If you default on your loan payments in Colorado, your mortgage servicer (on behalf of the loan owner, called the "lender" in this article) will eventually begin the foreclosure process. In Colorado, the procedure will most likely be nonjudicial, although judicial foreclosures are also allowed.
Colorado law specifies how nonjudicial foreclosure procedures work, and both federal and state laws give you rights and protections throughout the process.
When you get a loan to buy residential real estate in Colorado, you'll likely sign two documents: a promissory note and a deed of trust, which is similar to a mortgage. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The deed of trust is the document that gives the lender a security interest in the property and will probably include a power of sale clause.
If you fail to make the payments, the power of sale clause gives the lender the right to sell the home nonjudicially so it can recoup the money it loaned you.
If you miss a payment, the servicer can charge a late fee after the grace period expires. Most loans give a grace period of ten to fifteen days before you'll incur late charges. To find out the grace period in your situation and the amount of the late fee, review the promissory note or your monthly billing statement.
If you miss a few payments, the servicer will probably send letters and call you to try to collect. Federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called "loss mitigation" options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. (12 C.F.R. § 1024.39).
No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available, and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file for bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Most deeds of trust in Colorado have a provision that requires the lender to send a breach letter if you fall behind in payments. This notice tells you that the loan is in default. If you don't cure the default, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
In Colorado, in most cases, at least 30 days before filing a Notice of Election and Demand (see below) and at least 30 days after default, the lender must mail you a notice containing helpful information, like:
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before starting a foreclosure. But in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
Again, most Colorado foreclosures are nonjudicial, though a court has some minimal involvement. In Colorado, a county public trustee administers the process. In other states, a private trustee generally handles nonjudicial foreclosures.
To start the foreclosure, the lender's attorney submits the foreclosure documents, including a Notice of Election and Demand (NED), to the public trustee. (Colo. Rev. Stat. § 38-38-101). The public trustee records the NED with the county clerk and recorder. (Colo. Rev. Stat. § 38-38-102).
The public trustee sets the sale date to take place not less than 110 calendar days and not more than 125 calendar days from the recording date of the NED. If the property is agricultural, however, this time frame becomes 215 to 230 days. (Colo. Rev. Stat. § 38-38-108).
The public trustee mails a combined notice of sale and right to cure and redeem (which includes the date and place of sale, among other things) to you at two separate times. The first time will be no more than 20 calendar days after the recording of the NED. The second is no more than 60 calendar days nor less than 45 calendar days before the first scheduled sale date. (Colo. Rev. Stat. § 38-38-103).
The trustee also publishes the notice in a newspaper. (Colo. Rev. Stat. § 38-38-103).
Assuming you don't cure the default or declare bankruptcy, the lender may seek an order from a state court authorizing the sale. The lender's attorney files a motion under Rule 120 of the Colorado Rules of Civil Procedure, asking a court for an order authorizing the foreclosure sale by the public trustee. The court sets a hearing—called a Rule 120 hearing—which is a limited inquiry into specific issues, like whether you're in default or in the military and subject to protections under the Servicemembers Civil Relief Act. (Colo. R. Civ. P. 120).
Notice of the Rule 120 hearing must be mailed to you and posted on the property not less than 14 days prior to the response deadline. If you don't respond to the notice to dispute the lender's right to sell the home on grounds within the hearing's scope, the court will cancel the hearing and authorize the sale. (Colo. R. Civ. P. 120, Colo. Rev. Stat. § 38-38-105).
The sale is a public sale, open to all bidders. The lender usually makes a bid on the property using a "credit bid" rather than bidding cash. With a credit bid, the lender gets a credit up to the amount of the borrower's debt. The highest bidder at the sale becomes the new owner of the property.
"Reinstating" is when you catch up on the missed payments, plus fees and costs, to stop a foreclosure. In Colorado, you can cure the default and reinstate the loan prior to the sale. You must file a notice of intent to cure with the trustee no later than 15 calendar days before the sale date. You'll then get a cure statement explaining the amount that you have to come up with to stop the foreclosure. You have to pay the total amount due to the public trustee before noon on the day before the sale. (Colo. Rev. Stat. § 38-38-104).
If the figures in the cure statement have expired, but the last possible time to cure the default has not expired, you may request updated cure figures. The request must be received at least 15 calendar days prior to the sale date. (Colo. Rev. Stat. § 38-38-104).
If your home is sold at a foreclosure sale, but the auction doesn't bring in enough money to pay off the full amount you owe on the loan, the difference between the sale price and the total debt is called a "deficiency balance." Many states, including Colorado, allow the bank to get a personal judgment, called a "deficiency judgment," for this amount against the borrower.
In Colorado, the lender can obtain a deficiency judgment after a nonjudicial foreclosure by filing a separate lawsuit within six years. (Colo. Rev. Stat § 4-3-118). But if the lender does not bid the fair market value of the home at the foreclosure sale, you may raise this as a defense in the deficiency action. (Colo. Rev. Stat § 38-38-106).
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. In Colorado, though, foreclosed homeowners don't get the right to redeem the home following the foreclosure. Only lienholders may redeem after the sale. (Colo. Rev. Stat. § 38-38-302).
After a Colorado foreclosure, the purchaser must make a demand for possession. If you don't vacate (leave), the purchaser can initiate an eviction lawsuit.
Foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you could have a defense that could force it to start the foreclosure over or you might have leverage to work out an alternative.
Consider talking to a local foreclosure attorney or legal aid office immediately to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure.
Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.