Proposed Changes To Colorado's Foreclosure Statute
House Bill 06-1387, which passed its third reading in the Senate on May 3, 2006, but which has not yet been signed into law, contains numerous proposed revisions to Colorado's foreclosure laws (C.R.S. § 38-38-101, et seq.). The bill is now on its way to the Governor for consideration. The intent of the bill is to modernize and simplify the process of foreclosures within Colorado, while also providing owners with a more realistic opportunity to retain ownership of their property. The most significant change to the bill as it relates to community associations is the expansion of the time in which to cure and the elimination of the owner's right to redeem.
This change was introduced for a few reasons. First, statistics compiled by Public Trustees indicate that few owners are actually able to redeem the property after sale as most owners are unable to obtain a loan at this stage of the foreclosure. Second, the expansion of the cure period prior to sale will grant homeowners a longer period of time within which to work with their lender to cure the default, modify the terms of the loan, or refinance. This change would be accomplished by increasing the time between the commencement of foreclosure and the initial sale date (the "cure period") from 45-60 days to 110-125 days.
Another change limits the right to redeem to those lienors with 1) a lien recorded prior to the commencement of the foreclosure; 2) a lien recognized by statute, like an assessment lien; or 3) a lien created by a court judgment. This revision is intended to protect owners from unscrupulous foreclosure investors who file liens against the property, primarily in the redemption period, with the intent of either taking title to the property from the owner or taking the equity from the home while leaving the owner with a loan that the owner cannot realistically hope to repay.
In addition, the bill, if passed, will:
- Allow foreclosing lienors to electronically file numerous documents such as the notice of election and demand and cure statements with the public trustee or sheriff
- Increase the maximum time period that a sale can be continued from its original scheduled date from 6 to 9 months
- State that proceeds from an overbid at sale are to be paid in the following order to: 1) each junior lienor, in order of recording priority, who timely filed a notice of intent to redeem or who was not redeemed in full, up to the amount of the lien; 2) the foreclosing lienor to the extent of any deficiency noted on the bid submitted at sale by the lienor; and 3) the owner of the property
- Continue to allow lienors to redeem the property or be paid upon redemption by another lienor if: 1)the lienor's lien is a mortgage, deed of trust, or other lien recognized by statute or is a judgment of a court; 2)the lien is a junior lien; 3) the lien was recorded before the commencement of the foreclosure; and 4) the lienor timely files a notice of intent to redeem following the sale
- State that state of Colorado tax liens may be extinguished by a foreclosure but that the State shall have the same redemption rights as other lienors.
Although this bill may affect associations who have units in foreclosure, associations are not required to take any affirmative steps to be in compliance with the new law if this bill passes ...except to make sure that their attorney is up on all the new changes!