December 18, 2018

Colorado Court of Appeals: Collection Agency’s Bold and All-Caps Statement Would Be Confusing to Least Sophisticated Consumer

The Colorado Court of Appeals issued its opinion in Garrett v. Credit Bureau of Carbon County on Thursday, October 18, 2018.

Debt CollectionColorado Fair Debt Collection Practices ActLeast Sophisticated Consumer.

Credit Bureau of Carbon County (Credit Bureau) is an agency that collects or attempts to collect debts owed, due, or asserted to be owed or due to another. It sent Garrett two collection notices demanding payment on a consumer debt. Garrett sued Credit Bureau, asserting that the language of its communications overshadowed and contradicted the statutory requirements of the Colorado Fair Debt Collection Practices Act (the Act). The district court concluded that Credit Bureau’s notices had not violated the Act and denied Garrett’s motion for judgment on the pleadings, granted Credit Bureau’s motion for summary judgment, and dismissed the case.

On appeal, Garrett contended that the district court wrongly concluded that Credit Bureau did not violate the Act because the format and content of Credit Bureau’s notices overshadowed or contradicted the statutorily required disclosures. The Act requires debt collectors to provide a debt validation notice describing the debt. It prohibits debt collectors from using false, deceptive, or misleading representations when collecting a debt. Overshadowing occurs when a collection letter contains the requisite validation notice, but that information is obscured or diminished by the letter’s presentation or format. Contradiction occurs when language accompanying the validation notice is inconsistent with the substance of the rights and duties that the statute imposes. In Flood v. Mercantile Adjustment Bureau, LLC, 176 P.3d 769 (Colo. 2008), the Supreme Court adopted the “least sophisticated consumer” test to determine whether a collection agency’s notice was confusing with respect to the statutorily required disclosures. Here, Credit Bureau’s use of the bold and capitalized phrase “WE CANNOT HELP YOU UNLESS YOU CALL” in the second notice would confuse the least sophisticated consumer because it was capable of being reasonably interpreted as changing the manner in which the consumer was required by law to dispute the debt or its amount. As a matter of law, the notice was deceptive or misleading in violation of the Act.

The judgment was reversed and the case was remanded for the district court to enter judgment for Garrett and award her statutory damages, costs, and a reasonable amount of attorney fees incurred on appeal.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Tort Cannot Be Transaction Giving Rise to Obligation to Pay Money, Therefore Not Debt Per Fair Debt Collection Practices Act

The Colorado Supreme Court issued its opinion in Ybarra v. Greenberg & Sada, P.C. on Monday, October 15, 2018.

Finance, Banking, and Credit—Insurance—Statutory Interpretation—Torts.

Ybarra petitioned for review of the court of appeals’ judgment affirming the dismissal of her Colorado Fair Debt Collection Practices Act action against Greenberg & Sada, P.C. The district court dismissed for failure to state a claim, finding that damages arising from a subrogated tort claim do not qualify as a debt within the contemplation of the Act. The court of appeals agreed, reasoning that the undefined term “transaction” in the Act’s definition of “debt,” required some kind of business dealing, as distinguished from the commission of a tort; and to the extent an insurance contract providing for the subrogation of the rights of an insured constitutes a transaction in and of itself, that transaction is not one obligating the debtor to pay money, as required by the Act.

The supreme court held that because a tort does not obligate the tortfeasor to pay damages, a tort cannot be a transaction giving rise to an obligation to pay money, and is therefore not a debt within contemplation of the Act; and because an insurance contract providing for the subrogation of the rights of a damaged insured is not a transaction giving rise to an obligation of the tortfeasor to pay money, it also cannot constitute a transaction creating a debt within contemplation of the Act.

Accordingly, the court of appeals’ judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

Colorado Court of Appeals: Practice of Billing Foreclosure Clients for Costs Not Incurred Violates CCPA

The Colorado Court of Appeals issued its opinion in State of Colorado ex rel. Coffman v. Robert J. Hopp & Associates, LLC on Thursday, May 17, 2018.

Foreclosure Commitments—Colorado Consumer Protection Act—Colorado Fair Debt Collection Practices Act—Deceptive Trade Practices—Statute of Limitations—Title Insurance Policy—Cancellation Fee—Civil Penalties—Evidence.

Hopp is an attorney whose law firms provided legal services for mortgage defaults, including residential foreclosures, in Colorado. Hopp also owned businesses that supported the law firms’ foreclosure services, including National Title, LLC and First National Title Residential, LLC, which provided foreclosure commitments for the law firms. National Title and First National Title Residential issued title commitments and policies through an underwriter, Fidelity National Title Insurance Company (Fidelity). Fidelity had a Division of Insurance (DOI)-approved manual that set forth rates and charges for foreclosure commitments.

While representing loan servicers, the law firms typically ordered foreclosure commitments from Hopp’s title companies. National Title invoiced the law firms a charge of 110% of the schedule of basic rates upon the delivery of a foreclosure commitment. As a routine practice, within 10 days of filing a foreclosure action, the law firms passed this cost on to the servicers by billing and seeking reimbursement from them for the charge of 110% of the schedule of basic rates, even though this cost may not have actually been incurred.

The State of Colorado ex rel. Cynthia H. Coffman, Attorney General for the State of Colorado, and Julie Ann Meade, Administrator, Uniform Consumer Credit Code (collectively, plaintiffs) sued Hopp, his law firms, his affiliated title companies, and his business that provided accounting and bookkeeping services for the law firms and title companies (collectively, defendants), alleging that defendants violated the Colorado Consumer Protection Act (CCPA) and the Colorado Fair Debt Collection Practices Act (CFDCPA) by engaging in the billing practices described above. The district court found in favor of plaintiffs and imposed penalties of $624,000.

On appeal, defendants contended that the trial court erred by imposing penalties under the CCPA and the CFDCPA because they were barred by the one-year limitation period in C.R.S. § 13-80-103(1)(d) and C.R.S. § 5-16-113(5) (CFDCPA claims), and C.R.S. § 6-1-115 (CCPA claims). Because the CCPA contains a statute of limitations specifically addressing cases brought under its provisions, the three-year statute of limitations controls over the more general C.R.S. § 13-80-103(1)(d). Further, because the CFDCPA did not contain a clear statute of limitations applying to government enforcement actions at the times relevant to this action, a catch-all provision applies requiring the government to file any claims within one year of discovery, which was done in this case. Therefore, the trial court did not err in concluding that the CFDCPA claims were timely filed.

Defendants next contended that the trial court erred when it concluded that they violated the CCPA and the CFDCPA by charging 110% of the schedule of basic rates for foreclosure commitment required by Fidelity’s rates on file with the DOI. This was the same amount that Fidelity’s manual listed as the charge for a completed title insurance policy, even in cases where the policy would never be issued because the foreclosure was cured or cancelled. Defendants did not charge amounts in compliance with Fidelity’s filed rates because they required payment from servicers even when a title insurance policy was never issued. The evidence supported the trial court’s finding that defendants misrepresented the premium charges as actually incurred costs. Therefore, the trial court did not err.

Defendants also contended that the trial court erred when it concluded that they knowingly engaged in a deceptive trade practice. Here, the trial court’s finding that defendants acted knowingly was supported by evidence in the record.

Defendants next argued that the trial court abused its discretion when it admitted plaintiffs’ Exhibit 103 and relied on it in assessing civil penalties against defendants. Exhibit 103 is a 1,114-page spreadsheet compiling electronic invoicing data submitted by Hopp’s law firms through a billing software to the servicers from 2008 until the time of trial. The trial court did not abuse its discretion when it admitted Exhibit 103 as a business record under CRE 803(6).

Plaintiffs contended on cross-appeal that the trial court abused its discretion when it admitted defendants’ Exhibit 1093 to rebut plaintiffs’ Exhibit 104. At times, servicers directed the law firms to order foreclosure commitments from LSI Default Title and Closing (LSI), instead of from one of Hopp’s affiliated title companies. Plaintiffs amended their complaint to add claims for defendants’ violation of the CCPA and CFDCPA through conduct regarding the LSI transactions. Exhibit 104 reflected that LSI appeared to charge defendants only $350 for title commitments ordered, which was representative of a cancellation fee. Exhibit 1093 was an email from an LSI representative to Hopp’s wife, which included an attached spreadsheet showing charges for full policy premiums rather than outstanding charges of $350. There were “unusual and unexplained adjustments” to Exhibit 104, and the trial court declined to place any weight on the exhibit in its final order and concluded that plaintiffs failed to prove their claim based on the LSI transactions. Here, there was a proper foundation for admitting Exhibit 1093, and given the late addition of the LSI claim and the parameters of the claim set forth in the plaintiffs’ written notice, the trial court did not abuse its discretion in declining to exclude Exhibit 1093 as a sanction for defendants’ failure to supplement their mandatory disclosures at a late point in litigation.

Both parties requested an award of attorney fees and costs incurred in this appeal. Plaintiffs, but not defendants, are entitled to an award.

The judgment was affirmed and the case was remanded with directions.

Summary provided courtesy of Colorado Lawyer.

Colorado Supreme Court: Membership Interest of Non-Colorado LLC Member Located in Colorado for Charging Order Purposes

The Colorado Supreme Court issued its opinion in JP Morgan Chase Bank, N.A. v. McClure on Monday, April 10, 2017.

Limited Liability Companies—Membership Interests—Charging Orders—Priority.

This case concerns the relative priority of competing charging orders filed by multiple judgment creditors against a foreign judgment debtor’s membership interests in several Colorado limited liability companies (LLCs). The Colorado Supreme Court concluded that for purposes of determining the enforceability of a charging order, a membership interest of a non-Colorado citizen in a Colorado LLC is located in Colorado, where the LLC was formed. The court further concluded that when, as here, a judgment creditor obtains a foreign charging order that compels certain action by a Colorado LLC, the charging order is ineffective as against the LLC until the creditor has taken sufficient steps to obligate the company to comply with that order. Although the authorities are not uniform as to the steps to be taken, under any of the applicable scenarios, the charging orders obtained by the petitioner did not become effective until after the respondents had obtained and served their competing charging orders. Accordingly, the court concluded that respondents’ charging orders are entitled to priority over petitioner’s competing charging orders and therefore affirmed the judgment of the court of appeals.

Summary provided courtesy of The Colorado Lawyer.

Colorado Court of Appeals: Tender of Funds in Satisfaction of Lien Before Redemption Period Must Be Accepted by Creditor

The Colorado Court of Appeals issued its opinion in Mortgage Investment Enterprises, LLC v. Oakwood Holdings, LLC on Thursday, July 14, 2016.

Foreclosure—Lien—Redemption.

The debtors purchased the property at issue and subsequently defaulted on their obligation to pay monthly fees to the Kimblewyck Village Owners Association (Kimblewyck). Kimblewyck filed a lien against the property. The property was also encumbered by (1) a lien filed by the Fox Run Owners Association and (2) two judgments entered in favor of Community Management Association, Inc. (CMA). Kimblewyck obtained a judgment and decree of foreclosure. Mortgage Investments Enterprises LLC (Mortgage Investments) was the successful bidder at the foreclosure sale. On the day before the foreclosure sale, Oakwood Holdings, LLC (Oakwood) purchased the Fox Run lien and both CMA judgments. Oakwood subsequently filed notices of intent to redeem the Fox Run lien and one of the CMA judgments. Mortgage Investments tendered, on behalf of the debtor, pursuant to a valid power of attorney, lien satisfaction payments to Oakwood. Although Oakwood’s period to redeem had not yet begun, it refused to accept the payments. Mortgage Investments filed a complaint for a declaratory judgment that Oakwood was required to accept Mortgage Investments’ tenders on behalf of the debtor. Oakwood subsequently redeemed the property, and the district court granted Oakwood’s motion for summary judgment.

On appeal, Mortgage Investments argued that the district court erred in concluding that Oakwood had no duty to accept tender of payment in satisfaction of its liens. Prior to the start of Oakwood’s period to redeem and before it tendered redemption funds, Oakwood had a duty to accept Mortgage Investments’ tender of payment, on behalf of the debtor, in satisfaction of the lien Oakwood sought to redeem. The district court’s judgment was reversed and the case was remanded with directions to enter summary judgment in favor of Mortgage Investments.

Summary provided courtesy of The Colorado Lawyer.

Colorado Supreme Court: Property Titled in Name of Revocable Trust Also Can Be Debtor’s Property

The Colorado Supreme Court issued its opinion in Pandy v. Independent Bank on Monday, June 20, 2016.

Revocable Trust—Settlor—Judgment Lien.

This case principally concerns whether property titled in the name of a judgment debtor’s co-settled revocable trust is subject to a judgment lien against the debtor. The petitioners are co-settlors and co-trustees of a revocable trust that holds title to certain real property in Colorado. Respondent obtained two judgments against one of the petitioners in another state. After domesticating those judgments and recording transcripts of the Colorado judgments, respondent filed an action to quiet title and for a decree of foreclosure. The petitioner moved for judgment on the pleadings, arguing that respondent’s complaint was barred by what the petitioner argued was the applicable statute of limitations set forth in C.R.S. § 13-80-101(1)(k). The district court denied the motion, a division of the Court of Appeals granted leave to file an interlocutory appeal and affirmed that ruling, and the Supreme Court granted certiorari.

The Court concluded that as a settlor of a revocable trust, the petitioner held an ownership interest in the trust’s assets. Accordingly, respondent could properly seek to enforce its judgment against the petitioner in this case, and its action was not barred by the statute of limitations set forth in C.R.S. § 13-80-101(1)(k).

Summary provided courtesy of The Colorado Lawyer.

Two JDF Forms Amended in March

The Colorado State Judicial Branch has amended two JDF forms this month: JDF 604, “Notice and Order to File JDF 601 District Court Case Cover Sheet,” and Form 32, “Writ of Garnishment – Judgment Debtor Other Than Natural Person.” Additionally, one JDF form was amended in February: JDF 100, “Instructions for Forcible Entry and Detainer (FED)/Evictions.” The JDF forms are generally available as PDFs and Word documents on the State Judicial forms page. For all of State Judicial’s JDF forms, click here.

Tenth Circuit: Credit Reporting Agency Need Not Resolve Legal Disputes Regarding Underlying Debt

The Tenth Circuit Court of Appeals issued its opinion in Wright v. Experian Information Solutions, Inc. on Tuesday, November 10, 2015.

Gary A. Wright is the manager, attorney, and registered agent for Attorneys Title Insurance Agency of Aspen LLC (ATA). In May 27, 2009, the IRS filed a notice of federal tax lien (NFTL) with the Pitkin County Recorder against Mr. Wright in his personal capacity for unpaid employment taxes from 2004. However, Mr. Wright had paid the taxes via a check to the IRS dated May 8, 2009. The Pitkin recorder listed the tax lien on its indexing website as against Mr. Wright in his personal capacity, and it was picked up by credit reporting agencies (CRAs) Experian and TransUnion, who received the information from LexisNexis, their contractor.

Mr. Wright discovered the lien on his personal credit report in 2011 and disputed it to Experian and TransUnion, asserting the IRS had withdrawn the lien because it had been paid in full and the NFTL inaccurately stated the lien was against him personally when it should have been listed as against ATA only. He included with his letters a copy of the NFTL, a copy of his letter to the IRS requesting withdrawal of the lien, and the IRS’s release of the lien. In response, the CRAs checked with LexisNexis and marked the lien released because it had been paid in full. The CRAs did not remove the lien from their credit reports because the IRS reported it as released instead of withdrawn. Mr. Wright requested reinvestigation, attaching the same documentation as before. Experian did not perform a second investigation. TransUnion requested documentation, and when LexisNexis reported the same result previously reached, TransUnion sent a summary of the investigation to Mr. Wright.

Mr. Wright sued the CRAs in federal district court, asserting negligent and willful violations of the federal Fair Credit Reporting Act (FCRA) and Colorado’s counterpart, the Colorado Consumer Credit Reporting Act (CCCRA). He asserted claims against the CRAs for failing to follow reasonable procedures to ensure maximum possible accuracy in preparing the credit report. He also asserted a claim for failure to reasonably reinvestigate his claim. The district court granted summary judgment to the CRAs, finding it was reasonable for them to interpret the NFTL as applying to Mr. Wright personally and that the IRS can issue a tax lien against a business entity and its member. Mr. Wright appealed.

The Tenth Circuit first evaluated Mr. Wright’s argument that the CRAs failed to use reasonable procedures in originally reporting the tax lien. The Tenth Circuit evaluated the legal requirements of the FCRA and CCCRA and found no error in the district court’s grant of summary judgment. The Tenth Circuit noted that, to prevail, a plaintiff must show that the CRA failed to follow reasonable procedures to ensure the accuracy of its reports, the report in question was inaccurate, the plaintiff suffered injury, and the CRAs caused the injury. The Tenth Circuit found that Mr. Wright failed to prove the first element because he could not prove the CRAs failed to follow reasonable procedures. The Tenth Circuit noted that to require the CRAs to employ tax professionals to evaluate every tax lien reported by a county recorder or court clerk is unduly burdensome. The Tenth Circuit affirmed the district court’s summary judgment grant to the CRAs.

Next, the Tenth Circuit considered whether the CRAs used reasonable procedures in reevaluating Mr. Wright’s dispute. The Tenth Circuit again found no error, rationalizing that Mr. Wright again failed to show that the CRAs failed to follow reasonable procedures in their reinvestigation. The Tenth Circuit noted that a reasonable reinvestigation does not require a CRA to resolve a legal dispute about the validity of the underlying debt. Judge Bacharach dissented with this portion of the opinion; he believes that the district court employed an incorrect procedure for evaluating the reasonableness of the CRAs investigation and noted that any ambiguity should have been resolved in the consumer’s favor.

The Tenth Circuit affirmed the district court’s grant of summary judgment to the CRAs. Judge Bacharach dissented only with the portion of the opinion concerning reinvestigation.

Colorado Rules of Civil Procedure Amended in Rule Change 2016(01)

On Thursday, February 4, 2016, the Colorado Supreme Court posted Rule Change 2016(01), adopted January 29, 2016. The rule change affects several of the Colorado Rules of Civil Procedure, and there are various effective dates for the changes.

C.R.C.P. 10 was changed to specify that footnotes should be in 12 point font and motions should be double-spaced. The comment to § 1-12 of Rule 121 was changed to include oral discovery in its scope. Rule 121, § 1-15, was revised significantly, changing several of the specifications for word and page limits of motions and addressing when the court should rule on motions. The comment to § 1-15 was also changed to explain some of the revisions. The changes to Rule 10 and §§ 1-12 and 1-15 of Rule 121 apply to motions filed on or after April 1, 2016.

C.R.C.P. 23, “Class Actions,” was amended by the addition of a new subsection (g), dealing with residual funds left after class action settlements. The changes to Rule 23 are effective for all class settlements approved by the court on or after July 1, 2016.

Rules 103 and 403 dealing with garnishments in district and county court were amended to provide that for pro se judgment creditors, indebtedness must be paid into the registry of the court, whereas judgment creditors represented by attorneys and collection agencies may receive funds directly. The Writ of Garnishment form was amended accordingly. These changes are effective March 1, 2016.

The amendment to Rule 359, “New Trials; Amendment of Judgments,” changed the deadline for appeal from 21 days to 14 days. The change is effective April 1, 2016.

Finally, Form 35.1, “Mandatory Disclosure,” was changed significantly. Most of the changes clarified required disclosures when a decree has been filed, specifying that only documents filed or prepared since the entry of the decree need be disclosed. These changes are effective April 1, 2016.

For all of the Colorado Supreme Court’s adopted and proposed rule changes, click here.

Colorado Court of Appeals: Objection to Special Master’s Attorney Fees Waived When Not Timely Asserted

The Colorado Court of Appeals issued its opinion in Laleh v. Johnson on Thursday, January 14, 2016.

Mr. Johnson was appointed special master during the Lalehs’ complex forcible entry & detainer action. Ali and Kahlil Laleh, brothers, each signed engagement agreements with Mr. Johnson, outlining the scope of work and payment obligations. Mr. Johnson incurred attorney fees because the Lalehs’ former attorney refused to honor a subpoena, and billed the brothers for those fees as costs. Although the brothers settled their cases in February 2014, Mr. Johnson continued invoicing the brothers for costs, including his attorney fees, through May 2014. Kahlil Laleh sent a letter to Mr. Johnson in March 2014 expressing concern about his inclusion of attorney fees in his billings.

Although the trial court dismissed the case in February 2014 pursuant to stipulations by the parties, Mr. Johnson expressed concern to the court about his significant unpaid bills and the court issued an order to show cause as to why Mr. Johnson’s bills had not been paid. The court eventually accepted Mr. Johnson’s proposed order regarding the unpaid fees. The brothers appealed, arguing their due process rights were violated by the court’s entry of judgment against them.

The Colorado Court of Appeals found that the trial court’s order was procedurally deficient because it had issued only three days after Mr. Johnson proposed his order, defeating Rule 121’s requirement of a 7-day objection period. The court of appeals vacated the court’s judgment and remanded.

The brothers argued the trial court erred in ordering they pay Mr. Johnson’s attorney fees without express court approval, and in awarding Mr. Johnson’s fees incurred after the litigation settled. The majority disagreed with both contentions. The brothers challenged whether Mr. Johnson had authority to hire counsel, but because they did not object as soon as they learned of counsel’s role, the majority concluded they forfeited any objection, although the preferred option would have been for Mr. Johnson to request permission from the court before hiring counsel. Likewise, the brothers did not object to the first invoice containing a line item for Mr. Johnson’s attorney fees, and the court took this as further indication that they waived any contention. Even though Kahlil Laleh wrote to Mr. Johnson in March 2014 expressing concern about the attorney fees, this was not enough to constitute a sufficient objection.

The brothers also challenged the trial court’s award of post-settlement attorney fees, most of which post-dated Kahlil’s objection to the fees. The court of appeals determined the fees were proper pursuant to the court’s inherent authority. The majority affirmed the trial court’s order for the Lalehs to pay Mr. Johnson’s outstanding fees and costs. The dissent, written by Judge Webb, outlined how he would have disallowed any fees incurred after the parties settled.

Probate, Domestic Relations, District Court Civil, and More Forms Amended in June and July

In June and July 2015, the Colorado State Judicial Branch amended several forms in many different categories, including guardianship, small estate affidavit, dissolution of marriage, district court civil, and transcript request. The forms are available for download here in PDF format, and are available as Word documents on the State Judicial forms pages.

Adoption

  • JDF 532 – “Request for Access to Adoption Records” (revised 6/15)

District Court Civil

  • JDF 601 – “District Court Civil (CV) Case Cover Sheet for Initial Pleading of Complaint, Counterclaim, Cross-Claim, or Third Party Complaint” (revised 7/15)
  • JDF 603 – “Instructions to Complete District Court Civil (CV) Case Cover Sheet JDF 601 for Initial Pleading of Complaint, Counterclaim, Cross-Claim, Third Party Complaint, Rule 16.1 Simplified Procedure” (revised 7/15)
  • JDF 622 – “Proposed Case Management Order” (issued 7/15)

Domestic Relations

  • JDF 1099 – “Instructions to File for a Dissolution of Marriage or Legal Separation if there are No Children of this Marriage or the Children are Emancipated” (revised 7/15)
  • JDF 1100 – “Instructions to File Dissolution of Marriage or Legal Separation With Children of this Marriage” (revised 7/15)
  • JDF 1300 – “Instructions to Request Service by Publication” (revised 7/15)

Garnishments

  • JDF 82 – “Instructions for Collecting a Judgment and Completing a Writ of Garnishment” (revised 6/15)

Protective Proceedings/Probate

  • JDF 834 – “Guardian’s Report – Minor” (revised 6/15)
  • JDF 849 – “Letters of Guardianship – Adult” (revised 6/15)
  • JDF 850 – “Guardian’s Report – Adult” (revised 6/15)
  • JDF 998 – “Instructions for Completing Affidavit for the Collection of Personal Property of a Decedent” (revised 6/15)
  • JDF 999 – “Collection of Personal Property by Affidavit” (revised 6/15)

Transcript Request

  • JDF 4 – “Transcript Request Form” (revised 7/15)

For all of State Judicial’s JDF forms and instructions, click here.

Colorado Court of Appeals: Partial Subordination Approach to Lien Priority Best Reflects Colorado Law

The Colorado Court of Appeals issued its opinion in Tomar Development, Inc. v. Friend on Thursday, June 4, 2015.

Lien—Subordination Agreement—Partial Subordination Approach.

The Friend family sold its ranch to Friend Ranch Investors Group (FRIG) to develop it into a resort-style golf course community. In 2010, FRIG conveyed the property to Mulligan, LLC, and at that time, the relevant order of priority was (1) Colorado Capital Bank’s (CCB) senior lien; (2) Tomar Development (Tomar); (3) the Damyanoviches; (4) the Friends; and (5) CCB’s junior lien. Bent Tree, Mulligan, and CCB then entered into a subordination agreement whereby CCB’s senior lien became subordinate to CCB’s junior lien. Neither Tomar, the Damyanoviches, nor the Friends was involved in or an intended beneficiary of the subordination agreement. CCB’s senior lien was never released. Bent Tree then foreclosed on CCB’s senior lien and, in November 2010, Bent Tree bought the property at a public trustee’s foreclosure sale for approximately $11,800. Tomar, the Friends, and the Damyanoviches filed claims, each of which sought declaratory judgments as to the priority of their interests, which were dismissed by the trial court under CRCP 12(b)(5).

On appeal, Tomar, the Friends, and the Damyanoviches argued that the trial court erred in applying the partial subordination approach to the subordination of liens. The partial subordination approach applies when the most senior lienholder (A) agrees to subordinate his interest to the most junior lienholder (C) without consulting the intermediary lienholders (B). Under this approach, when A subordinates to C, C becomes the most senior lienholder, but only to the extent of A’s original lien. Under this partial subordination approach, B is not affected by the agreement between A and C, to which it was not privy. Colorado adopts the partial subordination approach, and it was properly applied in this case. Accordingly, the trial court did not err in dismissing Tomar’s, the Damyanoviches’, and the Friends’ claims seeking a declaratory judgment that each of their interests was senior to all other interests.

Summary and full case available here, courtesy of The Colorado Lawyer.