Lifespan of a Public Trustee Foreclosure Action in Colorado

BEVERLY L. EDWARDS, ESQ.

THE ROCKY MOUNTAIN LAW GROUP, LLC

            Colorado’s Public Trustee foreclosure system is unique.  Other states must foreclose through the courts, which is more time consuming and costly than Colorado’s system.  Colorado’s non-judicial foreclosure process provides for administration of the foreclosure process through the county public trustee, with minimal court involvement.  Colorado’s  foreclosure process allows the borrower an opportunity to reinstate the loan or challenge the default on the loan, provided the borrower follows the rules under Colorado law.  The Colorado system is beneficial to the lender because it provides a straightforward method for realizing on its collateral.

            The public trustee foreclosure process is driven by the deadlines under Colorado law.  The deadlines provide lenders with a greater level of certainty in the conduct of the proceedings.  The official document that commences the foreclosure action is the “Notice of Election and Demand”.  In the Notice of Election and Demand, the lender is giving “notice” of the default in the loan documents, “electing” to accelerate the entire balance due on the loan and “demanding” that the public trustee give notice of the sale, advertise for sale, and sell the property secured under the deed of trust.  The Notice of Election and Demand is part of the initial filing with the public trustee and is recorded with the county clerk and recorder.

After the initial filing with the public trustee, the public trustee must set the foreclosure sale within 4-4-1/2 months after the Notice of Election and Demand is recorded.  The public trustee then issues a confirmation deed approximately 30 days after the sale.  The entire process (from the initial filing with the public trustee to issuance of the deed) takes approximately 5 to 5-1/2 months.

For agricultural property, the process is longer.  Agricultural property is property that is 1) not platted as a subdivision 2) not located within an incorporated town or city or 3) valued or assessed as a type of property that is not agricultural property.  The law requires that the foreclosure sale be held 7 to 7-1/2 months after the Notice of Election and Demand is recorded. As with non-agricultural property, the public trustee issues a confirmation deed approximately 30 days after the sale. From the initial filing with the public trustee, to the issuance of the deed, the entire process for agricultural property takes approximately 9 to 9-1/2 months.

The foreclosure process in Colorado is quicker and more efficient than the judicial system utilized in other states.  However, our expedited system demands that deadlines and rules are strictly followed.

The Economic Loss Rule

THE ECONOMIC LOSS RULE                      

 E. Dwight Taylor, The Rocky Mountain Law Group, LLC.

 Borrowers who have complaints against banks often attempt to expand their contract disputes to include claims based upon torts such as fraud, breach of fiduciary duty, intentional interference with contract, negligent misrepresentation and a host of other horrible-sounding claims.

 In order to prevent the escalation of a contract dispute into claims that would bear the potential for exemplary damages and attorney fees, thereby changing the relationship between the parties after a dispute has arisen, the Colorado Supreme Court has fashioned the “Economic Loss Rule”.  The Economic Loss Rule draws a bright line between tort law and contract law.  The Court has held that when parties have had the opportunity to allocate risks between themselves through a bargaining process, they must be held to their negotiated contractual remedies when conflicts arise.  Of course most credit agreements do not spell out all of the remedies, but the Uniform Commercial Code will provide those remedies to the extent they are not provided for in the credit agreement.  The Court has said that a party suffering only economic loss from the breach of an express or implied* contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law.  The Colorado courts have held that an action to recover damages for the loss of a bargain is the exclusive province of contract law.  The Economic Loss Rule prohibits a negligence claim when the breach of duty is contractual and the harm incurred is the result of failure of the purpose of contract.  If the duty of care owed was memorialized in a contract and there is no duty independent of the contract, the Economic Loss Rule bars the tort claim and holds the parties to the contract’s terms.  (*Credit agreements cannot be implied.)

 Thus, the Economic Loss Rule will bar a tort claim where: 1) the source of duty is contractual; 2) the damages are purely economic; and 3) and no independent duty of care exists.

 Of course, that leaves the complaining party the opportunity to assert that there is an independent duty owed by the bank to the borrower arising from the general law.  That is where the bank is also protected by the Credit Statute of Frauds, discussed in an earlier article.  In almost every conceivable case a bank will not have a relationship with any other entity with respect to a loan that is not based upon a “credit agreement”.  In such instances, the Colorado courts have held that the plain language of the Credit Statute of Frauds applies to bar any action or claim “relating to” a credit agreement and expressly precludes exceptions by implication or construction.  Any tort claim relating to an oral credit agreement involving a principal amount in exceeding $25,000 is barred**.  The Colorado courts have also held that the Credit Statute of Frauds is not limited to actions attempting to enforce an agreement’s terms.  Rather, the statute bars suit where there is no written credit agreement any time an action relates to a purported oral agreement.  (**Keep this limitation in mind…small loans can bear risks that larger ones do not.  This limitation may, however, help some bank customers with their trade credit.)

 This dual effect of law made both by the Colorado legislature and the Colorado courts makes it difficult for a borrower to assert a claim that is not based upon the “four corners” of the credit agreement.  These laws make tort claims difficult but not impossible because borrower’s counsel can be imaginative.  However, the parade of horribles can be avoided by well-considered and well-written credit agreements and by sound banking practices.  Good bank counsel can help, too.

 Dwight Taylor can be reached at The Rocky Mountain Law Group, LLC, 10800 E. Bethany Dr., Ste. 550, Aurora, CO 80014, phone: 303.597.0202, fax: 303.597.0235, email: dtaylor@rmlawgrp.com      ■

 

Credit Statute of Frauds

 

 

CREDIT STATUTE OF FRAUDS

 

E. Dwight Taylor, The Rocky Mountain Law Group, LLC.

 Colorado law has long required certain types of contracts to be in writing to be enforceable.  The well known ones are contracts for interests in land, contracts that cannot be performed within one year, and contracts to answer for the obligations of another.  There are, of course, other requirements for written agreements scattered about the statutes, but this brief is concerned with the law that relates to credit agreements and is of interest to lenders and borrowers.

 C.R.S. § 38-10-124 provides that no debtor or creditor may file or maintain an action or a claim relating to a credit agreement involving a principal amount in excess of twenty-five thousand dollars unless the credit agreement is in writing and is signed by the party against whom enforcement is sought.  This law is generally referred to as the Credit Statute of Frauds.

A credit agreement is any contract, promise, undertaking, offer or commitment to lend, borrow, repay or forbear repayment of money, to otherwise extend or receive credit, or to make any other financial accommodation.  That includes any amendment, cancellation, waiver or substitution of a credit agreement, and any representation, warranty or omission made in connection with a credit agreement.  A creditor is a financial institution which offers to extend, is asked to extend, or extends credit under a credit agreement with a debtor, and a financial institution is a bank, saving and loan, savings bank, industrial bank, credit union or mortgage or finance company.  A debtor is a person or entity that obtains credit or seeks a credit agreement with a creditor or who owes money to a creditor.  Credit agreements may not be implied under any circumstance, including from the relationship of the parties or from performance or partial performance by the parties, or by promissory estoppel.

 The Colorado Legislature intended that the Credit Statute of Frauds put an end to litigation between banks and their borrowers based upon claims of oral agreements, and to require that the parties to credit agreements reduce their agreements to writing as a condition to enforcement.   The Colorado Courts have been diligent in enforcing the Credit Statute of Frauds.  The Courts have not allowed claims based upon reliance upon oral agreements, or tort claims based upon oral credit agreements, or claims or defenses based upon unjust enrichment or fraudulent inducement seeking rescission. 

 If a court finds that a claimed oral agreement, representation or other statement relates to a credit agreement, it is likely that the challenge to a written credit agreement will not succeed.  A court will allow oral testimony to explain the intended meaning of an ambiguous credit agreement, and will allow email messages to satisfy the requirement for the credit agreement, or any amendment to a credit agreement, to be in writing.  Courts also will not necessarily find that any transaction with a bank is a credit agreement; the transaction must entail the extension of credit or the grant of some form of financial accommodation to have the benefit of the Credit Statute of Frauds.  A transaction must also be between a financial institution and a debtor for the Credit Statute of Frauds to apply.  It would not apply to an individual making a loan or to an organization that does not engage in the business of extending credit to debtors in its regular course of business.

 So, if you are going to ignore your granny’s admonition to “neither a borrower nor a lender be”, don’t forget to follow the law’s requirement to “put it in writing”.

Dwight Taylor can be reached at The Rocky Mountain Law Group, LLC, 10800 E. Bethany Dr., Ste. 550, Aurora, CO 80014, phone: 303.597.0202, fax: 303.597.0235, email: dtaylor@rmlawgrp.com

COLORADO FORECLOSURE PROCESS – PART I

             Colorado has a unique Public Trustee foreclosure system.  Nearly all foreclosures (except in special circumstances) are administered through a public official, the Public Trustee.  The Public Trustee oversees the process, sends out notices, and generally manages each foreclosure case that is filed in the county where the Public Trustee has been appointed (or in some instances elected).

             A foreclosure generally has two purposes.  First, the lender has made a loan to the borrower and taken the real estate as collateral for the loan by recording a deed of trust against the real estate.  After the borrower defaults, the foreclosure process allows the lender to ultimately take title to the real property and then hopefully re-sell the real property to recover on the lender’s loan.  Second, a proper foreclosure will eliminate any junior liens on the property and will transfer title to the foreclosing lender free and clear of all junior liens.  It should be noted, however, that a foreclosure will not affect any liens that are senior to the deed of trust being foreclosed.  The lender will take title to the real property through the foreclosure action subject to any senior liens.

             The entire process – from sending the foreclosure request to the attorney to the very end – issuance of the Public Trustee’s Confirmation Deed – takes approximately five to six months.  Depending upon whether the loan was for business purposes or for personal, family or household purposes, there may be certain notices and opportunities to cure or reinstate the loan which must be given to the borrower before the foreclosure is even filed with the Public Trustee.  The attorney will check the loan documents, the applicable statutes and the lender’s records when the attorney receives the foreclosure request to make sure that all prerequisites have been met.

             The attorney will involve a title company from the outset and will order a “foreclosure guarantee”.  The foreclosure guarantee will identify all of the documents that have been recorded after the deed of trust that is being foreclosed.  This information assists the attorney in identifying the persons who must be notified of the foreclosure action in order to achieve the stated purposes – transfer title to the lender and eliminate all junior liens.

 NEXT UP:  FILING THE FORECLOSURE WITH THE PUBLIC TRUSTEE

 

ACCELERATION OF LOAN PRIOR TO FORECLOSURE

 Before initiating a foreclosure action, Lenders (both consumer and commercial) should be certain that they have taken the proper steps to accelerate the full balance due on the loan before filing the foreclosure.  

 If the loan has already matured, there is no need to accelerate the loan.  However, if the loan has not yet matured, the foreclosure attorney should make sure that the foreclosure attorney and/or the Lender has complied with all necessary provisions of the Promissory Note and Deed of Trust to accelerate the unmatured principal balance due on the loan.  Many commercial transactions do not require any special notice prior to acceleration. 

 However, many standard form residential Deed of Trust forms require that the Lender provide the Borrower a notice giving the Borrower 30 days to reinstate the loan before the Lender can accelerate the unmatured principal balance to foreclosure.  The Deed of Trust form also contains special language which must be included in the notice.

Notice Prior to Residential Foreclosures

Lenders preparing to foreclose on residential property should beware of a special notice requirement under Colorado law.  At least thirty days before filing the foreclosure, and at least thirty days after default, the foreclosing lender must mail a notice to the original grantor of the Deed of Trust at the address in the recorded Deed of Trust (or the last address shown in the holder’s records).  The notice must contain the telephone number of the Colorado foreclosure hotline and the direct telephone number of the foreclosing lender’s loss mitigation representative or department.

This notice can be provided by the Lender before sending the foreclosure case to the foreclosure attorney.  The foreclosure attorney can also send the notice, but the foreclosure attorney must wait the required thirty days before filing the foreclosure action

Secured Creditor Objections to Chapter 13 Plans for Automobile Loans

Most Chapter 13 Debtors have secured auto loans that are in default.  Because of the nature of motor vehicles, those loans are typically underwater (the amount due on the loan is more than the value of the collateral for the loan).  The Bankruptcy Code allows a Debtor in a Chapter 13 Bankruptcy to “cram down” the Creditor’s loan to the value of the collateral. 

             When reviewing a Chapter 13 Plan, the secured creditor should make sure that the secured creditor agrees with the value given to the collateral by the Debtor.  If the secured creditor believes that the value of the collateral is more than the Debtor’s value of the collateral, then the secured creditor should consider filing an objection to the Chapter 13 Plan.

            In Colorado, the secured creditor should be aware that objections to the Debtor’s Chapter 13 Plan must be filed very early in the confirmation process – three Court days prior to the meeting of creditors.  Often, a secured creditor will delay reviewing the Chapter 13 Plan, or delay referring the case to Colorado Bankruptcy counsel.  Such delay could result in the secured creditor being precluded from objecting to a proposed Chapter 13 Plan.

Welcome to the Colorado Creditors’ Rights Blog

Welcome to the Colorado Creditors’ Rights Blog.  I hope to shape this Blog into a resource for creditors and financial institutions in need of a basic understanding of creditor’s rights in Colorado.  Additionally, I hope that my blog posts will convey my experience and legal expertise that I, and my law firm, provide our creditor clients.

I am an experienced creditor Bankruptcy attorney and creditor Foreclosure attorney.  I have specialized in creditor’s rights, representing banks, agricultural lenders, finance companies, individual lenders, and automobile lenders, throughout the state of Colorado for more than 25 years.

My experience as a creditor’s attorney is extensive.  Foreclosures (both public trustee and judicial), bankruptcy, workouts, collections, replevins and general lender representation represent 100% of my practice.  By concentrating in the Creditor’s rights arena, I can focus on my creditor clients and provide them (and you) with knowledgeable, practical and cost-effective legal representation.