On Aug. 1, Colorado initiated a new program that provides an opportunity for a qualified borrower to obtain up to a 90-day deferment of the public trustee foreclosure process.
House Bill 1276 allows eligible borrowers to work with a U.S. Department of Housing and Urban Development (HUD)-approved counselor to determine if they qualify for a 90-day deferment of the foreclosure. The purpose of the deferment period is to provide the borrower the opportunity to attempt to work out his or her default through a loss mitigation alternative with the assistance of the HUD-approved housing counselor.
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The law only applies to eligible borrowers and provides additional requirements on the foreclosing holder of the note if the borrower is eligible. In order to be deemed an eligible borrower, a borrrower must be personally liable on a consumer debt, must reside in the property as his or her primary residence, must intend to continue to occupy the property and must have occupied the property within 90 days after the deed of trust was executed. Additionally, the lien against the property must be a first lien, and the original principal balance cannot exceed $500,000. Â
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If the borrower is determined to be eligible for the deferment, the holder must notify the public trustee when filing the foreclosure that the borrower is eligible for the deferment.Â
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The holder must post a specified notice at the property within 15 calendar days of delivering to the public trustee a complete and accurate foreclosure package. The specified notice must be in both English and Spanish. The notice outlines the process that the borrower is to follow in the event he or she would like to attempt to qualify for the deferment.
The notice must also provide the telephone number for the Colorado Foreclosure Prevention Hotline and the HUD Web site, which provides a list of approved housing counselors. As a result of the new posting requirement in Colorado for eligible borrowers, there will now be a new additional cost associated with those foreclosures.Â
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Failure to post the notice in a timely manner will have financial consequences to the holder. Default interest may not be charged to the borrower for the period of time between the date the property should have been posted and the date of actual posting. Similarly, no fees or costs associated with collection would be recoverable from the borrower during this period.
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Proof of the posting must be provided to the public trustee in the form of an affidavit within 20 calendar days of delivering a complete and accurate foreclosure package. The attorney for the holder may execute the affidavit on behalf of qualified holders (e.g., generally HUD-approved mortgagees, banks, credit unions or governmental entities). If the holder is a non-qualified entity, the holder must execute the affidavit to the public trustee.Â
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Failure to post in a timely manner or failure to provide timely proof of posting to the public trustee will result in postponement of the foreclosure sale an additional week for each week that the proof is provided late.
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If the borrower is interested in qualifying for the deferment, he or she must contact a HUD-approved counselor within 20 days of the date the property was posted. This initial contact may be in the form of a phone call, e-mail or in-person meeting. The HUD counselor will notify the public trustee, the holder and the holder's attorney that the borrower has been contacted.
Within 10 days of said notification, the holder must, in writing, provide the counselor with a physical, as well as an electronic, payment address to be used for payments during the deferment period.
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The HUD counselor will have 30 days from the date of the initial contact to determine if the borrower qualifies for the deferment. The following factors will disqualify the borrower:
- The property has been abandoned or the borrower fails to occupy the property,
- Gross waste has been committed on the property,
- The borrower is currently in bankruptcy, or
- The borrower has received a discharge under Chapters 7 or 13 within the last 24 months.
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Additionally, if borrowers have received loan modifications within the last 12 months or they have already received one deferment under this statute, they will automatically be disqualified for the deferment.
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If the HUD counselor determines that the borrower qualifies for the deferment, the counselor must certify such to the public trustee within 30 days from the original contact with the borrower. At that time, the public trustee will place the foreclosure on hold. If publication has started, the public trustee shall cancel any further publications, and no further foreclosure notices shall be sent.
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The foreclosure sale will be postponed from week to week, rather than for the full 90-day period. During the deferment period, the borrower is required to make specified payments to the holder. The payment amount is 66.667% of the regular monthly mortgage principal and interest payment that would have been due prior to the default, as well as one-twelfth of the taxes and insurance payment that would have been due prior to the delinquency, if the loan was set up as an escrowed loan.
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The first payment is due within five days of the borrower deferment qualification certification's being sent to the public trustee. Subsequent payments are due every 30 days thereafter during the deferment period. If the entire 90-day deferment period is utilized, the holder should receive three timely payments.
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The statute specifically states that the acceptance of these payments is not a waiver of the default. The statute also provides specific guidance on payment application in instances where the note and deed of trust being foreclosed do not specify how payments are to be applied. During the 90-day period, the HUD counselor is expected to work with the holder and borrower in an attempt to devise a loss mitigation alternative to the foreclosure.
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H.B.1276 also provides the possibility that the deferment be terminated prior to the expiration of the full 90-day period. The following circumstances would allow for early termination:
- Payments are not made in a timely fashion;
- The borrower fails to occupy the property, commits gross waste on the property, files bankruptcy, uses the property for illegal purposes or further encumbers the property; or
- Another lienholder files a foreclosure against the property.Â
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In the event that one of these circumstances occurs, the holder must provide documentation to the HUD counselor as to why the deferment should terminate early. The counselor, by statute, must make a determination regarding early termination within 10 days of receipt of the documentation and notify the public trustee of the early termination.Â
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If not terminated earlier, the deferment will cease at the end of the 90-day period. At that time, in order to continue with the existing foreclosure process, the public trustee must receive an additional fee of $75. The trustee will then commence with sending required notices and the five-consecutive-week publication. The foreclosure sale may be held upon completion of the required statutory steps.
If a successful loss mitigation alternative is negotiated, the holder does not have to withdraw the existing foreclosure; the statute does not require the foreclosure to stop. Colorado law allows for an exiting foreclosure to be postponed for up to 12 months from the original sale date. The holder may choose to continue with the foreclosure and postpone it for a period of time, rather than immediately withdraw the foreclosure.Â
Caren Jacobs Castle is a founding partner with Denver-based Castle Meinhold & Stawiarski LLC. She can be reached at ccastle@cmsatty.com.
