August 1, 2013
by Cynthia Lowery-Graber
The Castle Law Group, LLC
USFN Member (Colorado, Wyoming)
The 2013 Colorado legislative session proved to be busy and interesting, continuing the pattern of proposals in recent years to alter Colorado’s foreclosure process. The most monitored legislation for the lending industry was House Bill 13-1249, with the potential of significant impacts upon foreclosure practices in this state.
Colorado boasts a unique quasi-judicial public trustee system for foreclosures that avoids a lengthy and costly judicial proceeding. The public trustee system maintains neutrality by having a public official oversee the foreclosure process, in addition to affording due process to borrowers by providing an opportunity for a hearing in a limited court proceeding (the “Rule 120” proceeding) and requiring the lender to obtain a court order authorizing the foreclosure sale.
A foreclosure may be commenced by the holder of the original note or by a “qualified holder” as defined by statute. A qualified holder may commence a foreclosure with copies of the original loan documents in addition to a statement that the holder of the note is a qualified holder under Colorado statute. The ability of qualified holders to file a foreclosure with copies of loan documents has come under attack in Colorado’s last two legislative sessions. This year, HB 13-1249 proposed a requirement that the original note or copies of the note, including all indorsements or assignments, be required in every public trustee foreclosure in the state.
In addition, HB 13-1249 would have required legal oversight of loss mitigation and compelled all loan servicers to provide a “single point of contact” to any borrower who requests foreclosure prevention. The bill would have prohibited dual tracking by precluding the initiation of a foreclosure where a complete loss mitigation application is under review or, if the foreclosure was already commenced, that it be held in abeyance until a written denial of loss mitigation is provided. Current state law does not interfere with loss mitigation negotiations between a borrower and a lender or with existing federal regulatory or settlement guidelines.
Finally, HB 13-1249 sought to supplement the Rule 120 process by requiring the movant to affirmatively prove that it is the holder of the evidence of debt at the commencement of the case. Current law allows this issue to be raised by a response filed by the borrower at the Rule 120 hearing. In the event the court denied the movant’s request for an order authorizing sale, the bill prohibited the movant from filing a new Rule 120 case for at least six months and only with new and/or different evidence in support of a subsequent request for an order. Lastly, the bill precluded the movant from charging attorneys’ fees and costs in a subsequent judicial foreclosure if it was unsuccessful in obtaining a court order in the Rule 120 proceeding.
The hearing on HB 13-1249 lasted approximately three hours. Multiple borrowers and other supporters of the bill testified as well as representatives from the lending community and legal experts. While borrowers offered emotional testimony regarding their desires to avoid foreclosure, many other persons addressed the inconsistencies contained within the proposed legislation, in addition to the lack of necessity for a sweeping overhaul in a state that has a lower foreclosure rate than most. Ultimately, the bill was defeated soundly in committee by a bi-partisan vote. Despite this bill’s unsuccessful attempt to modify the public trustee process, many borrowers and advocates continue to attack the existing process as a means to challenge the foreclosure. Given the continued scrutiny of the process, the lending community should keep a watchful eye for future legislation and cases addressing these issues in Colorado.
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Summer USFN Report.