A law in Colorado (House Bill 14-1295) will help struggling homeowners who are trying to work out an alternative to foreclosure, such as a loan modification. Under the new law, mortgage lenders and servicers (companies that manage mortgage accounts), cannot continue with a foreclosure while a homeowner is in the process of applying for a loan modification or another alternative to foreclosure. Lenders and servicers must also appoint a single point of contact for the homeowner to communicate with during the foreclosure process.
Read on to learn about the new protections for homeowners under the Colorado law, find out how (and when) they can help you if you are facing foreclosure in Colorado, and learn how one part of the law may pose a potential problem for you and other homeowners.
Colorado’s House Bill 14-1295
On May 9, 2014, Governor John Hickenlooper approved House Bill (HB) 14-1295, which is designed to help homeowners who are facing foreclosure in Colorado.
The law went into effect on January 1, 2015, and applies to foreclosure proceedings in which the notice of election and demand (the first official step in a Colorado foreclosure) is filed on or after that date. (To learn more about foreclosure laws and procedures in Colorado, visit Nolo’s Colorado Foreclosure Law Center.)
Applicability of the Law
The protections of Colorado’s new law apply to mortgage loans for residential properties that are:
- either a single-family or multi-family dwelling (with no more than four units), and
- used by (or will be used by) the homeowner as his or her primary residence.
Some smaller servicers are exempt from the main provisions of HB 14-1295. (Also, a servicer that complies with the Federal Consumer Financial Protection Bureau (CFPB) rules is deemed in compliance with the law.)
Key Protections Under the New Colorado Foreclosure Law
Under HB 14-1295, there are two key protections for homeowners who are seeking a way to avoid a foreclosure:
No Dual Tracking
Dual tracking occurs when the lender or servicer proceeds with a foreclosure even though the homeowner is pursuing loss mitigation. (“Loss mitigation” is the term lenders and servicers use to describe the process used to resolve defaulted mortgage loans. For example, a loan modification is a form of loss mitigation.)
In the past, dual tracking was common and homeowners often lost their homes to foreclosure before the loss mitigation process was completed or, in some cases, even though a workout agreement was in place. However, the new Colorado law gives the public trustee (the party that administers Colorado foreclosures) the power to stop a foreclosure sale from occurring when:
- a homeowner is in the process of applying for an alternative to foreclosure, or
- the homeowner has accepted (and is in compliance with) a loss mitigation option, such as a loan modification.
You must ask the public trustee to stop the sale. If the lender or servicer dual tracks your loan, to stop the foreclosure sale you must present to the public trustee (no later than 14 calendar days before the sale date):
- a written notification (dated at least 37 days prior to the sale date) from the servicer indicating it received a complete loss mitigation application from you (which the servicer must provide once it receives the complete application), or
- evidence that you were offered and have accepted a loss mitigation option, like a loan modification. (You must also be in compliance with the terms of the agreement.)
If you do this, the public trustee will contact the attorney for the lender or servicer (or the lender or servicer itself, if there is no attorney) and ask about the status of loss mitigation. The public trustee will postpone the sale until he or she receives a response.
What happens if the lender/servicer acknowledges that loss mitigation is pending. If the lender or servicer acknowledges that loss mitigation is pending (for example, a loan modification has been offered and accepted and you are in compliance with its terms), the public trustee will postpone the sale. The lender or servicer will then eventually cancel the foreclosure, so long as you remain in compliance with the terms of the agreement.
What happens if the lender/servicer states that there is no pending application or agreement. On the other hand, if the lender or servicer responds that there is no pending loss mitigation (or that you are not complying with the terms of a loss mitigation agreement), the public trustee will continue with the foreclosure sale.
Problems with the law. Under the law as written, if you notify the public trustee that the servicer is dual tracking, it is left up to the lender or servicer to determine whether or not this is true. The public trustee will proceed with the foreclosure sale (or cancel it) based on what the lender or servicer says about this.
If the lender/servicer incorrectly informs the public trustee that it is not dual tracking and the trustee decides to proceed with the sale, you should immediately contact an attorney to figure out your next steps.
Servicers Must Provide Homeowners With a Single Point of Contact
In the past, homeowners who called their lender or servicer to get help with mortgage problems have had to explain their circumstances repeatedly, often to several different representatives. Colorado’s new law also requires that, no later than the 45th day of a homeowner’s delinquency, the servicer establish a single point of contact for the homeowner to talk to about foreclosure matters, including (among other things):
- available loss mitigation options
- actions the homeowner must take to be evaluated for loss mitigation options
- the status of any loss mitigation application
- applicable loss mitigation deadlines, and
- actions the homeowner must take to appeal a loan modification denial.
What to Do if You Think the Lender or Servicer Has Violated the Law
Once the new law goes into effect (January 1, 2015), if you believe that your lender or servicer has violated the prohibition on dual tracking or the single point of contact requirement, you may file a complaint with the Colorado Attorney General (AG), the CFPB, or both.
However, this will not stop the foreclosure. For this reason, you should also contact an attorney right away if you think the lender or servicer violated the law.
Learn More About HB 14-1295
Colorado’s ban on dual tracking will be codified at Colo. Rev. Stat. § 38-38-103.2 and the law regarding the appointment of a single point of contact will be codified at Colo. Rev. Stat. § 38-38-103.1. (Eventually you’ll be able to find them by going to Title 38, Article 38, Part 1 of the Colorado Revised Statutes.)
To find the text of HB 14-1295, you can go to the Colorado General Assembly webpage. Click on “Search for a Bill” and enter “14-1295” (the number of the House Bill) in the search box.