Assignment of Redemption Rights in Colorado Foreclosures

 

Assignment of Lien Positions

The assignment of junior liens and other redemption positions allows the system and markets to maximize the value of these positions. For example, a home owner’s association lien might have little value to the home owner’s association in a foreclosure of a senior deed of trust because the homeowner’s association does not have sufficient funds to redeem. The lien might be quite valuable to an investor with sufficient capital to redeem because the redemption amount might be less than the value of the property. The sale of the lien from the HOA to the person with capital benefits both the assignor and the assignee and helps keep the bidding honest at the foreclosure auction. In order to further these goals, however, the assignment must be genuine.

In Beckhart v. HTS Properties, LLC,(E1) the Colorado Court of Appeals addressed the issue of whether the right of redemption can be severed from the property interest it served.(E2) The court concluded that the right of redemption cannot be severed. In this case HTS Properties, the lender, initiated a foreclosure sale on an apartment complex, bid the highest amount at the sale, and received a certificate of purchase.(E3) Three tenants in the apartment complex sold their rights to redeem to Beckhart for ten dollars each while retaining all other rights and obligations under their leases.(E4) This lawsuit was initiated when HTS Properties refused to recognize Beckhart’s redemption rights.(E5)

The Court of Appeals ruled in favor of HTS Properties because both Colorado law and public policy support the conclusion that rights of redemption cannot be severed from the rights that caused the power to redeem. The assignors’ status as lessees does not exempt them from the requirements of junior lien holders because a lessee is considered a lienor without a lien amount.(E6) The Colorado statutory redemption language “expressly refers only to those who hold an interest in the property.”(E7)Therefore, Beckhart could not redeem because he did not have an interest in the property. Additionally, public policy dictates that people like Beckhart should not be able to redeem. One purpose of redemption laws is to encourage full value bidding at foreclosure sales.(E8) This goal would be undermined if these types of sham assignments were allowed because people could avoid competing at the foreclosure sale “and instead purchase redemption rights for a nominal price.”(E9)

 

Endnotes:
(E1)981 P.2d 208 (Colo.App. 1998)
(E2)Id.
(E3)Id. at 209
(E4)Id.
(E5)Id.
(E6)Id. (Citing COLO. REV. STAT. § 38-38-305)
(E7)Id.
(E8)Id.
(E9)Id.

Jon Goodman is a shareholder with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm. His practice areas include Real Estate,Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance. Contact Jon Goodman.

Disclaimer — Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.

JONATHAN A. GOODMAN