Before the foreclosure crisis, which peaked in 2010, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor the foreclosing lender. Now, however, federal and state laws heavily regulate loan servicing and foreclosure processes. And most of the laws give protections to borrowers.
Servicers generally have to provide borrowers with loss mitigation opportunities, account for each foreclosure step, and strictly comply with foreclosure laws. Also, most people who take out a loan to buy a residential property in Colorado sign a promissory note and a deed of trust, which is like a mortgage. These documents give homeowners some contractual rights in addition to federal and state legal protections.
In a Colorado foreclosure, you'll most likely get the right to:
So, don't get caught off guard if you're a Colorado homeowner who's behind in mortgage payments. Learn about each step in a Colorado foreclosure, from missing your first payment to a foreclosure sale. Once you understand the process, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.
The period after you fall behind in payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. (Sometimes, people refer to the period before a foreclosure sale actually happens as "preforeclosure," too.) During this time, the servicer can charge you various fees, like late charges and inspection fees, and, in most cases, must inform you about ways to avoid foreclosure and send you a preforeclosure notice called a "breach letter."
If you miss a payment, most loans include a grace period of ten or fifteen days, after which time the servicer will assess a late fee. Each month you miss a payment, the servicer will charge this fee. To find out the late charge amount and grace period for your loan, look at the promissory note you signed. You can also find this information on your monthly mortgage statement.
Also, most Colorado deeds of trust allow the lender (or the current loan holder, referred to as the "lender" in this article) to take necessary steps to protect its interest in the property. Property inspections are performed to ensure that the home is occupied and appropriately maintained. Inspections, which are generally drive-by, are usually ordered automatically once the loan goes into default and typically cost around $10 or $15.
Other types of fees the servicer might charge include those for broker's price opinions, which are like appraisals, and property preservation costs, such as yard maintenance or winterizing an abandoned home.
Under federal mortgage servicing laws, the servicer must contact, or attempt to contact, you by phone to discuss loss mitigation options, like a loan modification, forbearance, or payment plan, no later than 36 days after you miss a payment and again within 36 days after each following delinquency. No later than 45 days after missing a payment, the servicer has to inform you in writing about loss mitigation options that might be available and appoint personnel to help you try to work out a way to avoid foreclosure. A few exceptions are in place for some of these requirements, though, like if you've filed bankruptcy or asked the servicer not to contact you pursuant to the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39, 12 C.F.R. § 1024.40).
Federal mortgage servicing laws also prohibit dual tracking (pursuing a foreclosure while a complete loss mitigation application is pending).
Many Colorado deeds of trust have a provision that requires the lender to send a notice, commonly called a "breach letter," informing you that the loan is in default before the lender can accelerate the loan. The breach letter gives you a chance to cure the default and avoid foreclosure.
Under federal law, the servicer usually can't officially begin a foreclosure until you're more than 120 days past due on payments, subject to a few exceptions. (12 C.F.R. § 1024.41). This 120-day period provides most homeowners with ample opportunity to submit a loss mitigation application to the servicer.
If you default on your mortgage payments in Colorado, the lender may foreclose using a judicial or nonjudicial method.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. If you don't respond with a written answer, the lender will automatically win the case. But if you choose to defend the foreclosure lawsuit, the court will review the evidence and determine the winner. If the lender wins, the judge will enter a judgment and order your home sold at auction.
If the lender chooses a nonjudicial foreclosure, it must complete the out-of-court procedures described in the state laws. Though, Colorado nonjudicial foreclosures have a minimal amount of court involvement. After completing the required steps, the lender can sell the home at a foreclosure sale. When available, most lenders opt to use the nonjudicial process because it's quicker and cheaper than litigating the matter in court.
Most residential foreclosures in Colorado are nonjudicial. Here's how the process works.
In most cases, 30 days before filing the Notice of Election and Demand (see below), and at least 30 days after the default, the lender must mail the borrower a notice with information about:
The foreclosure process begins when the lender files a Notice of Election and Demand (NED) with the public trustee, who then records it with the county clerk and recorder. (Colo. Rev. Stat. § 38-38-101). Unlike other states that allow a private trustee to conduct nonjudicial foreclosures, a public trustee handles Colorado nonjudicial foreclosures.
The public trustee then sets a foreclosure sale date, which can't be less than 110 calendar days or more than 125 calendar days from when the NED is recorded. (Though, when it comes to agricultural properties, the sale can't be less than 215 or more than 230 calendar days from the NED's recording date.) (Colo. Rev. Stat. § 38-38-108).
The public trustee then mails the borrower what's called a "combined" notice at two separate times:
This notice includes specific information, like the date and place of sale, and information about the right to cure. The trustee publishes this notice in a newspaper, as well. (Colo. Rev. Stat. § 38-38-103).
Even though Colorado's most common type of foreclosure process is considered nonjudicial, the court plays a minor part in the procedure. Rule 120 of the Colorado Rules of Civil Procedure requires the foreclosing lender to ask a court to authorize the foreclosure sale as part of the nonjudicial process. At the Rule 120 hearing, the court determines if the lender has the right to foreclose on the property and sell it.
So, as part of the nonjudicial process, the lender's lawyer files a motion asking the court for an order authorizing the sale. After the lender files the motion, the clerk sets a deadline for responses. The lender then serves a notice to the borrower no less than 14 days before the response deadline. This notice contains information about the right to file and serve a response.
The scope of the borrower's response, and a subsequent hearing, is limited to four particular issues—and that's it.
The court won't consider defenses other than something that falls under one of these four categories, though. If you want to challenge the foreclosure on other grounds, like the lender committed fraud in originating the mortgage, you'll have to file a separate civil case.
If you don't file a valid response to the notice of hearing or you file your response too late, the judge may cancel the hearing and sign the order authorizing a foreclosure sale of your home.
The sale is an auction, which is open to the public. At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less. In some states, including Colorado, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower. If the lender is the highest bidder, the property becomes what's called "Real Estate Owned" (REO).
But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds—that is, money over and above what's needed to pay off all the liens on your property—you're entitled to that surplus money.
After a Colorado foreclosure, the purchaser must make a demand for possession. If you don't vacate (leave), the purchaser can initiate an eviction lawsuit.
A few potential ways to stop a foreclosure include reinstating the loan, redeeming the property, or filing for bankruptcy.
Under Colorado law, the borrower may prevent a nonjudicial foreclosure sale by "curing" the default, which means bringing the account up to date by paying all missed payments plus fees and costs. This procedure is called "reinstating" the loan.
To reinstate the loan, no later than 15 calendar days before the sale, you have to file a notice of intent to cure with the trustee. You'll get a cure statement that details the amount you'll have to pay to cure the default and stop the foreclosure, and you'll have until 12:00 noon on the day before the foreclosure sale to reinstate. (Colo. Rev. Stat. § 38-38-104).
One way to stop a foreclosure is by "redeeming" the property. To redeem, you have to pay off the full amount of the loan before the foreclosure sale.
Some states also provide foreclosed borrowers with a redemption period after the foreclosure sale, during which they can buy back the home. In Colorado, some lienholders get the right to redeem the property after the sale, but not a foreclosed homeowner. (Colo. Rev. Stat. § 38-38-302).
If you're facing a foreclosure, bankruptcy might help. In fact, if a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy. Once you file for bankruptcy, something called an "automatic stay" goes into effect. The stay functions as an injunction, which prohibits the lender from foreclosing on your home or otherwise trying to collect its debt, at least temporarily.
In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out about the options available to you, speak with a local bankruptcy attorney.
In a foreclosure, the borrower's total mortgage debt sometimes exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a "deficiency." For example, say the total debt owed is $500,000, but the home sells for $450,000 at the foreclosure sale. The deficiency is $50,000. In some states, the lender can seek a personal judgment against the borrower to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount—in our example, $50,000—from the borrower.
In Colorado, the lender has six years to file a lawsuit against you to get a deficiency judgment. (Colo. Rev. Stat. § 4-3-118). Colorado law requires that the lender bid at least a good-faith estimate of the property's fair market value (less the amount of unpaid real property taxes, senior liens, and sale costs) at the foreclosure sale. (Colo. Rev. Stat. §38-38-106). A court finding that the bid was inadequate won't void the foreclosure sale or prohibit a deficiency judgment. But if you raise this issue as a defense, the court will consider it when determining the deficiency amount. (Bank of America v. Kosovich, 878 P.2d 65 (Colo. App. 1994), Colo. Rev. Stat. § 38-38-106).
In this article, you'll find details on foreclosure laws in Colorado, with citations to statutes so you can learn more. Statutes change, so checking them is always a good idea.
To find Colorado's laws, search online for "Colorado statutes" or "Colorado laws." Make sure you're reading the most recent, official laws. Usually, the URL will end in ".gov" or the statutes will be on an official state legislature webpage. LexisNexis provides free access to the Colorado Revised Statutes.
For more information on federal mortgage servicing laws, as well as foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
Although the programs under the Making Home Affordable (MHA) initiative have expired, the MHA website still contains useful information for homeowners facing foreclosure.
How courts and agencies interpret and apply laws can change. And some rules can even vary within a state. These are just some of the reasons to consider consulting a lawyer if you're facing a foreclosure. If you have questions about Colorado's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney.
It's also a good idea to talk to a HUD-approved housing counselor if you want to learn about different loss mitigation options. You can use the CFPB's Find a Counselor tool to get a list of HUD-approved housing counseling agencies in your area. You can also call the Homeownership Preservation Foundation (HOPE) Hotline, which is open 24 hours a day, seven days a week, at 888-995-HOPE (4673).