August 24, 2019

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.