Overbid Funds from Colorado Foreclosure Sales – Don’t Leave Money On The Table You May Be Rightfully Entitled To Under State Statute
If you are a homeowner that has gone through foreclosure, or a junior lien holder holding a lien on a property that is being foreclosed by a more senior lien holder, under C.R.S. Section 38-38-111, you may be entitled to overbid funds from the foreclosure sale.
Following the initiation of a foreclosure, compliance with state statutory notice provisions and the scheduling of the foreclosure sale pursuant to Colorado statute, the county Public Trustee or Sheriff (the “officer”) accepts bids for sale, conducts the foreclosure sale, and sells the property being foreclosed at public auction. The initial foreclosure sale bid submitted at the foreclosure auction is that of the foreclosing lender. Thereafter, bids are taken from the public, or outside “third party bidders,” if there are public bidders interested in purchasing the property being sold at foreclosure sale. The highest bidder for the property at the foreclosure sale is the “successful bidder,” entitling the successful bidder to a Certificate of Purchase of the property.
If a third party bidder at foreclosure sale submitted the highest bid, or successful bid at the foreclosure sale, then the third party’s bid exceeded the bid of the foreclosing lender. Any amount bid by the successful bidder at the foreclosure sale that exceeds the foreclosing lien holder’s bid constitutes “overbid” funds under C.R.S. Section 38-38-111, which may be distributed to the prior owner of the property or junior lien holders to the lien being foreclosed, under certain circumstances. [1]
First, junior lien holders who file a timely notice of intent to redeem the property within eight (8) business days of the foreclosure sale, and are not redeemed by a more junior lien holder, are eligible to receive overbid funds from the foreclosure sale up to the amount owed on their junior lien, to the extent and amount of the remaining overbid funds available. Overbid funds are paid out to junior lien holders in the order of recording priority to those junior lien holders who filed a notice of intent to redeem the property. If no junior lien holder files a notice of intent to redeem the property with the officer, or the junior lien holders who did file a notice of intent to redeem have been satisfied in full by the distribution of the overbid funds, the remainder of the overbid funds will go to the previous owner of the property, who timely applies for the overbid funds. Similarly, if there are no junior lien holders, then the prior owner of the property that was foreclosed is eligible to claim all the overbid funds from the foreclosure sale.
With regard to timing, if no junior lien holder timely files a notice of intent to redeem, and the owner fails to apply or claim the overbid funds within sixty (60) days following the foreclosure sale, the county treasurer or officer who conducted the foreclosure sale will publish notice regarding any unclaimed remaining overbid funds exceeding $500.00 dollars. The notice shall be published by the officer within ninety days of the foreclosure sale. Thereafter, the overbid funds will be held for a period of six (6) months from the date of the foreclosure sale; if the overbid funds remain unclaimed after six (6) months following the foreclosure sale, the unclaimed funds will be transferred to the state treasurer as part of the “Unclaimed Property Act.”
Despite required statutory notices advising of a junior lien holder’s right of redemption, many junior lien holders do not appear to understand that they must file a timely notice of intent to redeem the property in order to preserve their right to overbid funds, whether such junior lien holder intends to exercise their right of redemption, or only participate in the distribution of overbid funds.
Similarly, it is not uncommon for the prior owner of the property to not apply for the overbid funds following a foreclosure sale despite the fact that the owner would be otherwise statutorily entitled to the overbid funds. Prior owners may not realize their right to claim overbid funds, or alternatively, a prior owner may not receive notice of the existence of the overbid funds because they have moved out of the property being foreclosed and have not received actual notice that the remaining overbid funds exist.
Therefore, whether you hold a junior lien on the property being foreclosed, or are the prior owner of the property foreclosed, it is prudent that you understand your rights so as to not let monies remain on the table that you may otherwise be rightfully entitled to under C.R.S. Section 38-38-111.
If you are junior lien holder that needs assistance understanding your rights and the procedure to claim overbid funds, contact an attorney who can assist you in protecting or exercising your rights to claim overbid funds.
If you are a prior owner of the property being foreclosed, it is recommended that you contact the officer who conducted the foreclosure sale to inquire regarding the status of any overbid funds and the process for claiming such overbid funds from the officer.
In summary, if you hold a junior lien on the property being foreclosed, or you are the prior homeowner of the property foreclosed, don’t let potential overbid funds go unclaimed when you may have a statutory right to claim, and may be entitled to distribution of the overbid funds. If you have any questions regarding this article and distribution of overbid funds following a foreclosure sale, please contact me to better understand your legal rights.
________________
[1] If the foreclosing lien holder submitted a deficiency bid at the foreclosure sale (an amount less than the total amount owed), any overbid funds will first be paid to satisfy the foreclosing lien holder’s deficiency.
