October 17, 2017

Comment Period Open for Proposed Changes to Rule 120

The Colorado State Judicial Branch announced proposed changes to Rule 120 of the Colorado Rules of Civil Procedure, “Orders Authorizing Sales Under Powers.” The changes are extensive, and include changing the title of the rule to be “Orders Authorizing Foreclosure Sale Under Power in a Deed of Trust to the Public Trustee.”A redline of the proposed changes is available here.

The supreme court is now accepting comments on the proposed changes to Rule 120. Comments may be made in writing via email to Christopher Ryan, the Clerk of the Supreme Court, or via U.S. Mail at 2 E. 14th Ave., Denver, CO 80203. Comments must be received no later than 5 p.m. on April 6, 2016. Comments will be posted on the State Judicial website after the close of the comment period.

Small Common Interest Community Exemption and Electronic Public Trustee Foreclosure Bills Signed

On Tuesday, April 21, 2015, Governor Hickenlooper signed two bills into law. He has signed 138 bills to date this legislative session. The two bills signed Tuesday are:

  • HB 15-1095 – Concerning the Extension of an Exemption Under the “Colorado Common Interest Ownership Act” for Certain Small Common-Interest Communities to Include Communities Created Before July 1, 1992, Whose Declarations Limit Their Annual Common Expense Liability to No More than Three Hundred Dollars, by Rep. Terri Carver and Sen. Kevin Lundberg. The bill provides an exemption from certain provisions of the CCIOA for HOAs whose annual expenditures are less than $300 as established by bylaws or declarations.
  • HB 15-1142 – Concerning the Conduct of Foreclosure Sales by a Public Trustee, and, in Connection Therewith, Authorizing the Conduct of Foreclosure Sales Through the Internet and Other Electronic Media and Authorizing the Collection of Fees Through Electronic Transfer, by Rep. Beth McCann and Sen. Lucia Guzman. The bill allows public trustees or sheriffs to conduct foreclosure sales electronically and establishes procedures for electronic sales.

For a complete list of Governor Hickenlooper’s 2015 legislative decisions, click here.

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

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.

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

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.

C.R.C.P. 120.1, “Order Authorizing Expedited Sale Pursuant to Statute,” Amended Effective September 20, 2012

On Tuesday, October 2, 2012, the Colorado Supreme Court released changes to Colorado Rule of Civil Procedure 120.1, effective September 20, 2012. The changes detail time frames in which expedited hearings must be set pursuant to section 38-38-903, C.R.S. Requirements for personal service are also detailed.

The amendments to C.R.C.P. 120.1 were adopted by the court September 20, 2012, effective immediately.

Click here to review the redline of the changes to C.R.C.P. 120.1, outlined as Rule Change 2012(13).

HB 12-1229: Clarifying Publication Requirements for Certain Legal Notices

On February 6, 2012, Rep. Carole Murray and Sen. Mark Scheffel introduced HB 12-1229 – Concerning Publication Requirements for a Newspaper in Which a Legal Notice or Advertisement is Printed. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill defines the term “published” for purposes of publishing legal notices and specifies that, in circumstances where there is no newspaper published in a particular county or an adjoining county, a legal notice may be published in a newspaper having general circulation within the county. The bill passed the House on February 21; it has been assigned to the Local Government Committee. The Local Government Committee will hear the bill on Tuesday, March 13 at 2 p.m.

Since this summary, the bill passed unamended out of the Local Government Committee and was moved to the Consent Calendar for the Senate Committee of the Whole.

Summaries of other featured bills can be found here.

HB 12-1156: Clarifying Which Entities Are Entitled to Institute Foreclosures

On January 20, 2012, Rep. Beth McCann and Sen. Mike Johnston introduced HB 12-1156 – Concerning Measures to Improve the Reliability of Information Provided in Connection with Real Estate Foreclosures. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill tightens the rules for documentation of the holder’s interest that must be filed with the public trustee before a foreclosure sale is authorized. 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 amends provisions governing the court order authorizing sale by a public trustee (“Rule 120 order” referring to C.R.C.P. 120) to place the burden of proof on the holder in all cases to demonstrate that the holder does in fact have a valid assignment or other basis for its assertion that it is entitled to foreclose on the property. The bill also explicitly states that the Rule 120 order is not a final judgment adjudicating all claims of rights and interests in the property, as a judgment under rule 105 (a “quiet title judgment”) would be.

The bill suspends any eviction proceeding if the Rule 120 order has been challenged, until the challenge is resolved. The bill is assigned to the Economic and Business Development Committee; it is not listed on the printed calendar for the committee.

Summaries of other featured bills can be found here.