My husband and I live in Colorado Springs, Colorado, and have been having trouble finding an affordable home in the area where we'd ideally like to live. I just heard that there's a house being foreclosed in that area, however. We’re potentially interested, but also worried about buying a home at a foreclosure sale. I've heard that the homeowners might actually be able to get the house back even after the foreclosure. Is this right? Could this really happen to us after we've purchased the property and maybe even moved in?
No, the former homeowners cannot get the house back after a foreclosure in Colorado. It is possible, though uncommon, for a junior lienholder to take the home away from the new buyer after the foreclosure by paying the purchase price at the foreclosure sale, plus various other charges, within a certain time period. This is called redeeming the property.
We’ll describe below how Colorado’s redemption law might affect your ability to settle into your new home without fearing that you’ll eventually lose it.
The Homeowners Can’t Redeem After a Foreclosure in Colorado
In Colorado, foreclosed homeowners do not have the right to redeem the property (Colo. Rev. Stat. § 38-38-302).
Junior Lienholders Can Redeem in Colorado
Under Colorado law, only parties that held a junior lien on the home, such as a second deed of trust or judgment lien, may redeem -- though this does not happen very often (Colo. Rev. Stat. § 38-38-302, § 38-38-100.3).
To redeem, the lienholder would have to file a notice of intent to redeem with the public trustee or sheriff (whoever conducted the foreclosure) within eight business days after the foreclosure sale (Colo. Rev. Stat. § 38-38-302). (Redemption notices after this time frame are allowed only under very limited circumstances.)
Redemption Period for Junior Lienholders
The most senior lienholder (typically a second deed of trust) may redeem 15 to 19 business days after the foreclosure sale (called a redemption period), so long as it has filed a notice of intent to redeem. Subsequent lienholders that file an intent to redeem each have five business days to redeem after the senior lienholder's redemption period (Colo. Rev. Stat. § 38-38-302).
How Much a Lienholder Must Pay to Redeem
In order to redeem the property, the lienholder would have to pay you the amount you paid at the foreclosure sale, plus:
- interest and
- allowable fees and costs you paid (such as insurance and repair costs) (Colo. Rev. Stat. § 38-38-107).
If a lienholder did take steps to redeem, you would probably first learn about it when the public trustee or sheriff asks you to prepare a statement of the amount needed to redeem (Colo. Rev. Stat. § 38-38-302).
You would then need to submit a signed redemption statement to the trustee or sheriff within 13 business days after the sale. The public trustee or sheriff will forward the statement to the party who filed the notice of intent to redeem (Colo. Rev. Stat. § 38-38-302).
Can the IRS Redeem for Tax Liens?
It's also possible, but rare, for the IRS to redeem a property after a foreclosure if there was a federal tax lien on the home. The IRS gets 120 days to redeem. If the IRS considers redeeming the house, it would send you a notice beforehand.
Other Things to Think About When Buying a Foreclosed Home
Besides the possibility of redemption, there are other issues to take into account when considering buying a home at a foreclosure sale. For example, you won’t get any seller disclosures regarding the condition of the property before the sale, and you will have to purchase the property “as is,” without negotiating over repairs. And the fact that the owner was in financial distress means the property could be in bad condition. (Learn more in Nolo’s Buying Foreclosed Properties area.)
Finding Colorado’s Redemption Laws
To find the statute that discusses the right to redeem the home after a foreclosure in Colorado, go to Title 38, Article 38, Part 1 of the Colorado Revised Statutes.