Foreclosures: Navigating the Colorado Foreclosure Process as a Homeowner, Lender, or Buyer

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Are you a lender or a borrower facing a foreclosure action, or are you a home buyer looking to purchase a foreclosed home? Are you unsure of how the foreclosure system works in Colorado? If that’s the case, this blog will help you to navigate the foreclosure process and explain some of the key concepts of the system in Colorado.

What is a foreclosure?

Foreclosure is the legal process by which a lender sells mortgaged property to recover the amount owed on a defaulted loan. Colorado utilizes a public trustee system to administer non-judicial foreclosures, the only state in the United States to do so. Public trustees must perform several actions to facilitate the foreclosure, most notably releasing a Deed of Trust when the loan has been paid off and foreclosing a Deed of Trust when the lender declares it in default.

Lenders and public trustees facilitate the foreclosure process in Colorado. Prior to foreclosure, lenders must determine the type of foreclosure they wish to pursue (although judicial foreclosures are rare in Colorado), order a title search on the property, consider paying superior liens (to take title of the property free and clear), and consider appointing a receiver to manage the property during the foreclosure process if the security for the loan is inadequate or if the property is in danger of being materially injured or reduced in value.

What is the Public Trustee’s role?

The public trustee acts as a neutral third party that holds legal title to property until the loan underlying a deed of trust is paid off, at which point they release the deed of trust to the owner. When a borrower defaults, the lender must request that the public trustee initiate a foreclosure. The public trustee must perform several actions to facilitate the foreclosure. The lender’s attorney should verify that the public trustee has completed all of the following by the required dates:

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1.     Record the Notice of Election and Demand in the county’s real estate records within ten days of receipt;

2.     Schedule the initial foreclosure sale after recording the notice (100-125 days after recording for non-agricultural property and 215-230 days after for agricultural property);

3.     Mail the Combined Notice to every party on the Mailing List within 20 days of recording the Notice of Election and Demand;

4.     Publish the Combined Notice in a newspaper once each week for five consecutive weeks;

5.     Upon receipt of a Notice of Intent to Cure (submitted by the borrower), send the lender a written request for a statement of all sums necessary to cure the default at least twelve days prior to the foreclosure sale.

For more information on the role of the public trustee during a foreclosure, see A Must-See Trustee: Colorado’s Unique Public Trustee System and Foreclosure Process.

How does a lender start the foreclosure process?

To initiate public trustee foreclosure, the lender or their attorney must file the following documents with the public trustee of the county where the property is located:

1.     A Notice of Election and Demand (“NED”) signed and acknowledged by the holder of the evidence of debt or signed by the attorney for the holder;

2.     The original evidence of debt, including any modifications;

3.     The original recorded Deed of Trust, including any modifications;

4.     A Combined Notice, the requirements of which are proscribed by statute;

5.     A mailing list containing the names and addresses of:

  • The original grantor of the Deed of Trust or obligor under any other lien being foreclosed at the address shown in the recorded deed of trust or other lien being foreclosed and, if different, the last address, if any, shown in the records of the holder of the evidence of debt;

  • Any person known or believed by the holder of the evidence of debt to be personally liable under the evidence of debt secured by the deed of trust or other lien being foreclosed at the last address, if any, shown in the records of the holder;

  • The occupant of the property, addressed to "occupant" at the address of the property; and

  • With respect to a public trustee sale, a lessee with an unrecorded possessory interest in the property at the address of the premises of the lessee and, if different, the address of the property, to the extent that the holder of the evidence of debt desires to terminate the possessory interest with the foreclosure.

What happens after these initial filings and notices?

After the public trustee initiates foreclosure proceedings and provides the statutory pre-foreclosure notices, the lender must file a motion under the requirements of the Colorado Rules of Civil Procedure (CRCP) 120 with the district court in the respective property’s county requesting an order authorizing the foreclosure sale. A Rule 120 hearing, as it is known, determines if the lender has the right to foreclose on the property and have it sold at a public auction. The judge may cancel this hearing and sign the order authorizing sale if the borrower does not file an answer with the court in time.

The borrower has up to seven days prior to the date set for hearing in which to file a response with the court. If the borrower does not file a response in time, the order will be entered authorizing the sale, even if the borrower appears in court.

If I’m a borrower being foreclosed on, what can I do?

A borrower has the right to cure the default so long as the default is monetary in nature, and they file a Notice of Intent to Cure fifteen days prior to the foreclosure sale. Upon receipt of this notice and at least twelve days prior to the foreclosure sale, the public trustee must send the lender a request for a statement of all sums necessary to cure the default (Cure Statement). Once the lender files the Cure Statement with the public trustee, the public trustee must promptly send the statement to the borrower, who may cure the default by paying the necessary funds within ten days of the public trustee receiving the Cure Statement or no later than 12 noon the day before the scheduled foreclosure sale.

Further, a borrower does not need to move out of the foreclosed property right away. If the Court authorizes the sale of a borrower’s home, the borrower does not need to move out until after it is sold. Once a foreclosure sale has occurred, the borrower is no longer the owner of the house. When the deed to the property is issued, it is likely that the new owner will ask the borrower or any other occupant to vacate the premises. If the borrower does not leave the property, then the new owner my have the right to file an eviction action against the borrower.

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How does the foreclosure sale work and what happens post-sale?

The public trustee is charged with scheduling and conducting the foreclosure sale at the location stated in the Combined Notice. Before the sale, the lender must submit a written bid to the public trustee, which will then be made available to the general public. If a bidder outbids the lender’s amount, they will be required to pay the entire amount of their bid on the day of sale.

Within five days of the sale, the public trustee must deliver the successful bidder a Certificate of Purchase. The foreclosing party must also confirm the sale by filing a Return of Sale with the district court that initially authorized the foreclosure sale.

How else can a creditor get their money back on a promissory note default besides just a foreclosure sale?

When a debtor defaults on a promissory note, a creditor may elect which of three remedies they wish to pursue. A creditor may sue the borrower personally on the underlying promissory note, foreclose on the deed of trust securing the note, or both. So, while a creditor may simply foreclose on the property, they can also sue on the note and get a judgment lien on the property, or they can do both.

A lender has six years from the date the note first went into default to sue on the promissory note. Although if the lender does not accelerate the debt by requesting payment, the statute of limitations does not begin to run until the maturity date of the loan. If a lender does not commence suit on the note within six years, then the deed of trust is extinguished, and they cannot foreclose on the property. But if the lender sues only on the note within six years, then they have fifteen years from the date that the debt becomes due to foreclose on the deed of trust.

Under the doctrine of equitable merger, a lender cannot collect more than the amount of the debt owed on the property. The general rule is when the value of the property is equal to or exceeds the debt represented by the mortgage, justice would demand and equity presume, a merger. As a result, any excess proceeds from the foreclosure sale (overbid) are distributed to junior lienholders and the previous owner according to statute.

If you are a lender, borrower, or junior lender in Colorado dealing with a foreclosure action and need help understanding your rights within the foreclosure system, 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.

Real Estate Transactions, Selling a Home With an AgentJerome GeraghtyFSBO, residential real estate, buying a home, selling a home, Colorado real estate, foreclosure, repossession, loan default, debtors, borrowers, creditors, lenders, mortgage, public trustee, non-judicial foreclosures, Deed of Trust, superior liens, title, receiver, NED, notice of intent to cure, cure statement, return of sale