May 20, 2013

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HB 13-1249: Tightening the Rules for Documentation from Holder of Evidence of Debt Prior to Commencing Foreclosure

April 10, 2013 by Leave a Comment

On March 4, 2013, Rep. Beth McCann and Sen. Angela Giron introduced HB 13-1249 - Concerning Residential Foreclosures, and, in Connection Therewith, Requiring that Foreclosures be Initiated Only by Persons with a Security Interest in the Property and Requiring Good-Faith Dealing in Loan Modification Negotiations. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

Current law allows a “holder of an evidence of debt” (holder), generally a bank or other financial institution, to foreclose on real property under a deed of trust even if the holder’s interest is based on an assignment from the original lender and the assignment or other intermediate documents are not produced, simply by providing a statement from the holder’s attorney that the holder’s interest in the property is valid. The bill removes this provision and otherwise tightens the rules for documentation of the holder’s interest that must be filed with the public trustee and with a court before a foreclosure sale is authorized. The bill also removes an existing limitation on the liability of a holder that forecloses without having possession of the original documents, to all parties damaged by the foreclosure.

The bill adds and amends definitions used throughout the bill.

The bill requires the notice that a residential borrower receives when a holder seeks an order authorizing sale (OAS) under rule 120, C.R.C.P., to include new disclosures specifying that:

  • A statement or opinion offered by the holder or its attorneys or agents is not advice to the borrower, and that those persons’ sole loyalty is to the party that claims to be the holder;
  • In response to the motion for an OAS, the borrower may challenge the sale on specified grounds, including whether the applicant has a right to enforce a recorded security interest in the real property affected by the foreclosure; and
  • It is illegal for a foreclosure consultant to charge an up-front fee.

The bill addresses “dual tracking,” in which a lender simultaneously negotiates with the borrower for a loan modification and pursues foreclosure through the public trustee. This section requires the servicer of the loan to establish a single point of contact by which the borrower may stay apprised of the status of his or her application for a loan modification. Section 4 also prohibits the lender from starting or continuing with the foreclosure process if the borrower is complying with the terms of a trial payment plan or other foreclosure prevention alternative.

The bill explicitly authorizes any party to an OAS proceeding to raise, and requires the court to consider, the issue of whether the moving party has an enforceable legal interest in the property. The bill also requires that the notice posted on the property in advance of the OAS proceeding contain a prominent disclosure that the borrower must respond in writing by a specific date or lose the right to object to a sale of the property.

At the request of the Real Estate Section, the CBA Legislative Policy Committee has voted to oppose the bill in its current form. The bill is assigned to the Business, Labor, Economic, & Workforce Development Committee; the committee will consider the bill on Thursday, April 11, at 1:30 p.m.

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Tenth Circuit: Genuine Issue of Material Fact Existed as to Whether Plaintiff Suffered Emotional Damages Because of Defendant Loan Servicers’ Actions

April 1, 2013 by Leave a Comment

The Tenth Circuit published its opinion in Llewellyn v. Allstate Home Loans, Inc. on Thursday, March 28, 2013.

Plaintiff Glen Llewellen purchased property located in Aurora, Colorado. In connection with this purchase, Plaintiff executed a note with Allstate Home Loans. The loan was funded by Allstate’s subsidiary, Equity Pacific Mortgage, Inc., (“EPMI”). Plaintiff timely made his first monthly payment. Shortly thereafter, Nomura Credit and Capital, Inc. (“NCCI”) purchased the loan and transferred the servicing rights to Ocwen. On the date of the transfer, Plaintiff’s loan was current.

Prior to the service transfer to Ocwen, Plaintiff initiated the process of refinancing the loan. Plaintiff signed the refinance documents on June 1, 2006, but did not advise the closing agent that the servicing rights had been transferred to Ocwen. Plaintiff then spoke with an Ocwen representative on June 5 and incorrectly informed Ocwen that his loan had been refinanced—at the time, he had not yet delivered the funds to the closing agent. Two days later, Plaintiff delivered the funds he owed to close the transaction.

On June 14, the closing agent wired the refinancing payoff funds to Washington Mutual Bank, identifying EPMI as the beneficiary. EPMI wired the funds to Allstate on July 11. From there, it remains unclear what became of the funds. It is undisputed, however, that neither Ocwen nor NCCI ever received the payoff funds.

Ocwen sent Plaintiff a past-due notice on the loan and a letter discussing foreclosure and its alternatives. Ocwen then provided a negative credit report regarding Plaintiff to a credit reporting agency (“CRA”).

Plaintiff called Ocwen and informed their representative his loan had been refinanced and his new loan was being serviced by Washington Mutual. The representative informed Plaintiff that Ocwen had not received any payoff funds and advised him to speak with Washington Mutual to obtain details about the status of the loan. Ocwen sent Plaintiff another past due notice and issued a foreclosure referral to the law firm of Castle Meinhold & Stawiarski, LLC (“CMS”).

After receiving the foreclosure referral from Ocwen, CMS sent a letter to Plaintiff informing him that CMS had been retained to commence foreclosure proceedings against the property.

Plaintiff sent a fax to CMS with a copy of a HUD settlement statement showing that EPMI was to receive the refinancing funds, and a letter from Washington Mutual to Plaintiff stating that if OCWEN was to be paid off and was not, please contact the closing agent for research on the payoff. CMS forwarded the information to Ocwen.

Over the course of the following months, Plaintiff’s loan was transferred to NCC Servicing, and Ocwen continued to file negative credit reports regarding Plaintiff. Plaintiff’s credit report was not reversed, in spite of assurances that it would be addressed.

Glen Llewellyn filed this action asserting a Fair Debt Collection Practices Act claim, a Fair Credit Reporting Act claim, and a state law outrageous conduct claim against Ocwen and Nomura Credit and Capital (the “Ocwen Defendants”) based on their alleged credit reporting inaccuracies, and asserting an FDCPA and an outrageous conduct claim against Castle Meinhold & Stawiarski in connection with the foreclosure actions it took against Plaintiff. The district court granted summary judgment for the Defendants on each of Plaintiff’s claims. Plaintiff appealed, arguing summary judgment was inappropriate on his Fair Credit Reporting Act (“FCRA”) and Fair Debt Collection Practices Act (“FDCPA”) claims.

I. FAIR CREDIT REPORTING ACT

Plaintiff alleges the Ocwen Defendants violated § 1681s-2(b) of the FCRA. Under this section, a furnisher of information who has received notice of a dispute from a CRA is required to: (1) investigate the disputed information; (2) review all relevant information provided by the CRA; (3) report the results of the investigation to the CRA; (4) report the results of the investigation to all other CRAs if the investigation reveals that the information is incomplete or inaccurate; and (5) modify, delete, or permanently block the reporting of the disputed information if it is determined to be inaccurate, incomplete, or unverifiable. Pinson v. Equifax Credit Info. Servs., Inc., 316 F. App’x 744, 750 (10th Cir. 2009).

The district court granted summary judgment to the Ocwen Defendants, concluding Plaintiff had failed to provide evidence of actual damages, either economic or emotional, or willfulness, to support his FCRA claim.

A. Economic Damages

Plaintiff argued he suffered economic damages as a result of the Ocwen Defendants’ alleged violation of the FCRA. The record showed that Plaintiff’s credit score dropped three points during these events. Plaintiff’s allegations that his credit score dropped over 100 points as a result of Ocwen’s actions were conclusory allegations and did not create a genuine issue of material fact. Additionally, Plaintiff provided no evidence he had applied for, and been denied, additional loans. Accordingly, the district court’s grant of summary judgment in favor of the Ocwen Defendants was affirmed on this basis.

B. Emotional Damages

Plaintiff alleged that, as a result of the Defendants’ actions, his health began to rapidly deteriorate.

Plaintiffs who rely on their own testimony to establish emotional harm must “explain [their] injury in reasonable detail and not rely on conclusory statements. Bagby v. Experian Info. Solutions, Inc., 162 F. App’x 600, 605 (7th Cir. 2006). An injured person’s testimony alone may suffice to establish damages for emotional distress provided he reasonably and sufficiently explains the circumstances surrounding the injury.

Viewing Plaintiff’s affidavit in the light most favorable to him and drawing  all reasonable inferences in his favor, the Tenth Circuit concluded Plaintiff provided sufficient evidence he suffered emotional damages as a result of the Ocwen Defendants’ actions. His affidavit created a genuine dispute as to whether the Ocwen Defendants’ actions caused him to suffer emotional damages.

C. Willful Violation

Plaintiff contended he was entitled to statutory and punitive damages under 15 U.S.C. § 1681n because the Ocwen Defendants willfully violated the FCRA. The Tenth Circuit concluded that, at most, Plaintiff offered evidence that the Ocwen Defendants negligently violated their obligations, which was insufficient to support a claim.

II. FAIR DEBT COLLECTION PRACTICES ACT 

A. Claims Against Ocwen Defendants

Plaintiff alleged the Ocwen Defendants violated the FDCPA by communicating or threatening to  communicate to CRAs false information concerning his credit worthiness after being informed that the debt had been paid off and by failing to communicate the debt was in dispute after Plaintiff notified them of this fact.

The FDCPA applies only to “debt collectors.” Because the Ocwen Defendants acquired Plaintiff’s loan on May 15, 2006, when it was undisputedly current, they are not considered debt collectors under the FDCPA. The Tenth Circuit found no basis from which to conclude the Ocwen Defendants qualified as debt collectors under the FDCPA.

B. Claims Against CMS

Plaintiff’s FDCPA claim against CMS is barred by the one-year statute of limitations.

Order granting summary judgment to the Ocwen Defendants on Plaintiff’s FCRA claim based on his alleged emotional damages REVERSED and REMANDED for further proceedings. The district court’s order is otherwise AFFIRMED.

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Colorado Court of Appeals: Mechanics’ Lien Had Priority Over Bank Lien But Lien Cannot Be Filed in Excess of Contract Price

March 21, 2013 by Leave a Comment

The Colorado Court of Appeals issued its opinion in Byerly v. Bank of Colorado on Thursday, March 14, 2013.

Excessive Mechanic’s Lien—CRS § 38-22-101(3).

Defendants Bank of Colorado and Delta Properties II, LLC (collectively, Bank) appealed the trial court’s judgment in favor of Daniel Byerly (Contractor). The judgment was reversed and the case was remanded with directions.

In 2006, Widwing Development, LLC (Developer) hired Contractor to help develop a residential subdivision in Timnath. It was a four-phase project with an extensive contract, including a compensation scheme that involved both cash payments and “Lot Compensation.” By late 2009, Developer had sold only half of the thirty-two villa home lots (valued at $110,000 each) and four of the seventy-six single family home lots (valued between $294,500 and $350,000). It had not paid Contractor’s monthly fee for several months. The Bank, which had issued construction loans to Developer, declared a default. Though Developer was in no position to do so, it sent Contractor a letter stating that as of January 5, 2010, Contractor had “earned” Lot Compensation for the first phase. The Bank later foreclosed and acquired the unsold land parcels. Neither Developer nor the Bank ever tendered Lot Compensation to Contractor.

In March 2010, shortly before the Bank’s foreclosure, Contractor recorded a mechanic’s lien on one of the parcels of land for $824,000 (later amended to $641,000) and filed a complaint in foreclosure, naming the Bank as an interested party. The amended lien included $84,000 of unpaid monthly fees and $557,000 in Lot Compensation. At trial, Contractor admitted that the conditions precedent to Developer’s duty to pay the Earned Cash Value portion of the Lot Compensation had not been met. Contractor also asserted a breach of contract claim against Developer and was awarded a default judgment based on eighteen months of unpaid monthly fees ($126,000), plus interest and costs.

Following a bench trial, the trial court made findings regarding the value of Contractor’s lien and concluded that the “full and accurate value” of Contractor’s services totaled $346,000, to which 12% interest was added, for a total of $417,095. The trial court also made findings regarding whether Contractor had knowingly filed an excessive lien under CRS § 38-22-128, and concluded he did not. The court found in favor of Contractor on his mechanic’s lien claim and ruled that Contractor’s lien was prior to the Bank’s lien.

On appeal, the Bank argued that the trial court erred in determining that Contractor’s lien was measured by the “value” of his services, rather than by the contract terms, and that it was unlawful to file a lien that exceeded the contract price. The trial court interpreted CRS § 38-22-101(3) to mean that when a contract is not recorded, a contractor may file a mechanic’s lien for the “value” of his or her services. The Court of Appeals found that interpretation to disregard the plain language of subsection 3 when read in the context of the entire subsection. Subsection 3 applies only to subcontractors and material providers, not to the direct contractor. Subcontractors are the only ones who would have occasion to do work that must be “deemed” to have been done for the owner, given that the direct contractor already has a contract with the owner. Thus, where a direct contractor performs services, the value of which is alleged to have exceeded the contract price, the contract price is the maximum amount for which a lien can be filed. Accordingly, it was error to find that subsection 3 allowed Contractor to file a lien in excess of the contract price.

The Bank also argued that it was error to determine that Contractor did not violate CRS § 38-22-128 by filing an excessive lien. The trial court found that Contractor could have reasonably anticipated receiving Lot Compensation after Developer informed him that he had “earned” it and, from Contractor’s perspective, it was not obvious that the conditions precedent for Lot Compensation could not occur and would never occur. The Court rejected these findings because there was no evidence in the record to support them. The judgment was reversed and the case was remanded for entry of judgment in favor of defendants.

Summary and full case available here.

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Tenth Circuit: Dismissal of Plaintiffs’ Claims in Foreclosure Action Affirmed

March 12, 2013 by Leave a Comment

The Tenth Circuit issued its opinion in Toone v. Wells Fargo Bank on Friday, March 8, 2013.

Bryan and JoLynne Toone executed a promissory note (the Note) secured by a deed of trust on their home (the Trust Deed). The Note was assigned several times. After the Toones defaulted on the Note, their home was scheduled to be sold at a trustee’s foreclosure sale. They filed suit to halt the foreclosure and to obtain damages and declaratory relief based on alleged violations of statutory and common law duties by numerous parties who had current or prior interests in the Note and Trust Deed or were involved in the foreclosure efforts. Defendants filed separate motions to dismiss under Fed. R. Civ. P. 12(b)(6), which the district court granted. The Toones appealed.

“A pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

The heart of the Toones’ claims was the challenge to the various assignments of the Note. The gravamen of their complaint was the allegation that the purported endorsements on the Note were defective for many reasons, such that subsequent banks never legally became the owner/endorsee of the Note. The problem for the Toones is that their complaint did not adequately allege that the endorsements were improper. It asserted that the endorsements were invalid because the first was signed by an underwriting assistant for the assignee instead of the assignor, and the remaining ones were “robosigned.” However, the face of the Note contradicted the Toones’ allegations. Accordingly, the factual predicate of most of the Toones’ arguments on appeal is undermined.

Toones’ opening brief on appeal also asserted that the defendants committed multiple acts that constituted violations of the Fair Debt Collection Practices Act (FDCPA). The brief failed, however, to specify what those acts were. The issue was so inadequately treated in the argument sections of opening briefs, the Tenth Circuit concluded it did not deserve its attention.

The Toones next claimed that Wells Fargo violated the Real Estate Settlement Procedures Act  (RESPA) by not responding to their written requests for information. To survive a Rule 12(b)(6) motion to dismiss a claim under § 2605(e) of RESPA, plaintiffs must plead actual damages stemming from the failure to respond to requests or a pattern or practice of misconduct. See Hintz v. JPMorgan Chase Bank, N.A., 686 F.3d 505, 510–11 (8th Cir. 2012).  The Tenth Circuit held this claim must fail due to the conclusory nature of the complaint.

AFFIRMED.

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Tenth Circuit: District Court’s Dismissal of Plaintiff’s Claims Against Loan Servicer for Overcharges and Fees Was Proper

February 27, 2013 by Leave a Comment

The Tenth Circuit published its opinion in Berneike v. Citimortgage on Monday, February 25, 2013.

Over a six-month period in 2010, Adriana Berneike (“Berneike”) faxed more than one hundred letters to Citimortage (“Citi”), claiming that, despite paying in full every bill she received, she continued to be overcharged by Citi and was facing foreclosure and bankruptcy. Citi acknowledged Berneike’s inquiries and responded that it believed her account was correctly serviced.

Berneike filed suit in Utah state court alleging in part that Citi’s conduct violated the Real Estate Settlement Procedures Act (“RESPA”) and the Utah Consumer Sales Practices Act (“UCSPA”). Citi removed the case to federal court, and the court then granted Citi’s motion to dismiss Berneike’s claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Berneike appealed the district court’s dismissal.

RESPA CLAIM

Berneike raised two arguments: first, she argued the district court erroneously considered documents outside of the pleadings to find that Citi had provided notice of its qualified written request (“QWR”) address for these types of complaints; and, second, that Citi waived its right to receive QWRs at the designated address by responding to her first round of faxed letters. It was undisputed that Berneike failed to send her correspondence to the correct QWR address.

Documents Outside the Pleadings.  Berneike claimed the district court erred when it considered Citi’s Welcome Letter, which included notice to Berneike of a designated address for receipt of QWRs. Generally, a court considers only the contents of the complaint when ruling on a 12(b)(6) motion. Gee v. Pacheco, 627 F.3d 1178, 1186 (10th Cir. 2010). Although the Tenth Circuit concluded that the district improperly considered the Welcome Letter, it was not reversible error for the district court to do so because the same notice containing the correct QWR address was also set forth in the monthly billing statements, which were properly before the court.

Waiver.  Berneike next argued that Citi waived its right to receive QWRs at the designated address by corresponding with her. The Tenth Circuit concluded this was the incorrect inquiry. Rather, the correct inquiry was whether the correspondence satisfied the requirements of RESPA such that Citi’s duties thereunder were triggered. Because Congress has not directly addressed the precise question at issue, the Tenth Circuit proceeded to ask whether the agency’s interpretation was a permissible construction of the statute. HUD, the relevant agency, promulgated 24 C.F.R. § 3500.21, which granted servicers like Citi the authority to designate an exclusive address for receipt of QWRs.

The Tenth Circuit held that this grant of authority to servicers to designate an exclusive address was a permissible construction of the statute, since RESPA recognizes that servicers will not have a statutory duty to respond to all inquiries or complaints from borrowers, and that failure to send the QWR to the designated address does not trigger a servicer’s duties. Since receipt at the designated address is necessary to trigger RESPA duties, and it was undisputed that Citi did not receive Berneike’s letters at the designated address, the district court did not err in dismissing Berneike’s RESPA claim.

UCSPA CLAIM

Berneike next contended that the district court erred by dismissing her state consumer protection claim. Specifically, she disagreed with the district court’s conclusion that UCSPA did not apply to mortgage loan transactions and that she was barred from asserting a UCSPA claim because the conduct she complained of is governed by other, more specific law. Since the Utah Supreme Court had not ruled on whether the UCSPA applies to loan servicing, the Tenth Circuit interpreted and applied the law of Utah as the Court believed the Utah Supreme Court would. While the Utah Supreme Court had not explicitly decided whether a borrower can assert a USCPA claim under these circumstances, it has ruled that a USCPA claim is barred when the complained-of conduct is governed by other, more specific law. Because the alleged wrongful conduct is governed by more specific statutes than the UCSPA, Berneike was barred from asserting a USCPA claim.

Dismissal AFFIRMED.

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Tenth Circuit: FDCPA and State Law Claims Arising From Foreclosure Properly Dismissed for Failure to State a Claim

February 5, 2013 by Leave a Comment

The Tenth Circuit published its opinion in Burnett v. Mortgage Electronic Registration Systems, Inc. on Friday, February 1, 2013.

Charlene Burnett filed an action against James H. Woodall, the successor trustee appointed by Mortgage Electronic Registration Systems, Inc. under the trustee deed securing her home, (MERS), and fifty unnamed individuals. The complaint asserted violations of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., the Utah Consumer Sales Practices Act (USCPA), Utah Code Ann. § 13-11-1 et seq., and related claims arising out of the foreclosure of her home. The district court granted Woodall’s motion and dismissed her complaint under F.R.C.P. 12(b)(6).

After discussing the Iqbal/Twombly pleading standard  as interpreted in Khalik v. United Air Lines, 671 F.3d 1188 (10th Cir. 2012), the Tenth Circuit analyzed Burnett’s claims to see if she had “set forth plausible claims.” Burnett argued that Woodall violated the FDCPA because MERS had no authority to appoint him as trustee so he had no authority to foreclose her property. The trust deed expressly granted MERS “the right to foreclose and sell the Property” and Burnett consented to those terms. “The plain language of the trust deed undermines her argument that MERS lacked the authority to appoint Mr. Woodall as successor trustee for the purpose of foreclosing on her property.” The court also rejected Burnett’s argument that MERS lost its authority to foreclose once her debt was securitized and sold to another lender.

Burnett also argued that Woodall violated § 1692e of the FDCPA by making false representations as to the nature and character of the debt. The court found her allegations too vague and conclusory because she failed to include details or concrete examples in her complaint regarding the demands for payment. She should have included dates received and who sent the demands. The court also found her complaint lacking regarding her § 1692g FDCPA claim that the defendants violated that provision by failing to provide notices within five days of the first communication with the debtor. Burnett failed to identify when the initial communication took place or from whom it came.

The court also found Burnett’s state law claims were correctly dismissed and affirmed the district court.

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Tenth Circuit: District Court’s Dismissal of Claims Without Prejudice and Restitution Amount After Real Estate Investor’s Conviction of Fraud Affirmed

January 28, 2013 by Leave a Comment

The Tenth Circuit published its opinion in United States v. Smith on Thursday, January 24, 2013.

Defendant Derrick Smith was a real estate investor who conspired to defraud mortgage lenders by setting up sales to straw buyers at inflated prices, with the excess loan proceeds being distributed to Defendant and others. When the buyers defaulted on the loans, the lenders were unable to recoup the full loan amounts at foreclosure.

Defendant was indicted and eventually convicted by a jury on one count of conspiracy to commit wire fraud in relation to real estate mortgages. The district court declared a mistrial as to four counts on which the jury could not reach a verdict, later dismissing these counts without prejudice. At sentencing, the district court calculated an advisory sentencing range of 37 to 46 months’ imprisonment. The court then sentenced Defendant to 40 months’ imprisonment and ordered restitution in the amount of $369,455.54.

Defendant raises three issues on appeal. First, he claims the district court abused its discretion by dismissing the mistried counts without prejudice. Second, he contends the court erred in treating the sale of 7300 N.E. 133rd Street as relevant conduct in its sentencing calculation. Third, he argues the court erred in calculating actual loss based on the difference between the outstanding principal balance and the foreclosure sale price.

The Tenth Circuit first considered the district court’s dismissal of the mistried counts. After considering the following factors, the Tenth Circuit concluded that the district court did not abuse its discretion in dismissing the four mistried counts without prejudice: the seriousness of the offense; the facts and circumstances of the case which led to the dismissal; and the impact of a reprosecution on the administration of this chapter and on the administration of justice.”  18 U.S.C. § 3162(a)(1).

The Tenth Circuit turned next to Defendant’s challenges to the district court’s sentencing calculation, starting with his argument that the district court erred in determining the sale of 7300 N.E. 133rd Street should be included as relevant conduct for sentencing purposes. The Court held that the district did not err in considering Defendant’s conduct regarding this residece, as it constituted relevant conduct or a common scheme or plan.

Finally, the Tenth Circuit turned to Defendant’s argument that the district court erred in calculating actual loss, reviewing the court’s loss calculation methodology de novo and its factual findings for clear error. The Court held the district court did not err in applying the general formula and subtracting the foreclosure sales price from the outstanding balance on the loan,  since this actual loss was the reasonably foreseeable pecuniary harm that resulted from the offense.

AFFIRMED.

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Colorado Court of Appeals: C.R.S. § 38-38-111(2) Does Not Bar Garnishment of Excess Foreclosure Funds by Judgment Creditor

January 22, 2013 by Leave a Comment

The Colorado Court of Appeals issued its opinion in TCF Equipment Finance, Inc. v. Public Trustee for the City and County of Denver on Thursday, January 17, 2013.

Writ of Garnishment by Judgment Debtor on Public Trustee Foreclosure Funds.

The Public Trustee for the City and County of Denver (Public Trustee) appealed the trial court’s order upholding a writ of garnishment served by TCF Equipment Financial, Inc. (TCF) for the purposes of collecting on a judgment against a judgment debtor, Matthew Gold, whose property had been foreclosed on by the Public Trustee. The order was affirmed.

TCF obtained a judgment against Gold that was not satisfied. TCF seized Gold’s commercial equipment, which satisfied a portion of the judgment. A month before entry of judgment, Gold’s real property was foreclosed on by the mortgaging bank. The foreclosure sale yielded substantial excess funds. The redemption period expired, and the excess funds were held in escrow by the Public Trustee. The parties agree that TCF could not have filed a notice to redeem, or attempted to participate in the foreclosure sale, because the foreclosure predated the judgment. However, TCF sought to garnish the funds held by the Public Trustee before their return to Gold.

The Public Trustee argued that, pursuant to CRS § 38-38-111(2), the Public Trustee has a legal obligation to return any excess funds to the judgment debtor after the expiration of the redemption period. The trial court disagreed, finding the garnishment was for funds remaining after the foreclosure had been completed.

On appeal, the Public Trustee argued that during a foreclosure, a judgment creditor cannot use garnishment as a means to gain priority over a judgment debtor, because the foreclosure statute clearly specifies excess proceeds are to be distributed to the judgment debtor. The Court of Appeals disagreed. CRCP 103(13) provides for the garnishment of a public body, and CRCP 103(2)(a) spells out the garnishment procedure. TCF contended it is a judgment creditor and that CRS § 38-38-111(2) is not the sole method to recover excess funds generated from a foreclosure sale. The Court agreed, holding that a judgment creditor’s garnishment claim filed after the close of the redemption period in a foreclosure sale is not barred by the foreclosure statute.

The Court found that TCF was not a junior lienor in the foreclosure proceeding. However, once the Public Trustee determined that the overbid funds were to be paid to the owner, garnishment of those funds is outside the foreclosure procedure. The garnishment statute provides a mechanism for a judgment creditor to reach the judgment debtor’s assets possessed by a third party. If the legislature had intended to prohibit garnishment actions commenced after a foreclosure sale, it could have done so. The Court found no reason to treat the Public Trustee any differently than any other entity holding funds of a judgment debtor.

Summary and full case available here.

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Pro Bono Services at the Core of Professionalism

October 12, 2012 by Leave a Comment

This article appeared in the October issue of The Docket, the Denver Bar Association’s official publication.

Several months ago, the Denver and Colorado Bar Associations’ Professionalism Coordinating Council created, and the DBA and CBA adopted, the Principles of Professionalism. The principles include such characteristics of professionalism as mentoring, civility, integrity, honesty, candor, and the provision of pro bono services.

Practicing with professionalism brings its own rewards. The greatest reward is the self-satisfaction of having acted in a manner where a lawyer’s dignity has been maintained—and it actually generates monetary rewards. In most law practices, client generation is still a function of referrals. Practicing with professionalism carries its monetary reward also, being a prime underpinning of rainmaking. It is rare that I have heard a former client or another lawyer suggest a referral based on how nasty, discourteous, or unprofessional a lawyer is known to act.

Volunteering to provide pro bono services epitomizes professionalism and provides a positive, concrete display of the generosity of this honorable profession. For me, the most memorable representation of my own career was a pro bono matter.

It was Christmas Eve. I had opened my own office not long before.

In walked Jesus Morales (whose last name I have changed to protect confidentiality). How it was that Jesus found my office is still a mystery. My office was located in a rather ivory tower location in the Denver Tech Center in the penthouse of the building, with only a private elevator to access my space. As those of you who have wandered, lost in the Tech Center, know, it is hard to end up at a location accidently. Fate was at work.

Jesus was a Mexican-American in his mid-40s. After the introduction, we all too often hear—”I don’t know if you can help me, but …”—he proceeded to tell me that his mother was living in the same house in which he was born 47 years ago.

His father was the bread winner of the family but he had passed away about four years earlier and his mother, who spent her life at home raising her family, had encountered financial difficulties. Prior to Jesus’ father’s death, his mother and father had refinanced the loan on their house. When his now-widowed mother was unable to make the payments, the mortgage loan went into default and foreclosure proceedings had commenced. Desperate, his mother found a company that advertised on TV it could provide assistance to stop a foreclosure. She took out (or so she thought) a new loan from the company to pay off the defaulted loan. His mother was to make monthly payments for five months and then pay the balance at the end of the sixth month. Now, Jesus said, his mother was just served with a notice of eviction from the company. When he called, Jesus was told the company “owned” the property and his mother needed to be out—immediately.

What else could I do? The mother of Jesus was being dispossessed of her home on Christmas Eve! I responded that not only would I attempt to help, but I also would do so pro bono. I scheduled for Jesus to return after Christmas and to bring what documents he had relating to the loan.

The documents revealed, despite her emphatic insistence that the company had “loaned” her the money to cure her previous mortgage default, that she had sold her home for $40,000 (the home was valued at $200,000); she had “leased” it back from the company for five months; and the company granted her an option to buy the home back for $100,000 at the end of the six months. Upon further checking with the Clerk and Recorder’s Office, indeed she had executed a deed at the time of being provided the $40,000. She was insistent that she never sold them the house; she believed what she was signing were loan papers to borrow the money she needed and she would have six months to pay them back.

It all ends well. I filed a suit for declaratory judgment and reformation of the deed asking the court to re-characterize the transaction as a disguised mortgage loan. A transaction, which truly is a disguised mortgage device, is to be treated as a mortgage and requires foreclosure affording the “borrower” rights to cure and (when this matter arose) rights of redemption. Further, as a loan, the consideration of $100,000 to pay off a $40,000 loan six months later constituted usury. The company, represented by other brethren of the DBA and exemplars of professionalism themselves, assisted in formulating a new transaction that allowed Jesus’ mother to continue to enjoy her family homestead.

Over the years, I have provided legal assistance on some of the largest, most complicated and sophisticated real estate transactions this state has produced. None provided the warmth, the welling in my eyes, and the pride as providing this pro bono representation. Occasionally, in the morning while standing in front of my bathroom sink when I happen to recall the representation, the guy in the mirror looks a whole lot better to me.

The DBA may be the greatest resource for filling your own need to find a suitable pro bono matter. Metro Volunteer Lawyers, the DBA’s premier program, coordinates the provision of free and low-cost civil legal services to people in the Denver metro area. MVL serves people who are living at or below federal poverty guidelines. The majority of cases are domestic relations matters. For more information, visit metrovolunteerlawyers.org.

The DBA sponsors clinics on bankruptcy and family law for the public, for which volunteers are needed to assist with presentations. For more information, contact Meghan Bush at mbush@cobar.org. The Colorado Bar Association has recently established a very successful program to assist veterans, including a clinic in Denver. For more information, contact Carolyn Gravit at cgravit@cobar.org. In May, the DBA launched the Pro Bono Initiative. This initiative is designed to pair lawyers with one of the many pro bono service projects, based on the interests of the lawyer. To take advantage of the Pro Bono Initiative, please fill out the form available at bit.ly/PBIForm and return it to Carolyn Gravit at cgravit@cobar.org.

Jim Benjamin is the manager of the real estate and business transactional department of Benjamin, Bain, Howard & Cohen, LLC. A past President of the Real Estate Section of the Colorado Bar Association, Jim has served on the Executive Council of the Real Estate Section for more than two decades. Currently, he is a member of the Colorado Bar Association’s Board of Governors and the Legislative Policy Committee. He is a former member of the Ethics Committee. He also is the President of the Denver Bar Association for the 2012-2013 term. He has been on the Denver Bar Association’s Board of Trustees and one of three members of the DBA Executive Council since 2010. Jim has been named as a Colorado Super Lawyer® in real estate law every year since the inception of the list in 2006.
Jim is a frequent lecturer for continuing legal education programs on substantive areas of real estate law and ethics for transactional lawyers. He is the Editor-in-Chief of Bradford Publishing’s book on Colorado real estate forms. The book covers purchase and sale agreements, listing agreements, 1031 tax deferred exchanges, deeds of trust, promissory notes, leases, easements, closing documents, forcible entry and detainer and mechanics’ liens. Jim is frequently retained as an expert witness to provide opinions and advice on complex real estate law matters pending in Court proceedings and also on the standards of care required by lawyers in representation on real estate transactional matters. In 1991, he founded the law firm of Benjamin & Associates, PC, which is now Benjamin, Bain, Howard & Cohen, LLC. Jim is currently a manager of the firm.
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Foreclosures and Liens — Some Basics

October 5, 2012 by Leave a Comment

I recently worked with a client who had purchased a property at the sheriff’s sale on a homeowners association lien. We frequently take properties through this kind of judicial foreclosure, and so from my perspective, everything was pretty cut and dry. The client had a lot of questions, and I found myself discussing some basic rules of real property law. Today, I found this article about a purchaser of a property foreclosed on by an HOA, and decided it might be appropriate to set out some general information about liens and the effect of foreclosure.

  • In an HOA foreclosure, what happens to the first mortgage?
    If the HOA lien foreclosed was the six month “superlien,” the first mortgage itself may be wiped out. This is not common. Most of the time, the HOA lien being foreclosed is for amounts owed beyond six months worth of assessments. The superlien is senior to the first mortgage. The amounts owed beyond the superlien are junior to the first mortgage. Foreclosure of a senior lien wipes out junior liens. In all likelihood, if you have purchased a property at the foreclosure of an HOA lien, you are going to have to pay the first mortgage. The holder of the first mortgage may be in the process of foreclosing its lien, as well, so do your research.
  • What happens to the second mortgage, or other liens such as judgments?
    The second mortgage and other liens are wiped out by the foreclosure of the senior lien. An exception to this is when the second mortgage or other liens are not given proper notice of the foreclosure. Make sure to obtain title information to verify that all parties received proper notice.
  • Why is the HOA lien senior to the second mortgage? It was recorded after the date of the second mortgage.
    Colorado requires that any party claiming an interest in real property record evidence of that interest in the real property records of the county in which the property is located. When the Declaration creating the homeowners association is recorded, it automatically creates a lien for assessments. The association doesn’t even have to record a lien later, when an owner fails to pay assessments, but it’s a good idea to do so to protect the association’s rights.
    Because the Declaration was recorded long before any owner took out a first or second mortgage, it is technically “senior” to those interests. The Declaration, however, as well as Colorado law, subordinates the association’s lien (beyond the superlien) to the first mortgage. This is to ensure banks are willing to finance properties within associations. Second mortgages are not treated with the same deference and are junior to the association’s lien.
  • I won my auction! I’m going to sell the property immediately!
    Not so fast, my friend. While you may win an auction, the second mortgage holder and other junior lien holders have at least eight business days after the sale to file a notice of intent to redeem. If they do this, you will receive payment for your bid, but they will end up with the property.
  • How do I get rid of the tenants?
    If the parties residing in the property were the owners who were subject to foreclosure, they can be removed with a simple eviction. Keep in mind that evictions are often not simple. If the parties in the property were bona fide tenants, paying fair market value rent, and not related to the prior owners, you may have to allow the tenant to reside in the property for the longer period of 90 days, or the end of the lease. Contact an attorney to learn the proper procedures in these cases.

Each individual foreclosure has its own idiosyncrasies, and this information is extremely general. If you’re looking into investing in a foreclosure, make sure you do your due diligence and don’t get surprised with an unexpected mortgage payment, or worse, an unexpected foreclosure!

Lindsay S. Smith is an attorney at Winzenburg, Leff, Purvis and Payne, LLP where she practices in general community association and real estate law. She provides legal representation in covenant enforcement, eviction, bankruptcy, and general association litigation; contract and document drafting and review; and general business and governance advice for association clients. She regularly contributes to the firm’s blog on topics such as governance and litigation. This article originally appeared on the firm’s blog on September 21, 2012.
A Colorado native, she received her undergraduate degree from the University of Oklahoma in 2001, magna cum laude. She was a member of Phi Beta Kappa, Phi Sigma Pi, and Alpha Gamma Delta. She received her Juris Doctorate from the University of Oklahoma in 2004, with distinction. She was Articles Development Editor of the American Indian Law Review, which also published her article on American Indian water rights issues. She is a member of the Colorado and American Bar Associations and is admitted to practice in Colorado state and federal courts. To contact Lindsay directly, you may e-mail her at lsmith@wlpplaw.com.
Filed Under: Practice Management Tagged With: , , , , , ,

Revised Adoption, Appeals, Civil Court, and Juvenile Forms Issued by Colorado State Judicial

August 29, 2012 by Leave a Comment

The Colorado State Judicial Branch has continued to revise forms through July and August. The most recently revised forms include forms from the adoption, appeals, county civil, district civil, and juvenile categories. Practitioners should begin using the revised forms immediately.

Most forms are available in Adobe Acrobat (PDF) and Microsoft Word formats; many are also available as Word and Excel templates. Download the new forms from State Judicial’s individual forms pages, or below.

ADOPTION

  • JDF 501 – “Petition for Adoption” (Revised 7/12)
  • JDF 502 – “Petition for Stepparent Adoption” (Revised 7/12)
  • JDF 503 – “Petition for Custodial Adoption” (Revised 7/12)
  • JDF 505 – “Petition for Kinship Adoption” (Revised 7/12)

APPEALS

  • JDF 638 – “Complaint for Review of Administrative Action of the Colorado Department of Corrections” (Revised 8/12)
  • JDF 235 – “Notice of Record Certified to County Court – E-470 Case” (Revised 7/12)

COUNTY CIVIL

  • JDF 421 – “Petition for Change of Name of Minor Child” (Revised 7/12)

DISTRICT CIVIL

  • JDF 620 – “Instructions for Filing a Response to a Rule 120 Notice” (Revised 7/12)

JUVENILE

  • JDF 542 –  ”D&N Motion for Special Action” (Revised 7/12)
  • JDF 543 – “Order Regarding D&N Motion for Special Action” (Revised 7/12)
  • JDF 544 – “D&N Report of Special Action” (Revised 7/12)

All of State Judicial’s forms may be found here.

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Colorado Supreme Court: Completed Foreclosure Sale Won’t Be Disturbed for Failure to Strictly Comply with Rule 120′s Notice Requirements where Parties Had Actual Notice

June 18, 2012 by Leave a Comment

The Colorado Supreme Court issued its opinion in Amos v. Aspen Alps 123, LLC on June 18, 2012.

Real Property—CRCP 120—Public Trustee Sale—Foreclosure—Antitrust—Bid-Rigging.

The Supreme Court affirmed the court of appeals’ judgment and held that notice was sufficient under CRCP 120. The Court concluded that where the parties have received actual notice that afforded them an opportunity to present their objections, and where no prejudice resulted, a completed foreclosure sale will not be disturbed for a failure to strictly comply with Rule 120’s notice requirements. The Court also determined that, based on the limited trial record in this case, plaintiffs failed to establish bid-rigging as a defense. Accordingly, the Court reversed the court of appeals’ judgment holding that illegal bid-rigging had occurred.

Summary and full case available here.

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