FORECLOSURE 101


In Colorado, a non-judicial process administered by Public Trustees is available to lenders foreclosing on deeds of trust. Liens other than deeds of trust (e.g., mechanics’ liens) must be foreclosed through the courts. The judicial process is similar to that described below.

Foreclosing on a deed of trust through the Public Trustee’s office is a process governed by statute. Article 38 of the Colorado Revised Statutes creates a timeline, beginning with the filing of a Notice of Election and Demand (“Notice”) and ending with the issuance of a Confirmation Deed to the holder of the Certificate of Purchase or the last Certificate of Redemption. Learning the timeline is an excellent starting point if you wish to understand the complexities of the foreclosure process. In addition to the timeline, you should remember the following rules:

  1. No liens are extinguished if the default is cured.
  2. All liens senior to that of the foreclosing lender survive foreclosure. First lien position is not a precondition to foreclosing. However, foreclosing from a junior lien position will leave the property subject to senior liens.
  3. The owner has a right to cure, but no right to redeem.
  4. Lien holders with liens junior to that of the foreclosing lender and recorded before the Notice have cure and/or redemption rights.

 

THE CURE PERIOD

The foreclosure process beginsInformation Windowwhen the lender sends the Notice to the Public Trustee. The Notice is recorded and thereby alerts the general public to the foreclosure. For a secured lien that is not foreclosed through the Public Trustee’s office (e.g., a mechanics’ lien) the process begins with a court action that is evidenced in the public records by a lis pendens. Subject to delays caused by procedural non-compliance (e.g., untimely delivery of cure figures to the Public Trustee) or bankruptcy, the foreclosure sale (“Auction”) will be held 110-125 days after recordation of the Notice (215-230 days after the Notice if the property is “agricultural”). The time between the Notice recordation date and the Auction date is the cure period.

Delivery of the Notice to the Public Trustee marks the beginning of the “formal” foreclosure process. The process actually begins informally at the moment of default, if not before. At that time, many owners will begin considering their options (e.g., refinancing or selling). In addition, owners and lenders may have extensive communication between the time of default and delivery of the Notice regarding alternatives to foreclosure (e.g., a customized repayment schedule, loan modification, deed in lieu).

Curing a default simply means bringing the loan payments current. The cure amount will include all past due principal and interest, any late fees and the costs associated with initiating the foreclosure. Curing a default has the effect of restoring the owner and the lender to their original status - the owner keeps the property and must resume regular mortgage payments and the lien of the lender remains in force and effective.

 

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