Foreclosure Consultants, Home Equity Buyers, & Scams in Colorado

Summary:   Beginning in 2006, Colorado enacted new laws which provide strict requirements and restrictions on the business practices of foreclosure consultants and home equity purchasers. A foreclosure consultant cannot take any money from you until after he has performed his service. You may be able to get a refund. The violation of any of these new laws is a Deceptive Trade Practice in Colorado, where the home owner may receive 3 times damages, attorney fees, and costs.

Foreclosure Consultants & Equity Purchasers in Colorado

Because of widespread foreclosure “rescue” scams, in 2006 Colorado enacted laws to help protect you from fraudulent activity in connection with foreclosure rescue, bailout schemes, or purchasers of the equity in your home. The law also provides some protection from equity purchasers. The new law strengthens other laws concerning mortgage brokers and Realtors which were enacted in 2002.

The violation of any of these new laws is a Deceptive Trade Practice in Colorado. You may receive 3 times the amount of damages, as well as attorney fees and costs.

Foreclosure Consultant Laws in Colorado

A foreclosure consultant is defined as a person, who for compensation, represents that the consultant will obtain a rescue loan, achieve a workout or forbearance with the lender, avoid or reduce the impairment of the homeowner’s credit, or otherwise prevent or delay the foreclosure sale.

The foreclosure consultant law does not apply to an attorney, real estate brokers, mortgage brokers, bank, or title companies which are conducting business as part of their normal business activity. However, the law may apply to these individuals, particularly the mortgage brokers and real estate brokers if they are involved in foreclosure rescue activities.

The 2006 Colorado law requires:

1. A written contract between the foreclosure consultant and the homeowner of a residence.

2. A written notice that the foreclosure consultant may not charge any advance fee for services. A fee for services may be charged only after the service has been performed. Except that a fee for out-of-pocket expenses may be charged.

3. A written notice that the homeowner may rescind (unwind) the contract at any time without penalty. The contract documents must include a form for the rescission of the contract.

4. A disclosure that the consultant may not ask for the title to the home to be transferred to the consultant.

Under Colorado C.R.S. § 6-1-1107, a foreclosure consultant may not:

1. Collect or in any other way make a charge for services until after the foreclosure consultant has fully performed each and every service which he has contracted to perform.

2. Claim, demand, or collect any compensation for a loan that he makes to the homeowner which exceeds 2 percentage points over the prime rate. Such interest rate cannot in any case exceed 8 percent. This is to avoid high interest rate loans.

3. Take any wage assignment or lien of any type on the homeowners’s property as security for the payment of compensation;

4. Receive any compensation from any third party in connection with the foreclosure consulting services unless it is fully disclosed to the homeowner in writing;

5. Acquire any interest, directly or indirectly, in the ownership of real property or personal property of the homeowner;

6. Obtain a power of attorney from a homeowner for any purpose other than to inspect documents as provided by law; or

7. Attempt to get a home owner into a consulting contract which does not comply with the provisions of this law.

8. Attempt to get the home owner to waive any rights to:

- a jury trial;

- court jurisdiction or choice of law outside of Colorado

- jurisdiction other than in the county where the residence is located;

- a jury trial.

The violation of any of these foreclosure consultant provisions is a Deceptive Trade Practice in Colorado. You may receive 3 times the amount of damages, as well as attorney fees and costs.

Home Equity Purchasers in Colorado

Colorado law also restricts and regulates the activities of home equity purchasers.

A home equity purchaser is anyone who acquires an ownership interest in your home, except if the purchaser intends to live in the property as his personal residence for at least one year.

Similar to a foreclosure consultant, under Colorado C.R.S. §6-1-1111, a home equity purchaser must have a written contract with the home owners. Except that the right of rescission extends to 3 business days after the contract is signed.

Until this 3 day right of rescission has passed, the equity purchaser may not accept any deed or other document which transfers title to the equity purchaser or even pay the home owner any compensation for the equity or ownership of the home.

The equity purchaser is prohibited from making any untrue or misleading statement regarding the value of the home in foreclosure, the amount of proceeds the home owner may receive after a foreclosure sale, or any other untrue or misleading statement concerning the sale of the residence in foreclosure.

The equity purchaser must also assume or discharge the lien(s) in foreclosure without violating the terms of those liens. Usually this means that any loans secured by a deed of trust must be paid off.

The equity purchaser must verify that the home owner has a reasonable ability to make any lease payments and repurchase the home within the terms provided in any sale/lease-back contract.

The purchase price at which the home owner must pay to get the property back must not be unconscionable. A price which is 25% higher is presumed to be unconscionable.

Similar to the restrictions on foreclosure consultants, the contract cannot waive several home owner legal rights or impose costs or fees greater than actual costs or fees.

The violation of any of these home equity purchaser provisions is a Deceptive Trade Practice in Colorado. You may receive 3 times the amount of damages, as well as attorney fees and costs.

Colorado Now Requires Mortgage Broker Licensing in Most Cases

Unless the "consultant" is a Colorado attorney, he or she is required to be licensed as a Colorado mortgage broker in order to do your loan modification.  Also, they may not collect any fees up front.