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Proper Endorsements in Colorado for Real Property Interests

Author: Norbert Lovato

Contributing editor: Ashley Glassman & Harrison Long

When executing a deed or acquiring an oil and gas lease, it is important to get the correct party to sign in their correct capacity or else the instrument signed may not be worth the paper it is printed on. It is important to know ahead of time who is supposed to be signing the document and to get their identity verified when it is signed. This article will focus on the importance of getting your documents acknowledged, and who the proper signatory should be for individuals and three different common types of entities: Limited Liability Companies, Corporations and Trusts.

Acknowledgements

First, it is extremely important that all legal instruments affecting title to real property are signed and acknowledged in front of a notary. An acknowledgement is prima facie evidence that the person signing the instrument, whether individually, as a representative in an official capacity, or as an officer of a corporation, are freely and voluntarily signing the document in their own capacity and have the authority to do so.[1] This means that the authority and identity of the person signing is presumed to be correct and true until it has been rebutted in court, thereby putting the burden of proof onto the person challenging the statement or documents which were signed.

Oddly enough, in Colorado any instrument (including deeds and oil and gas leases) do not have to be acknowledged in order to be valid, to be recorded, or to provide constructive notice when recorded.[2] However, failing to get an instrument notarized can increase the chance for litigation based upon potential claims for fraud in the execution, fraud in the inducement, and misrepresentation. Without an acknowledgement there is no longer the presumption that the executing party’s identity has been confirmed, that they are legally competent or have the mental capacity to sign.[3]

Having an instrument notarized provides the proof necessary that the person executing instrument is who they say they are, are mentally fit to execute the document and are doing it in their correct official capacity whether as Trustee, Manager or Corporate Officer. Therefore, it is best practices to always get your instruments affecting real property acknowledged.

Individuals and Co-Ownership

Let’s begin with the most common type of execution[4], one by individuals. In Colorado, any individual who is 18 years old and of “sound mind”[5] may engage in any contractual obligations, including transacting in real property.[6] Furthermore, for a proper execution it is important to get the signatory’s full, legal name, correctly spelled, signed and acknowledged (see below for further detail). This is good practice in all cases, not just for individuals.

If the property is co-owned with other individual(s) as tenants in common, all parties may execute the same instrument together or execute multiple instruments separately. If the property is owned in joint tenancy[7] (with rights of survivorship) and only one party executes the instrument, it only applies to their interest and severs the joint tenancy, effectively converting that person’s relationship with the other tenant(s) into a tenancy in common.[8] For example, if a married couple own a property together in joint tenancy, and one spouse solely executes an oil and gas lease, whether intentionally or not, that person has effectively severed the joint tenancy and removed the right of survivorship. In the event of death of one of the spouses, this may cause further legal hassles that the joint tenancy was designed to avoid in the first place.

Entities and Statements of Authority (C.R.S. § 38-30-172)

In Colorado, Entities are all non-individuals that are considered a “person” for legal purposes, including governmental, non-governmental and business organizations.[9] For example these can be Trusts, Corporations, Limited Liability Companies or the Colorado Department of Motor Vehicles.[10] Depending on the type of entity, Colorado has different statutorily-prescribed positions that may act on their behalf and transact in real property. However, identifying which person or position that may act on the entity’s behalf is a little more complicated.

One of the most useful tools in identifying who may act on behalf of an entity is a Statement of Authority. A Statement of Authority is a statement filed of record which must contain “the name of the entity; the type of entity; and the state, county or other governmental authority under whose laws it was formed; a mailing address for the entity; and the name or position of the person authorized to execute instruments conveying, encumbering, or otherwise affecting title to real property on behalf of the entity.”[11] This statement may be an affidavit filed of record or may be included within a deed, lease or any other instrument being conveyed related to the entity.[12] Ideally, Statements of Authority are filed of record after the entity acquires title to real property and before the entity conveys it.[13]

Statements of Authority provide prima facie evidence of the existence of an entity and also that the person(s) listed in statement have the authority to act on behalf of the entity.[14] This means that the authority of the person and existence of the entity is presumed to be correct and true until it has been rebutted in court. The Statement of Authority may be broad and without any limitation, or may be narrow and property-specific or even contain limitations on the authority of the position(s) and power of the person(s) allowed to act on the entities’ behalf.[15] This gives the Statement of Authority great versatility for the entity’s needs. Furthermore, the Statement of Authority “should reflect any limitations on the actual authority of the person(s) identified in the statement”[16] because the absence of any limitations is also prima facie evidence that no such limitations exist.[17]

In essence, Statements of Authority show the “apparent authority”[18] of the named person(s) to act on the entity’s behalf which means that third parties may effectively rely on the Statement. However, from a purchasers’ of real property perspective it may be prudent to confirm that the person has the “actual authority”[19] to act on behalf of the entity.[20] In this instance, an in depth examination of the entities internal documents confirming the person’s authority, if permissible, may be necessary.

Interestingly, Statements of Authority are not required for entities to transact in real property but are a very useful tool to determine who has the authority to transact on behalf of the entity. Therefore, it is generally advisable to obtain a Statement of Authority when transacting in real property with an entity.

Corporations

Statutorily in Colorado, any corporate instrument affecting title to real property may be executed by the president, vice president or any other head officer so long as it is in the usual and regular course of business.[21] However, if owning and transacting is not in the usual and regular course of business, shareholder approval may be required.[22] Corporations also have the ability to file a Statement of Authority pursuant to C.R.S. § 38-30-172 to provide prima facie evidence of the authority of the person to act on their behalf. This makes sense for large corporations who may delegate the duties of transacting in real property to persons that do not reach the corporate officer ranks.

Limited Liability Companies

In Colorado, Limited Liability Companies, more commonly referred to as LLC’s, are comprised of “Members” who are the owners[23] and “Managers” who manage the company.[24] The statutory presumption in Colorado is that Managers have the authority needed to transact on behalf of the LLC.[25] However, Managers and Members may both execute instruments affecting real title if the Articles of Organization allow for it.[26]

The Articles of Organization is a document filed with Colorado Secretary of State which requires the name of the LLC, the principal office address, registered agent name and address, the true name of the parties forming the LLC, a statement that there is at least one Member of the LLC and whether management of the LLC is vested in one or more Managers, or the Members, or both.[27] Yet, the Articles of Organization do not require nor list who the Managers or the Members are. This information is contained in the Operating Agreement of the LLC which is the private, internal documents governing the ownership and duties of the persons associated with the LLC. This information is not readily available, if at all.

Fortunately, LLC’s may file a Statement of Authority pursuant to C.R.S. § 38-30-172 to provide prima facie evidence of the authority of the person to act on their behalf. This is a better alternative than having an outsider examine the inner workings of the LLC’s governing documents to determine who has authority.

Trusts

A Trust is a legal relationship whereby one party owns property for the benefit of another party.[28] The trustee holds the legal title to the property for the beneficiary who owns the equitable title to the property,[29] which is more commonly known as the use and enjoyment of the property.[30] Trusts and the trust agreements that control them vary widely in type, scope, nature, purpose and duration. In Colorado, trust agreements are not required to be filed of record and are rarely recorded because the privacy of the beneficiary is generally a paramount concern.

Furthermore, in Colorado it is both permissible to convey to the trustee of a trust or directly to the trust itself.[31] Depending on which route title is conveyed, the requirements, consequences, and outcomes can be significantly different. Hence, when conveying real property into a trust it can be difficult to ascertain how and to whom the property should be conveyed. Furthermore, more confusion may arise as to who may convey property out of the trust.

Title Held in the Name of the Trust

Prior to 1977 a trust could not own property in Colorado; only the trustee could own the property on the trust’s behalf. After 1977, trusts could own property if they followed an onerous and technical recording process.[32] On August 8, 2001[33], Colorado amended the law so that a “trust may acquire, convey, encumber, lease or otherwise deal with any interest in real or personal property in the name of the trust”.[34] The change thus removed the earlier impediments of the old statute and allowed for some new features.

The first new feature is that if real property is owned by a trust, the trust may now amend, change, limit, add or subtract who may act on behalf of the trust, as permitted by the trust agreement, by filing a Statement of Authority pursuant to C.R.S. § 38-30-172.[35] In the event of a trustee’s death or incapacitation, this new feature allows for the easy change and update to the successor trustee and subsequent notification to all third parties. This greatly differs from the process required when real property was conveyed into the trustee, as addressed below.

Second, all previous trusts who owned property but did not satisfy the previous technical recording process may cure the original granting instrument into the Trust by filing a Statement of Authority pursuant to C.R.S. § 38-30-172.[36] Interestingly though, there is no requirement for a Statement of Authority to be filed when property is titled in the trust. In either case, the filing of a Statement of Authority shows prima facie evidence of the existence of the trust and the authority of the trustee to deal with the real property which third parties may rely upon.[37]

As a result of this change, when property is intended to be titled in a trust, legal scholars recommend to not mention the trustee in the granting language of the conveyance and to only provide for their identification in a subsequent Statement of Authority pursuant to C.R.S. § 38-30-172.[38] For example, a conveyance into a trust should be styled to "the Jane Doe Trust" without mention of the trustee as grantee in the granting language. A Statement of Authority pursuant to C.R.S. § 38-30-172 should then be filed naming the trustee. However, there is no consensus if the conveyance states to "the Jane Doe Trust, Jane Doe as Trustee" with a subsequent Statement of Authority pursuant to C.R.S. § 38-30-172 filed naming “Jane Doe as trustee”. Hence, it seems prudent to just avoid putting the trustee in the granting language at all considering that the Statement of Authority can be filed afterward or be contained later in the deed itself.[39] Thus, to obtain a lease of property titled in a trust or subsequent conveyance of property titled in the trust, the proper granting language should be always from “the Jane Doe Trust" as lessor/grantor and then executed by the named trustee.

Title Held in the Name of the Trustee

When conveying to a trustee,[40] the trustee is personally vested with title to the property in a representative capacity for the trust, subject to the rights and limitations provided for in the trust agreement. Trust property may be conveyed directly to the trustee so long as the person is named in their representative capacity and the trust is identified either directly or by reference in another document.[41] Fulfilling these requirements may either be accomplished in the conveyance into the trustee or a subsequent affidavit pursuant to C.R.S. § 38-30-108(3) may be filed of record. The affidavit must identify the trust, the trustee, the trustee’s representative capacity, and the real property associated with said trust. Failing to satisfy any portion of the identification requirements in the conveyance to the trustee/grantee shall carry the presumption that the person is acting in their personal capacity and shall not constitute notice of acting in a representative capacity.[42] Therefore, it is important to include all of the relevant information in the deed into the trustee or to diligently file an accompanying affidavit pursuant to C.R.S. § 38-30-108(3). Otherwise, the conveyance into the trustee is strictly conveyed into the grantee personally and not in a representative capacity as trustee.

For example, if the granting language in a deed conveyed to “Jane Doe as trustee” this would be presumed to have been conveyed on an individual basis until an accompanying affidavit satisfying C.R.S. § 38-30-108(3) was filed of record.[43] Legal scholars have mixed opinions on whether the granting language in a deed conveyed to “Jane Doe, as Trustee of the Jane Doe Trust” is sufficient to show the required “representative capacity” of C.R.S. § 38-30-108.[44] Therefore, “Jane Doe, in her representative capacity as trustee of the Jane Doe Trust” may prove to be the preferred styling.

Another drawback to title being vested in the trustee is the process of changing the trustee. In order to change the trustee, it is generally recommended that the trustee conveys directly to the successor trustee in their representative capacity, or the trustee conveys directly to the trust whereby a Statement of Authority pursuant to C.R.S. § 38-30-172 can be recorded naming the new trustee.[45] However, in the event of the death or incapacitation of the trustee and without evidence of a successor trustee in the vesting deed, court action would be necessary to appoint a successor trustee.[46]

Unfortunately, the Statement of Authority provided for in C.R.S. § 38-30-172 cannot be used to establish the change of trustee when the title is in the name of the trustee.[47] Further, it is unknown if even filing a Statement of Authority when the title is in the name of the trustee accomplishes anything because C.R.S. § 38-30-108 makes no provision for it.[48] Lastly, if there is a successor trustee referenced in the vesting deed, evidence of death, incapacitation or resignation of the trustee would need to be filed of record to show the transfer of title into the successor trustee. It is unclear as to whether an affidavit pursuant to C.R.S. § 38-30-108(3) should also be filed in this instance.

Closing

Hopefully, this article highlighted the importance of getting your documents acknowledged and the versatility of the Statement of Authority, and the clear advantage of trusts owning property as opposed to the trustee. This is not an exhaustive list of all the scenarios possible on who and what may transact in real property. If you have any questions or problems that we can be of assistance please contact Kearney, McWilliams & Davis.

 

[1] Colo. Rev. Stat. § 38-35-105(3) (2019).

[2] Colo. Rev. Stat. § 38-35-106 et seq (2019). Colo. Rev. Stat. § 38-35-109(1) (2019). See Am. National Bank v. Silverthorne, 87 Colo. 345, 287 P. 641 (1930).

[3] Colo. Rev. Stat. § 24-21-505 (2019). Colo. Rev. Stat. § 24-21-508 (2019).

[4] For purposes of this article the author has used the term “execution” to mean the signing of documents.

[5] Colo. Rev. Stat. § 15-11-501(2019). See In Re Estate of Romero, 126 P.3d 228 at 233 (Colo.App.2005) the Colorado Supreme court held “that contractual capacity and testamentary capacity are the same.” (Citing Breeden v. Stone, Supra, 992 P.2d 1167 at 1170 (citing Hanks v. McNeil Coal Corp., 114 Colo.578, 168P.2d 256 (1946)).

[6] Colo. Rev. Stat. § 13-22-101(2019).

[7] The major distinguishing characteristic of joint tenancy, as opposed to tenancy in common, is right of survivorship in each of the cotenants. Bradley v. Mann, 34 Colo. App. 135, 525 P.2d 492 (1974), aff'd, 188 Colo. 392, 535 P.2d 213 (1975).

[8] Colo. Rev. Stat. § 38-31-101(5)(a)(2019). See also Taylor v. Canterbury, 92 P.3d 961 (Colo. 2004).

[9] Colo. Rev. Stat. § 2-4-101(8)(2019).

[10] Id.

[11] Colo. Rev. Stat. § 38-30-172(2)(d)(I-IV) (2019).

[12] Colo. Rev. Stat. § 38-30-172(3) (2019).

[13] Beat U. Steiner, The New Statement of Authority for Colorado Real Estate, COLO.LAW., July 1998, Pg. 99.

[14] Colo. Rev. Stat. § 38-30-172(3)&(4) (2019).

[15] Colo. Rev. Stat. § 38-30-172(5)(2019).

[16] Supra at Note 13.

[17] Colo. Rev. Stat. § 38-30-172(6) (2019).

[18] An agent has apparent authority to affect a principal's relations with a third party when the third party reasonably believes, based on the principal's manifestations, that the agent has authority to act on behalf of the principal. Restatement (Third), § 2.03 State Farm Mut. Auto. Ins. Co. v. Johnson, 2017 CO 68, ¶ 20, 396 P.3d 651, 656.

[19] An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal's manifestations to the agent, that the principal wishes the agent so to act. Restatement (Third), § 2.01 State Farm Mut. Auto. Ins. Co. v. Johnson, 2017 CO 68, ¶ 21, 396 P.3d 651, 656.

[20] Supra at Note 13.

[21] Colo. Rev. Stat. § 38-30-144(2)(2019). Colo. Rev. Stat. § 7-112-101(2019).

[22] Colo. Rev. Stat. § 7-112-102(1)(2019).

[23] Colo. Rev. Stat. § 7-80-102(9)(2019). Colo. Rev. Stat. § 7-80-401 (2019).

[24] Colo. Rev. Stat. § 7-80-402(2019).

[25] Colo. Rev. Stat. § 7-80-405(1)(a)(b) (2019).

[26] Colo. Rev. Stat. § 7-80-405(2) (2019).

[27] Colo. Rev. Stat. § 7-80-204(2)(2019).

[28] Stephen Michael Sheppard, The Wolters Kluwer Bouvier Law Dictionary Desk Edition. Online 2012

[29] We reach this conclusion in recognition of the law that a trustee is more than a mere manager of a trust inasmuch as title to a trust's assets is fragmented with its legal title being vested in the trustee and its equitable title being vested in the beneficiary. Emerald Investors Trust v. Gaunt Parsippany Partners, 492 F.3d 192, 206 (3d Cir. 2007)

[30] Black’s Law Dictionary Fourth Pocket Edition pg. 777.

[31] Beat U. Steiner, Sarah A. Steinbeck, Erik V. Lemon, Entity and Trade Name Filing Requirements and Customs in Colorado-Part 2, COLO.LAW. December 2012.

[32] Colo. Rev. Stat. § 38-30-166 (1977).

[33] S.B 01-040 effective August 8, 2001.

[34] Colo. Rev. Stat. § 38-30-108.5(1)(2019).

[35] Colo. Rev. Stat. § 38-30-108.5(2)(2019).

[36] Colo. Rev. Stat. § 38-30-108.5(3)(2019).

[37] Supra at Note 14.

[38] R. Sterling Ambler, Title to Colorado Real Property Held in Trust, COLO.LAW. May 2002.

[39] Colo. Rev. Stat. § 38-30-172(3)(2019).

[40] Property conveyed to multiple trustees is presumed to be conveyed in joint tenancy without the requirement of stating so in the conveyance. See Colo. Rev. Stat. § 38-30-101(3)(2019).

[41] Colo. Rev. Stat. § 38-30-108(1)(2019).

[42] Colo. Rev. Stat. § 38-30-108(2)(2019).

[43] The addition of the word "trustee" to the name of the grantee in a conveyance signifies nothing in view of this section; the word is purely descriptive of the person. Beatty v. Fellows, 101 Colo. 466, 74 P.2d 677 (1937).

[44] R. Sterling Ambler, Title to Colorado Real Property Held in Trust, COLO.LAW. May 2002.

[45] Id.

[46] Id.

[47] Id.

[48] (Referring to property titled in the trustee pursuant to C.R.S. § 38-30-108) The recording of a Statement of Authority pursuant to CRS § 38-30-108.5 and CRS § 38-30-172, although a common practice, is not contemplated by these statutes. Whether doing so accomplishes anything when real property is held in the name of the trustee rather than the trust is an open question. Supra at Note 31.

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