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Amendments to Foreclosure Procedures
By: John Burrus, Esq.

On July 1, 2002, several amendments to the Colorado Public Trustee’s Foreclosure Act, C.R.S. § 38-38-101, et seq., and other related laws, will become effective pursuant to Senate Bill 02-161. These amendments, as more fully explained below, contain a number of significant changes to the foreclosure process. Some of the pertinent amendments expand a creditor’s liability for failing to record a release of a deed of trust, permit banks to provide the public trustee with a copy of the promissory note or other evidence of debt along with a certification in lieu of the original note, extend the time periods in which the public trustee must mail notices of the foreclosure sale and the right to cure and redeem, shorten the time in which a notice of intent to cure must be filed, shorten the time in which the foreclosing party must provide cure figures, revise the figures that may be contained in a foreclosure bid, clarify the consequences for holding a foreclosure sale in violation of the automatic stay in bankruptcy, and clarify the requirements and establish deadlines for redeeming the property. The following is a summary of some of the relevant changes.

Pursuant to C.R.S. § 38-35-124 (Requirements Upon Satisfaction of Indebtedness), when the promissory note or other evidence of debt secured by real property is paid and the creditor or holder receives the requisite sum from the debtor for preparing and recording a release, then the creditor or holder must record with the county clerk and recorder the documents necessary to release the lien of record within ninety (90) days after the note and fee are paid. The amendment to this provision extends the creditor or holder’s liability for its violation, to the owner and any other person liable on the note or indebtedness, for all actual economic loss incurred in enforcing this provision, including reasonable attorneys’ fees and costs.

The amendment to C.R.S. § 38-37-108 (Form of Payments to Public Trustee), permits payments made to the public trustee for redemption or cure to be in the form of cash, wire transfer to the public trustee’s account established for that purpose, certified check, cashier’s check, teller’s check, or a draft denominated as an official check that is a teller’s check or a cashier’s check (as defined under the Uniform Commercial Code), and certified or issued by a federally-chartered or state-chartered financial institution licensed to conduct business in Colorado.

A new provision, C.R.S. § 38-37-118 (Checking account – custodial funds), was added to allow the public trustee to establish and manage a checking account or similar banking service with a bank which account will be designated as an eligible public depository. The moneys received by the public trustee for a bid, cure, excess funds, or redemption, shall be held as custodial funds for the party entitled to receive such funds but that no contractual relationship exists between the public trustee and such party.

The amendment to C.R.S. § 38-38-101 (Owner of Evidence of Debt May Elect to Foreclose – Notice – Record of Sale – Withdrawal), permits only certain entities (including, among others, banks, industrial banks, an S&L, a supervised lender, a public entity, a FHA approved mortgagee, a credit union, and a federal government agency) as the owner of the evidence of debt who seeks to foreclose on its deed of trust to provide the public trustee with one of the following, in lieu of the original promissory note or other evidence of debt: (i) a corporate surety bond one and one-half times the original note; or (ii) a copy of the promissory note or other evidence of debt with a certification as to the owner’s status. After the foreclosure sale, the owner must provide the public trustee with a copy of the promissory note or other evidence of debt, either marked as cancelled or noting the deficiency amount, attached to a duplicate certification of purchase which shall be recorded by the public trustee. An entity foreclosing without the original promissory note or other evidence of debt will have agreed to indemnify and defend any person liable for repayment of the debt and any person who sustains a loss, resulting from claims arising out of the original evidence of debt. A claim regarding ownership against the owner of the original evidence of debt is limited to indemnification and a claim against real property is prohibited. 

The amendment to C.R.S. § 38-38-101 (Owner of Evidence of Debt May Elect to Foreclose – Notice – Record of Sale – Withdrawal), extends the time period in which the public trustee must mail a copy of the notice of first publication of the foreclosure sale to the grantor from ten (10) days to twenty (20) days after the date of first publication of the foreclosure sale. 

The amendment to C.R.S. § 38-38-103 (Combined Notice of Right to Cure and Right to Redeem), increases the time period in which the public trustee must mail a copy of the notice of right to cure and right to redeem to the grantors, subsequent owners, current owner and any other person having such right from ten (10) days to twenty (20) days after the date of recording of the notice of election and demand, or not less than sixteen (16) days nor more than twenty-five (25) days after the entry of a decree of foreclosure or the issuance of a writ of execution to the sheriff. The amendment further adds that the notice of right to cure and right to redeem must contain, among others: (i) a statement that the notice of intent to redeem must be filed at least fifteen (15) calendar days prior to the date of the owner’s redemption period; and (ii) a statement that the notice of intent to cure must be filed at least fifteen (15) calendar days prior to the date of the scheduled foreclosure sale.
The amendment to C.R.S. § 38-38-104 (Right to Cure When Default is Nonpayment – Right to Cure for Certain Technical Defaults), extends the time period in which the party entitled to cure a payment default must provide written notice of intent to cure to the public trustee from seven (7) calendar days to fifteen (15) calendar days prior to the scheduled date of foreclosure. The public trustee must promptly transmit the notice by fax to mail to the foreclosing party. Upon receipt of the notice of intent to cure from the public trustee, the foreclosing party must provide cure figures no later than 12 noon on the seventh (7th) calendar day prior to the scheduled date of foreclosure or the public trustee will postpone the foreclosure sale. If the foreclosure sale is postponed for six (6) months under C.R.S. § 38-38-109(1) and the cure figures are not received by 12 noon on the seventh (7th) calendar day prior to the last possible foreclosure sale date, the public trustee will deem the foreclosure withdrawn and the foreclosing party must submit a written withdrawal of the notice of election and demand which will be recorded by the public trustee and the public trustee is entitled to collect the withdrawal fee and all of its incurred expenses. 
The amendment to C.R.S. § 38-38-106 (Written Bid Required – Form of Bid), clarifies the items that may be included in a foreclosure bid and provides a bid form to be used. The bid may include: (i) general or special taxes, or ditch or water assessments, and any governmental or quasi-governmental lien, fine, penalty or assessment; (ii) premiums for property, casualty, general liability and title insurance acquired to protect the holder’s interest or the improvements; (iii) sums due on any prior lien to encumbrance, including homeowners’ assessment liens and sums due under any lease of the property; and (iv) reasonable costs and expenses of defending, protecting, securing, maintaining and repairing the property or the holder’s interest or the improvements and receiver’s fees, inspection fees, court costs and attorneys’ fees. Appraisal fees are excluded from the bid figures.
The amendment to C.R.S. § 38-38-109 (Continuance of Sale), clarifies that if the foreclosing party completes the foreclosure sale in violation of the automatic stay in bankruptcy, the debt and the deed of trust will be reinstated, even if the bankruptcy court subsequently grants relief from the automatic stay to such foreclosing party. If the owner of the reinstated debt or deed of trust notifies the public trustee or sheriff in writing within sixty (60) days of the entry of an order dismissing the bankruptcy case or an order granting the owner relief from stay, then the public trustee or sheriff shall set a new foreclosure sale date at least twenty-four (24) days but not more than thirty-nine (39) days after receipt of the notice.
The amendment to C.R.S. § 38-38-301 (Purchaser Paying Charges - Redemption), authorizes the holder of the certificate of purchase to pay and recover upon redemption, expenses and charges relating to the property, including those entered as part of the foreclosure bid. 

The amendment to C.R.S. § 38-38-302 (Redemption Within Specified Period – Procedure), provides that the owner of the subject real property or any other person liable after the foreclosure sale for the deficiency must file a notice of intent to redeem with the public trustee or sheriff fifteen (15) calendar days prior to the expiration of the owner’s redemption period (i.e. seventy-five (75) days after the foreclosure sale date, if the property is not agricultural) and pay the requisite interest amount and other proper charges. To prove that the property is not agricultural (to calculate the proper redemption period), the foreclosing party may provide the public trustee or sheriff with proof that the property (i) is in whole or in part either platted as a subdivision or located within the incorporated limits of a town, city or city and county, or (ii) is not valued and assessed as agricultural land. The public trustee or sheriff must promptly transmit the notice by fax or mail to the holder of the certificate of purchase. The public trustee or sheriff is authorized to accept a notice of intent to redeem after the fifteen (15) calendar day period upon written consent of the holder or the certificate of purchase or his attorney. The holder of the certificate of purchase must provide the public trustee or sheriff with initial redemption figures the earlier of: (i) seven (7) calendar days prior to the expiration of the redemption period; or (ii) within ten (10) calendar days following the public trustee’s notice of intent to redeem. The redemption figures may be amended to reflect additional sums advanced but may not be amended during the seven (7) calendar days prior to the expiration of the redemption period. If the holder of the certificate of purchase fails to provide the redemption figures by the applicable deadline, then the public trustee or sheriff is authorized to calculate the redemption figures by adding to the successful bid amount the accrued interest based on a 365 day basis for the actual number of days from the foreclosure sale date to the redemption date and transmitting these figures to the redeeming party five (5) calendar days prior to the expiration of the redemption period.
The amendment to C.R.S. § 38-38-303 (Time of Redemption by Lienor), clarifies that a redeeming party which is identical to the prior redeeming lienor must only pay the costs and fees required for redemption. Also, the amendment sets forth the requirements for a lienor entitled to redeem, including that: (i) such lienor must hold a lien that is a mortgage or deed of trust or is otherwise recognized by statute or by a court judgment; (ii) such lien must be recorded prior to date the redeeming party must file the notice of intent to redeem; (ii) such lienor has timely filed its notice of intent to redeem with a recorded copy of the instrument evidencing its lien and affidavit setting forth the figures to redeem such lien. The amendment clarifies which costs a redeeming lienor may incur and add to the amount owing on the lien, allows the redeeming lienor to amend its affidavit under special circumstances, and permits an award of attorneys’ fees and court costs to the prevailing party contesting the redemption amount set forth on the redeeming lienor’s affidavit. The redeeming party is authorized to pay and recover expenses and charges relating to the property, including those entered as part of the foreclosure bid. The amendment requires that the holder of a consensual lien granted by the owners of the property must record such consensual lien at least fifteen (15) calendar days prior to the end of the owner’s redemption period and only permits the three most senior consensual lien holders to redeem. Persons providing closing and settlement services are permitted to rely on written payoff statements provided by the lien holder and the lien holder shall release the lien upon receipt of the amount set forth in the written payoff. Damages and attorneys’ fees may be assessed against a lien holder who fails to release as required. The debt holder may pursue the obligor for personal liability if an error is made in a written payoff.

In summary, Senate Bill 02-161 incorporates a significant number of changes to the foreclosure process that will require extensive review. It is advisable that any holder of a note or other evidence of debt secured by real property understand the revisions and the impact of the bill prior to engaging in any foreclosure after July 1, 2002. [00004112.doc; 2]

Contact John Burrus at jeb@bsblawyers.com

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