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Questions

How are trust deeds or mortgage liens treated in Colorado?
How are Colorado mortgages foreclosed?
What are the legal instruments that establish a Colorado mortgage or deed of trust?
How long does it take to foreclose a property in Colorado?
Is there a right of redemption in Colorado?
Are deficiency judgments permitted in Colorado?
What statutes govern Colorado foreclosures?

Answers

How are trust deeds or mortgage liens treated in Colorado?

Colorado primarily operates as a title theory state where the property title remains in trust until payment in full occurs for the underlying loan. Foreclosure is a non-judicial remedy under this theory. The document that secures the title is usually called a deed of trust. Colorado law also permits mortgages to serve as liens upon real property and for judicial foreclosures to occur through the courts. Because the power of sale provisions in deeds of trust is a faster mechanism to effectuate foreclosure, this is the primary vehicle to foreclose.

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How are Colorado mortgages foreclosed?

The primary method of foreclosure in Colorado involves what is known as non-judicial foreclosure. This type of foreclosure does not involve court action but requires notice called an election to foreclose. When the trust deed is initially signed it will usually contain a provision called a power of sale clause, which upon default allows a trustee to sell the property in order to satisfy the underlying defaulted loan. In Colorado, the trustee is part of local government and operates through the Office of Public Trustee. The Public Trustee acts as a representative of the lender to effectuate the sale, which typically occurs in the form of a public auction. Because this is a non-judicial remedy there are very stringent notice requirements and the legal documents are required to contain the power of sale language in order to use this type of foreclosure method.


Power of Sale Notice Requirements:

  1. Prior to initiating a foreclosure the lender must file a Notice of Election and Demand with the public trustee in the county in which the property is located. The Public Trustee must record this notice in the recorder’s office no later than 10 business days after the filing of the notice. A copy of the notice must then be published at least once a week for 5 consecutive weeks in a newspaper of general circulation in the county in which the property is located and the notice must be mailed to the defaulting borrower at least 20 days after the first publication. A notice of sale must also be recorded with the recorder where the property is located.
  2. A notice of sale as described above must contain certain information, including the date, time and place of sale, a description of the default, the lenders election to sell and the recording information from the deed of trust. The property owner can terminate the foreclosure proceeding by filing an intent to cure notice with the Public Trustee at least 15 days before the foreclosure sale so long as the loan is brought current by noon of the day preceding the sale schedule date.
  3. Foreclosure sales must take place within 45-60 days of the initial filing of the Notice of Election and Demand. A procedure known as a Rule 120 hearing must take place prior to the sale auction date to determine if the foreclosure file is legally sufficient. Such hearing may be cancelled if the defaulting borrower does not respond when given notice of this hearing.

In Colorado, the lenders can also go to court in what is known as a judicial foreclosure proceeding where the court must issue a final judgment of foreclosure. If the deed of trust does not contain the power of sale language, the lender must seek judicial foreclosure. The property is then sold as part of a publicly noticed sale. A complaint is filed in court along with what is known a lis pendens. A lis pendens is a recorded document that provides public notice that the property is being foreclosed upon.

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What are the legal instruments that establish a Colorado mortgage or deed of trust?

The documents are known as the deed of trust, and in a commercial transaction, a security agreement. Sometimes the mortgage document is combined with the security agreement. Alternatively, a mortgage is filed to evidence the underlying debt and terms of repayment, which is set forth in the note.

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How long does it take to foreclose a property in Colorado?

Depending on the timing of the various required notices, it usually takes approximately 60-70 days to effectuate an uncontested non-judicial foreclosure. This process may be delayed if the borrower contests the action in court, seeks delays and postponements of sales, or files for bankruptcy.

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Is there a right of redemption in Colorado?

Colorado has a post-sale statutory right of redemption for foreclosures, which would allow a party whose property has been foreclosed to reclaim that property 75 days after the sale by making payment in full of the sum of the unpaid loan plus, taxes, costs and interest by submitting an intent to redeem at least 15 prior to the end of the redemption period. Within 8 days of such notice the property owner will receive a payoff number to redeem. This affords the property owner time to arrange for the payoff.

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Are deficiency judgments permitted in Colorado?

Yes, a deficiency judgment may be obtained when a property in foreclosure is sold at a public sale for less than the loan amount which the underlying mortgage or deed of trust secures. The property owner may present evidence that the lenders bid is less than a good faith estimate of the value of the property and if successful avoid a deficiency judgment.

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What statutes govern Colorado foreclosures?

The laws that govern Colorado foreclosures are found in Title 38 Colorado Revised Statutes (Property Real and Personal) and Article 37 (Office of Public Trustee), Article 38 (Foreclosure Sales), Article 39 (Mortgages, Deeds of Trust.


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