If you’re facing a foreclosure in Colorado, you just might have time to get back on your feet because, in most cases, the foreclosure can't start until the mortgage obligation is more than 120 days delinquent. After the 120-day period elapses, the servicer (the company that handles your loan account) can proceed using one of two types of foreclosure: judicial foreclosure (a lawsuit in court) or nonjudicial foreclosure (a primarily out-of-court process outlined in state law). Most foreclosures in Colorado are nonjudicial.
In this article, you’ll learn details about Colorado’s public trustee (nonjudicial) foreclosure process and your rights as a homeowner. (For a foreclosure overview, read Foreclosure and Your Home: Understanding the Process, Your Rights, and Your Options.)
Federal Law Requires a Foreclosure Waiting Period
In the past, struggling homeowners who fell behind in mortgage payments didn't have much time to recover from a financial setback before losing the house to a foreclosure. That changed in 2014. Now, under federal law, the bank must usually wait until the loan is more than 120 days overdue before making the first notice or filing starting a foreclosure. This preforeclosure period provides additional time for applying for a foreclosure alternative, such as a mortgage modification. (Get more information in Delaying Foreclosure: The Dodd-Frank Act 120-Day Rule.)
Colorado Foreclosure Procedures
In Colorado, the bank has the choice of using a judicial or nonjudicial process. In most instances, the bank utilizes the more efficient, less costly nonjudicial procedure. Here is a short outline of both systems.
Judicial foreclosure process. A judicial foreclosure begins when the lender initiates a lawsuit in court. The bank will serve you with a lawsuit asking the court for permission to sell the home to pay off the debt. If you don’t answer the suit, the lender will get a “default judgment” allowing it to hold a foreclosure sale. If you choose to challenge the foreclosure, the case will proceed through the litigation process. If the lender wins the case, the judge will enter a judgment against you that allows the lender to sell the property at a foreclosure sale.
Nonjudicial foreclosure process. In a nonjudicial foreclosure, the bank must complete certain out-of-court steps detailed in Colorado law before selling the property at a foreclosure sale. (The nonjudicial process in Colorado, though, involves one court hearing, which is described below.)
Notice Before a Nonjudicial Foreclosure
Under Colorado law, at least 30 days after the default, the loan owner or servicer must mail the borrower a notice containing the following:
- the phone number for the Colorado foreclosure hotline
- the servicer's loss mitigation (foreclosure avoidance) department’s telephone number, and
- a statement that it's illegal for any person acting as a foreclosure consultant to charge an up-front fee or deposit for services related to the foreclosure. (Colo. Rev. Stat. § 38-38-102.5).
The loss mitigation department helps borrowers explore foreclosure alternatives. After sending the notice, the lender must wait an additional 30 days before proceeding with the foreclosure.
How Nonjudicial Foreclosures Work in Colorado
Unlike other states that allow a private trustee to conduct a nonjudicial foreclosure, in Colorado, it’s handled by an official known as the public trustee.
Notice of Election and Demand. Foreclosure starts when the foreclosing party files a Notice of Election and Demand with the public trustee, who then records it with the county clerk and recorder. (Colo. Rev. Stat. § 38-38-101).
Sale date. The public trustee will then set a date for the foreclosure sale. The sale date cannot be less than 110 calendar days or more than 125 calendar days from the Notice of Election and Demand recording date. (For agricultural properties, the dates are 215 and 230 calendar days, respectively.) (Colo. Rev. Stat. § 38-38-108).
Combined Notice. The public trustee will mail the borrower a "Notice of Sale and Right to Cure and Redeem" twice: the first will be no more than 20 calendar days after the recording of the Notice of Election and Demand. The second no more than 60 calendar days nor less than 45 calendar days before the first scheduled sale date. This document includes the date and place of sale, and information about the right to cure or redeem (discussed further below), among other things. The trustee must publish the notice in a newspaper, too. (Colo. Rev. Stat. § 38-38-103).
Rule 120 hearing. Even though the process is considered nonjudicial, the court plays a minor role. The lender’s attorney will file a motion under Rule 120 of the Colorado Rules of Civil Procedure asking the court for an order authorizing the foreclosure sale. After the bank files the motion, the clerk sets a deadline by which any response to the motion must be filed. The bank then serves a notice to the borrower about the right to file and serve a response no less than 14 days before the response deadline. A borrower's response is limited to four issues:
- whether the borrower is in default
- whether the borrower is in the military (and therefore entitled to protections under the Servicemembers Civil Relief Act)
- whether the moving party is the real party in interest, and
- whether the status of any request for a loan modification agreement bars a foreclosure sale as a matter of law.
If the borrower doesn’t respond (and most don’t), the court generally cancels the hearing and enters an order allowing the foreclosure sale. If the borrower does respond by raising a potentially legitimate defense, the court will set a hearing, called a "Rule 120 hearing." (Learn about how Colorado homeowners can fight a nonjudicial foreclosure in court by raising certain issues at a Rule 120 hearing.)
Curing the Default Before the Foreclosure Sale
In Colorado, the borrower can stop a nonjudicial foreclosure sale by curing the default (bringing the account current by paying all missed payments plus fees and costs)—a procedure known as “reinstating” the loan.
At least 15 calendar days before the sale, the borrower must file a notice of intent to cure with the trustee. The borrower will receive a cure statement explaining the amount that must be paid to stop the foreclosure and will have until 12:00 (noon) on the day before the foreclosure sale to cure the default. (Colo. Rev. Stat. § 38-38-104).
Deficiency Judgments in Colorado
When the foreclosure sale price is not enough to pay off the outstanding loan amount, the difference is called a deficiency. In Colorado, the lender has six years to sue the foreclosed owner in a separate lawsuit to obtain a deficiency judgment. (Colo. Rev. Stat § 4-3-118).
But if the bank doesn't bid the fair market value of the home at the foreclosure sale—less certain expenses, like unpaid property taxes and the estimated reasonable costs and expenses of holding, marketing, and selling the property—the foreclosed homeowner can raise this as a defense in a deficiency action. (Colo. Rev. Stat § 38-38-106). If the court decides that the bank’s bid was inadequate, the court may adjust the amount of the deficiency.
The creditor can then collect the deficiency amount by taking money out of your bank account (a bank levy), deducting funds from your paycheck (garnishing your wages), or by using another collection technique.
No Right to Redeem Following the Sale
Some states have a law that allows a foreclosed homeowner to “redeem” (buy back) the home by paying the new owner the full amount he or she paid for the property at the foreclosure sale. In Colorado, however, foreclosed homeowners can't redeem the property after the foreclosure. (Colo. Rev. Stat. § 38-38-302).
You can find Colorado’s foreclosure laws in the Colorado Revised Statutes (§§ 38-38-100.3 through 38-38-114). To learn how to find the citations in this article, see How to Look Up the Foreclosure Laws in Your State.
If you need help understanding the laws or want to find out about possible defenses to a foreclosure, contact a local foreclosure attorney. To learn about different options to avoid a foreclosure, like a loan modification, short sale, or deed in lieu of foreclosure, consider contacting a HUD-approved housing counselor.