Changes in Colorado law concerning foreclosures

As rate increases under adjustable rate mortgages continue to kick in and the housing market continues to stumble, it’s predictable that 2008 will be another banner year for foreclosures. In the unfortunate event 2008 brings a foreclosure your way, you should know about important changes in Colorado law that apply to foreclosures filed after Jan. 1. To understand the significance of these changes, it helps to look at how the system works for foreclosures filed before Jan. 1.

For pre-January foreclosures, an owner of property in foreclosure has two important rights — a right to cure the default that gave rise to the foreclosure and a right to redeem the property after the foreclosure sale takes place.

To cure a default, a property owner must come up with all past-due installments and late charges, together with the costs (largely attorneys fees) incurred by the lender in bringing the foreclosure. If a cure is in fact accomplished, the foreclosure is canceled and the property owner’s right to continue to repay the loan in installments is reinstated.

A cure must take place before the foreclosure sale is held. For pre-Jan. 1 foreclosures, the law required a sale date to be set no sooner than 45 days and no later than 60 days after the foreclosure process began.

Once the foreclosure sale occurs, the right to cure ends and the right to redeem kicks in. Under the old law, the right to redeem lasts for 75 days after the sale, unless the property is agricultural. Then, the right continues for six months after the sale (thereby allowing the next crop to be harvested, the farm animals to have offspring, etc.).

Redemption, unlike cure, requires payment of the entire amount that is bid at the foreclosure sale, which will usually be the entire amount of the loan. For that reason, about the only way to pull off a redemption is to sell the property, accomplish a miracle refinancing, bag a timely inheritance or win the lottery.

The new law, in recognition of the fact that owner redemptions have been few and far between, has done away this right. As a trade-off, however, the period of time in which a cure can be accomplished has been extended.

Under the new law, for nonagricultural property, a sale date will be set no sooner than 110 days and no later than 125 days after the commencement of the foreclosure. For agricultural property, a sale date will be set no sooner than 215 days and no later than 230 days after the commencement of the foreclosure.

In effect, then, the cure period for nonagricultural property has been extended by 65 days and for agricultural property by 170 days. But, if the owner is unable to cure, the game is over. The owner will have only a couple of weeks after the sale to pack and move out, or be subject to eviction as a trespasser.

Under the new law, as with the old law, struggling borrowers should remember good communication with their lender is important.

For a variety of reasons (rarely having to do with kindness), most lenders don’t like to foreclose, and they are often willing to work with borrowers to help them dig out of their hole.

In fact, as a consequence of the mortgage mess that is pulling down the economy, lenders are under considerable pressure from regulatory agencies to look for opportunities to work things out. The worst thing a defaulting borrower can do is ignore the lender.

Jim Flynn is a local attorney. Contact him c/o The Gazette, P.O. Box 1779, Colorado Springs 80901; fax 578-8836 or e-mail jtflynn325@hotmail.com. Not all questions can be answered.