A Must-See Trustee: Colorado's Unique Public Trustee System & Foreclosure Process

One of the reasons that Colorado is an ideal place to invest in real estate is its unique public trustee system. This makes foreclosures very inexpensive and thus, an ideal place for real estate lenders.  

This blog analyzes Colorado’s public trustee system, the common foreclosure process, and discusses your foreclosure rights as a lender, borrower, or junior lienor.

What is the public trustee system?

Colorado is the only state in the United States that uses the “public trustee” system for foreclosures. In other states, the trustee is usually an attorney or other representative of the lender. However, in Colorado, the trustee is a public official with duties prescribed by Colorado statutes. Each county in Colorado has its own public trustee. In some counties, the trustee is appointed by the Governor, while in others the trustee is also the county treasurer.  

Public trustees have two primary tasks. First, they release deeds of trusts (a document showing a security interest in real estate similar to a mortgage) when the loan has been paid off. Second, they foreclose deeds of trust when lenders declare them in default. They also schedule the foreclosure sale, conduct the auction, and distribute proceeds from the auction to the proper interested parties. 

What is the foreclosure timeline?

In Colorado, most lenders choose to initiate public trustee foreclosures rather than expensive judicial foreclosures. This means the court is (mostly) not involved in the foreclosure process (as opposed to a judicial foreclosure where the court is greatly involved). Accordingly, this blog discusses the typical non-judicial foreclosure timeline and the rights and responsibilities of owners, lenders, and lienholders during the foreclosure process.

The foreclosure process officially begins when the lender files a “notice of election and demand” (NED) with the public trustee, although the lender is required to give notice to the borrower thirty days after default and thirty days before they file the NED. The public trustee then has 10 days to file the NED with the country clerk and recorder of the county where the property is located. After filing the NED, the public trustee sets a foreclosure date. For non-agricultural property, the foreclosure date is set for 110-125 days after the NED is recorded. For agricultural property, it is set for 215-230 days after.

After the foreclosure date is set, the public trustee must issue three different notices. First, the public trustee must mail a “combined notice” to all parties on the mailing list within twenty days of the NED’s recording. This mailing list includes the borrower as well as any other owners or anyone else who has a recorded interest in the property such as junior lienors (those that have a security interest in the property but whose interest is subordinate to the lender’s interest, e.g., a bank that issues a second mortgage). Then the public trustee must mail a second combined notice 45-60 days before the scheduled foreclosure sale. Finally, the public trustee must also publish the combined notice in a local paper once each week for five weeks before the sale. 

If the borrower or another interested party intends to cure the default, they must notify the public trustee in statutory form at least fifteen days prior to the sale. At least twelve days before the sale, the public trustee must send a written request to the lender for the sum necessary to cure the default. The lender must submit a cure statement in response within ten business days of the request or on the eighth business day before the sale, whichever is earlier. The borrower may then cure the monetary default by submitting the required funds to the public trustee by 12 noon the day before the sale.

Before the public trustee can conduct the foreclosure sale, the lender must go the district court in the appropriate county to get authorization for the public trustee foreclosure sale. This process is required by Colorado Rules of Civil Procedure, Rule 120. The lender’s attorney must submit a motion asking the court to authorize the foreclosure sale. If any interested parties respond to the motion, Rule 120 requires the lender to provide notice to all interested parties at least fourteen days before the scheduled hearing. If all goes according to plan and the court does find that the lender has the right to foreclose on the property, the court provides the lender with an order authorizing the sale, which must be provided in turn to the public trustee no later than the second business day before the sale. The public trustee may then conduct the trustee’s sale, which opens with the posting of the lender’s bid (called a minimum bid or upset price).

After the house is sold, the public trustee must deliver a “certificate of purchase” confirming the sale to the successful bidder within five days after the sale. If there are no junior lienholders who are entitled to redeem the property (i.e., pay what’s owed on the property to the lender, allowing them to take ownership), title vests with the holder of the certificate of purchase eight business days after the sale. The public trustee must then execute and record a “confirmation deed” for the holder of the certificate after the trustee receives all statutory fees and costs. The confirmation deed must be executed between ten and fifteen business days after the title vests. 

Lender’s Obligations — What obligations am I under and what steps do I take to foreclose if a borrower fails to pay?

Under federal law, a loan servicer (on your behalf) cannot start the foreclosure process until the borrower is over 120 days late. Additionally, in the "loss mitigation" process, servicers are supposed to work with borrowers who are having trouble making their monthly payments to avoid foreclosure. But if the borrower still fails to pay, then you can file the NED with the public trustee to begin the foreclosure process. You must also provide with the NED the original evidence of the debt or promissory note and the original recorded deed of trust securing the evidence of debt. 

Then, you must file a Rule 120 motion with the court of the county where the property is located, requesting the court to authorize the foreclosure sale. You must send the borrower notice of this motion. The borrower then has fourteen days to respond with a defense. If the borrower does not respond, the court will authorize the foreclosure sale. If, however, the borrower does respond, the court will set a Rule 120 Hearing to hear arguments about whether the foreclosure sale should be authorized. The court will then grant the motion and issue an order authorizing the sale or deny the motion and instruct that the sale be dismissed.

Before the foreclosure sale, specifically by noon on the second business day before the foreclosure sale, you must submit a written bid to the public trustee. If you do not submit this bid on time, the sale will be delayed week to week until you submit a bid to the public trustee in proper statutory form. 

After the sale, it is also your responsibility to confirm the sale by filing a “return of sale” with the court that initially authorized the foreclosure sale. 

When can I get my money?

You will receive your money when the winning bidder at the foreclosure sale pays the purchase price. The successful bidder must pay the full bid and all costs to the public trustee on the day of the sale (or another time as agreed by the public trustee). 

Borrower’s Rights — How can I keep my home if I’m facing a foreclosure?

If you are unable to make your payments and cannot work out a solution with your lender, the lender may begin the foreclosure process. But even if the lender has filed the NED to begin foreclosure, you still have a right to “cure.”

Under Colorado law, you can prevent a trustee’s sale by curing the default. This means that you bring the account up to date by paying all missed payments, plus fees and costs. This is known as “reinstating the loan.”

To reinstate the loan, you must file a “notice of intent to cure” with the public trustee no later than fifteen calendar days before the sale. Then, the lender files a cure statement that details the amount you must pay to cure the default and stop the foreclosure. The public trustee provides you with the cure statement, and you must reinstate the loan by noon on the day before the scheduled foreclosure sale to prevent the sale.

Similarly, you may also “redeem” (i.e., buy back) the property by paying the foreclosure sale amount plus interest within 75 days after the sale. 

Lienholder’s Rights — Do I have any right to purchase the property?

Many states have laws that allow a foreclosed homeowner to redeem the home after the foreclosure sale. In Colorado, some lienholders get the right to redeem the property as well. A junior lienholder with a “right of redemption” can redeem the property and take ownership by paying to the public trustee the amount bid at the foreclosure sale plus fees according to statute.

To redeem the property, you must file a notice of intent to redeem with the public trustee within eight business days after the sale. After receiving the notice of intent to redeem, the holder of a certificate of purchase must submit a signed and acknowledged statement to the sheriff within thirteen business days following the sale. 

If a junior lienor duly files a notice of intent to redeem, then they have the opportunity to redeem the property in order of priority (e.g. seniority based on when each lien was recorded). Between fifteen and nineteen business days after the sale, the junior lienor with the most senior recorded lien may redeem the property sold by paying to the public trustee the amount for which the property was sold plus interest from the date of sale and all sums allowed by statute. 

Beginning on the fifteenth business day following the sale, any other junior lienholders (in order of priority) that provided a notice of intent to redeem receive successive five-business-day redemption periods.

If a junior lienholder redeems the property, the public trustee must execute and record a “certificate of redemption” in the county land records. When all redemption periods expire, the public trustee must disburse all redemption proceeds to the parties entitled to receive them–parties often entitled to proceeds from a foreclosure sale and redemption periods include the lender, junior lienors, and the previous owner in that order.

Conclusion

If you are a lender, borrower, or junior lienor in Colorado dealing with a foreclosure action and need help understanding your rights within the public trustee system, GLO extensive experience helping clients along the Front Range on both sides of the table with their foreclosure issues. Fill out an interest form today to see if GLO can help you.

GLO has prepared this blog to provide general information on legal issues that may be of interest. This blog does not provide legal advice for any specific situation and this does not create an attorney-client relationship between any reader and GLO or its attorneys. GLO engages clients only through specific fee arrangements and signed engagement letters. GLO does not guarantee any results.