House Bill Overhauls Foreclosure Act

August 2006

Property foreclosures in Colorado are changing as a result of a new law.

In the most recent full session of the state legislature, the House and Senate enacted, and Governor signed into law, House Bill 06-1387, effectively streamlining the Public Trustee foreclosure process and reducing the number of judicial foreclosures.

The revised law eliminates the owner’s post-sale redemption period and, in exchange, affords owners, and certain others with an interest in the property, a longer period to cure payment defaults prior to the foreclosure sale. The change is intended to benefit owners by permitting more time to pay current all unpaid amounts due to the lender under the loan secured by the property, with the intent that a sale may ultimately be avoided. Additionally, it is generally less costly for an owner to cure prior to sale rather than redeem after the sale because redemption requires that the owner pay, in addition to the purchase price for which the property sold, all of the foreclosing lender’s costs incurred in connection with the sale.

Most of the amendments, including elimination of the owner’s right to redeem, will go into effect July 1, 2007, but certain administrative changes became effective as of July 1, 2006.

Although the elimination of the owner’s right to redeem is a fundamental conceptual change in the foreclosure process, in practice the change should be less dramatic because the number of owners who successfully redeem their property from a sale under the current statutory regime is quite small. Moreover, because the legislature correspondingly extended the pre-sale cure period, owners of property being foreclosed under the revised statutes will not actually be divested of title more quickly than they are under the current system.

Once the amendments are fully enacted, property owners subject to foreclosure, and others entitled to cure, will have between 110 to 125 days after the commencement of foreclosure for non-agricultural property and 215 to 230 days for agricultural property, to cure any default in payment. The right to cure does not apply to any non-monetary default. While the categories of persons entitled to cure is significantly expanded under the revised foreclosure law, the holders of liens that arise after commencement of the foreclosure will no longer be entitled to cure.

Significantly, the revised foreclosure act preserves the existing post sale redemption rights of junior lienors, those holding a lien that is later in time to the lien being foreclosed, although there are some changes in the redemption procedures and time periods.

The amendments include numerous other technical and other substantive changes affecting the rights of both creditors and owners of interests in property being foreclosed and the manner in which those rights are exercised. Therefore, anyone involved in a foreclosure or seeking to purchase property that is subject to foreclosure should carefully review the new law and consult a legal advisor.

This legal update is for informational purposes only as a service to clients and other friends, is not a complete summary of the rules relating to the subject matter discussed above, and is neither to be construed as legal advice nor intended as basis for decisions in specific situations. For more information about this subject matter or other recent developments, please contact the attorneys in our Real Estate practice group or any other attorney in our firm with whom you normally consult by calling (303) 825-4200.