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.
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
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.
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
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.