The Foreclosure Process in Colorado
	General Rule. The foreclosure sale in Colorado takes 45 - 60 days after the Notice of Election and Demand is recorded in the county clerk’s office. After the sale, the owner has an additional 75 days to redeem (until the law changes on January 1, 2008.) Avoid a deficiency judgment. If the sale price is less than the amount of the one or more deeds of trust, the lender can obtain a judgment against the owner for the deficiency amount. The judgment can be used to garnish up to 25% of the owner’s wages. A judgment for any unpaid 2nd and 3rd mortgages can still be obtained.

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.

Normally the foreclosure sale process is done according to the following steps:

1. The lender must give you notice that you are in default and give you a chance to cure that default. The notice must be done not later than 45 days after your initial default and at least 20 days before the lender records a Notice of Election and Demand for Sale with the Public Trustee.

2. After 20 days have passed since the notice of default, the lender may record the Notice of Election and Demand for Sale with the Public Trustee.

3. Within 20 days after recording the Notice of Election and Demand, the Public Trustee must mail to you a notice of your right to cure the default and your right to redeem the property after the foreclosure sale. (After January 1, 2008, you may no longer have a right to redeem after the sale.)

4. The Public Trustee must publish in a local newspaper a “Notice of Sale.” The sale date must be not less than 45 days and not more than 60 days from when the Notice of Election and Demand was recorded.

5. Within 20 days after the Notice of Sale is first published, the Public Trustee must mail you a copy of the Notice of Sale.

6. The lender must obtain a court order which authorizes the sale. The lender must give you written notice of that hearing not less than 15 days before the hearing date. If you contest the sale because you contest whether a default has occurred or whether the lender has the right to sell your home, you must file a written response with the court at least 5 days before the hearing.

7. If the court enters an order authorizing the sale at least 2 days prior to the sale date, the sale will take place at the scheduled sale date. Any person, including the lender, may submit written bids for your property.

8. You have a right to cure the monetary default on your loan at any time up to 15 days before the sale date. You must file a written Notice of Intent to Cure with the Public Trustee. The Public Trustee will advise you of the amount which you must pay to cure the default, including missed payments, interest, cost of the foreclosure, and attorney fees. You may pay this amount as late as noon the day before the sale. If you cure the default, then your right to continue to pay your loan continues.

9. You have a limited right to redeem your property during the 75 days following the foreclosure sale (but not after December 31, 2007 when the law changes.) You can “save” your property by paying the total amount of the bid, plus interest from the sale date. In order to redeem, you must file a Notice of Intent to Redeem not later than 60 days after the sale date.

Deficiency Judgments and Income Tax

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).

Note that the foreclosure process in Colorado will change effective January 1, 2008, where the 75 day right of redemption will be eliminated and replaced with a slightly longer foreclosure process of about another 15 days before the sale is held.

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