In Colorado, a mortgage loan secured by real property is most generally created by a Deed of Trust, which contains a power of sale in a Public Trustee for the benefit of the mortgage lender when default occurs. Each county has a public trustee who conducts foreclosure sales for all real property located in that county. Before a public trustee may conduct a sale, a court order authorizing it must be obtained. Generally, a mortgage, as opposed to a deed of trust, must be judicially foreclosed.
In order to initiate a public trustee foreclosure, the original promissory note and deed of trust must be filed with the public trustee, together with a Notice of Election and Demand for Sale (which is recorded in the real estate records); a Notice of Sale (which is published in the newspaper and mailed to all parties in interest); a Notice of Cure and Redemption Rights (which is mailed to all parties in interest); and a list of all parties who may have any interest in the property. If the original promissory note is lost, the lender/servicer may elect to post a lost document bond and conduct a public trustee foreclosure or proceed to foreclose through a judicial action and sheriff’s sale. Usually, the later is less expensive (but, more time consuming) than the lost document bond.
The list of all interested parties is determined by the law firm from the names and addresses found in a foreclosure guarantee. The foreclosure guarantee is obtained by the law firm upon receipt of a request to foreclose from the lender/servicer. The foreclosure guarantee contains the chain of title from the recording of the trust deed being foreclosed to the date of completion of the foreclosure guarantee. This title work will be updated two times during the foreclosure process to assure that all required notices to interested parties have been given, in the event other documents creating interests in the property, including IRS liens, come of record.
Simultaneously with the filing with the public trustee of the above documents, a proceeding is started with the appropriate court by requesting the court to enter an order authorizing the public trustee to sell the property at a public sale. The only issues to be decided by the court are whether there is a default and whether any interested person is entitled to the benefits of the Soldiers’ and Sailors’ Civil Relief Act. Almost without exception, no objections are raised and the court enters the requested order.
The public trustee must set a sale date not later than 75 days after the receipt of the foreclosure. If a sale cannot be held for any reason on this sale date, the sale date may be continued for a period of six months from the first scheduled sale date. This commonly occurs in the case of VA loans where the bidding instructions have not been received from the VA.
At any time prior to the sale, the owner of the property, or the party liable on the note may “cure” the default. Assuming the default was in the installment payments, the party must pay all delinquent amounts on the note, together with any incurred costs (including attorney fees, public trustee fees and direct costs).
If no “cure” occurs, the sale is conducted. The sale is physically held at the office of the public trustee. The bid has to be in the public trustees office at least 48 hours prior to the scheduled sale. The bid will contain a listing of all amounts required to “pay off” the loan, together with all attorney fees and costs, and public trustee fees and costs, to reach a total due on the loan. If the lender/servicer wishes to create a deficiency, it will bid less than the total owed and the original note will be returned marked with the amount still owing. The lender/servicer may then collect the deficiency by initiating a lawsuit to collect the unpaid balance on the Note. There are no statutory prohibitions against deficiencies in Colorado.
The public trustee will issue a Certificate of Purchase to the successful bidder at the sale. This Certificate of Purchase is a negotiable instrument and may be transferred by the holder. Colorado has a statutory redemption period following the sale. For all property described by lot and block, the redemption period is 75 days from the date of sale. For all property described by metes and bounds, which is assessed as agricultural and not located within a city or town, the redemption period is six months.
An owner who files an intent to redeem during the redemption period must redeem by paying the amount bid at sale, plus per diem interest and other costs incurred by the successful bidder and/or holder of the Certificate of Purchase. Junior lien holders may also file intents to redeem during the owner’s redemption period. If the owner does not exercise his redemption right, the junior lien holders may redeem. The first lien holder has 10 days after the end of the owner’s redemption period within which to redeem by paying the amount bid at sale, per diem interest and incurred costs. All other junior lien holders have successive five day periods after the expiration of the first junior lien holder’s redemption period within which to redeem.
If no redemption takes place, the successful bidder/holder of the Certificate of Purchase will become the owner of the property by operation of law the day after the redemption periods expire. A confirming Public Trustee’s Deed will be issued by the public trustee and recorded in the public records. If eviction is necessary, a separate action may be commenced at the expiration of the redemption periods.