received these new doc's we terminated the contract within the 10 days. Are we due our earnest money? Builder is withholding.

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2 Lawyer Answers
John Roland Lund
John Roland Lund
Answered
  • Carbondale, CO
  • Licensed in Colorado

A: The Association docs you reviewed and approved probably set out the process for the Association to approve new covenants. If that process was followed and all took place after you approved the Association docs, then you probably cannot avoid the obligation to either close on the sale or lose your earnest money. However, if the seller/builder should have included information about pending changes to the covenants, such as a notice of pending changes or a vote on pending changes, in the category of HOA documents that were to be provided, then you probably have an out. If this contract was on the standard Colorado REPSA. then look at section 7.3 and consider whether there is something the builder should have given you on that list which would have notified you of the pending changes.

Otherwise, if you could make out a case of deliberate mispresentation or knowing non-disclosure by the seller/builder, then that might possibly give you right to recoup the earnest money but that is tougher because it is based on some evidence of wrongdoing vs. just what your contract rights permit.

It's up to the title company, if they hold the earnest money to decide how to handle it and they should not release it to either you or the builder until the dispute is resolved. Also under the standard REPSA, the parties are obliged to mediate their dispute before going to court. The markets are very hot in some areas of CO and the builder can probably find another buyer. So perhaps you can work out a compromise to get most of the money back if he realizes you are going to fight it.

Good luck.

Donald C Eby
Donald C Eby
Answered
  • Colorado Springs, CO
  • Licensed in Colorado

A: Builder contracts are generally not very friendly to buyers. The answer to your rights depends upon the language contained in the contract. We have had success in obtaining earnest money from builders to buyers in some situations. So, it is likely worth your time to contact an attorney and have him review the facts and the contract with you as well as discuss your rights, remedies, options, risks, timeline, process, costs, etc.

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