The Foreclosure Process in Colorado

Summary:  The foreclosure process in Colorado has changed in 2009 and there is additional legislation in 2010 to change the process.  Now you do not have any right of redemption after the foreclosure sale.  In other words, you can be evicted right after the sale.  The process usually takes about 4 months to get to the foreclosure sale.

Beginning in 2009, The Foreclosure Process Has Changed in Colorado

If you have voluntarily secured one or more loans with a Deed of Trust, the lender may foreclose on your home with the assistance of the Public Trustee. After proper notice, the Public Trustee may sell your home and apply the sale proceeds to the deed of trust and all other junior liens on your property.

Foreclosure Now Takes 4 to 6 Months

The foreclosure process changed in 2009 to allow more time before the foreclosure sale.  Now, most foreclosures take 4 to 6 months. 

However, some lenders are slow to foreclose because of the poor real estate market.

Now There is No Redemption Period for the Home Owner

The new law eliminated the 75 day period of redemption after the foreclosure sale.  Now, the home owner can be evicted immediately after the foreclosure sale.

Deficiency Judgments and Income Tax; First and Second Mortgages

If the amount of the foreclosure sale brings less than the loan(s) secured by a deed of trust on the property, then the lender can obtain a court judgment for the shortfall. This judgment is called a deficiency judgment. It can be collected by the lender through any means available, including a garnishment of 25% of the property owner’s wages.

Also, if there are 2nd mortgages and 3rd mortgages which do not redeem, then you still owe the amount of those loans, even though their lien was foreclosed out. Those unpaid loans can also be reduced to a court judgment.

Avoid a deficiency judgment by offering to deed the property to the lender in exchange for an agreement that no deficiency judgment will be pursued by the lender. However, you will then get an IRS 1099-C, which will report the relief of debt to the IRS. You will have to pay both federal and state income tax on the relief of debt, unless you were insolvent at the time of the debt forgiveness or discharged the debt in Bankruptcy.

Even if can avoid a deficiency judgment on the 1st mortgage, you are still subject to court judgments on any 2nd and 3rd mortgages (and more 1099-C).