This article is Part I of a two part series. Part II is available at Foreclosure Evolution (Part II).
Question: What are the biggest changes in Colorado’s new foreclosure law?
In Colorado, the foreclosure process historically gave borrowers two opportunities to pull their property out of foreclosure. Prior to the foreclosure sale, the borrower (and others) could “cure” monetary defaults. After the foreclosure sale, the owner could “redeem” the property. Under the new law, applicable to foreclosures filed after January 1, 2008, the time period which would otherwise have been available to an owner to redeem has been moved prior to the foreclosure sale date. Under the new law, the borrower has a longer time to cure and no redemption rights. The total duration of the foreclosure process remains essentially unchanged.
Longer Cure Period
Under the old and new laws, the foreclosure process is essentially commenced by the filing of a “Notice of Election and Demand” with the Public Trustee. The Public Trustee then has ten working days in which to record the Notice of Election and Demand at the Clerk & Recorder’s office.
Under the old law, the Public Trustee was required to set up a public trustee’s sale date in the 45-60 day window after the recording of the Notice of Election and Demand. The borrower had until noon on the day before the foreclosure sale date to cure the borrower’s monetary defaults. In order to cure, the borrower had to tender all back payments, late fees, default interest, and other costs and expenses to restore the lender to the position the lender would have been in had the default not occurred. Because Public Trustee sale dates tended to be set closer to the end of the 45-60 day window, borrowers essentially had two months under the old law to cure. If the borrower, or someone else entitled to cure, did not cure, the property would be sold at a foreclosure sale.
Under the new law, the time otherwise given to an owner to redeem is now moved before the foreclosure sale date, giving the borrower a longer period of time to cure. The amount of time to cure now depends upon whether the property is considered agricultural or non-agricultural. Owners of non-agricultural property now have approximately four months to cure and owners of agricultural property have approximately seven months. (Determining whether a property is agricultural or non-agricultural is not intuitive, and explaining the detailed criteria for the distinction is beyond the scope of this article.)
No Owner’s Right to Redeem
After the foreclosure sale, under the old law, the owner had the “owner’s redemption period” to redeem the certificate of purchase from the highest bidder at the foreclosure sale. If the property was non-agricultural, the owner’s redemption period lasted 75 days after the foreclosure sale. If the property was agricultural, then the owner had a six month redemption period.
If the owner did not redeem, then each junior lien holder had an opportunity to redeem. The junior lien holders would redeem in sequence, with the senior most lien junior to the lien being foreclosed having the first opportunity to redeem, and with each subsequent junior lien holder having the next opportunity to redeem out the prior redeeming lien holder. In order to redeem, junior lien holders (and the owner of the property) had to file notices of intent to redeem not later than fifteen days prior to the expiration of the owner’s redemption period. The first redeeming lienor would have a ten-day window after the expiration of the owner’s redemption period, and each subsequent lien holder would have the next five business day window to redeem.
Under the new foreclosure law, if the property is non-agricultural, the Public Trustee must set up the foreclosure sale in the 110-125 day window after the recording of the Notice of Election and Demand. If the property is agricultural, the foreclosure sale must be set up in the 215-230 day window after the recording of the Notice of Election and Demand. Under the new law the borrower still has until noon the day before the foreclosure sale to cure monetary defaults.
Under the new law, junior lien holders still have redemption rights. However, because there is no owner’s redemption period, junior lien holders must now file their notices of intent to redeem within the 8 business day window after the foreclosure sale. The junior lien holders still have similar sequential redemption rights (the details of which are beyond the scope of this article).
Different political constituencies had different reasons for changing the law. Generally, the new foreclosure process is simpler, should increase competitive bidding at foreclosure sales and makes homeowners less juicy as prey for unscrupulous foreclosure investors. Because borrowers are more likely to cure than to redeem, proponents of the change perceive that it is better to shift time to the more practical cure rights. Cures also tend to keep people in their homes more than redemptions. The few borrowers who actually redeemed tended to do so by selling the property. Some borrowers were under selling valuable redemption rights to clever (and sometimes worse than clever) foreclosure investors. The need to wait out an owner’s redemption period discouraged third-party investors from bidding at the foreclosure sale. An increase in competitive bidding may cash out more foreclosing lenders, generate proceeds to apply against junior liens (reducing deficiency claims against owners), and generate funds to apply against the owner’s equity (in the rare case where an owner with equity doesn’t cure or sell the property prior to the foreclosure sale).
The two bills making the above changes total over one hundred pages. There are many nuances and changes to the law which are beyond the scope of this article. The purpose of this article has been merely to identify the most significant conceptual change for non-lawyers. Should any reader have a need to deal with a specific foreclosure or have an interest in the subtleties or multitude of other changes to Colorado foreclosures, he or she should consult an attorney.
A version of this article appeared in the Colorado REALTOR® News, the monthly publication of the Colorado Association of REALTORS®.