August 24, 2019

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.

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