During the previous legislative session, the Legislature considered a proposed amendment to Colorado’s foreclosure and redemption statutes which would have clarified that a foreclosure investor who purchased a property at foreclosure would have the right to payoff any junior lienor of the foreclosed property to prevent that junior lienor from redeeming the property. In recent years, some savvy investors have discovered a loophole in the redemption laws that allowed them to undercut or “game” the foreclosure system by purchasing junior liens on foreclosed property and then use the redemption rights associated with those junior liens to redeem the property from the foreclosure purchaser. For these savvy investors, the preferred junior liens to purchase as the means of furthering this scheme were HOA liens.

As discussed in earlier articles, this gaming of the foreclosure system has discouraged many foreclosure investors from participating in the process and as a result, has depressed bidding prices at the foreclosure sales. The proposed amendments to the current statues that the Legislature considered last session would have clarified that foreclosure purchasers could stop this gaming of the system by forcing the junior lien investor to accept a payoff of the junior lien debt and thereby extinguish the junior lien investor’s right to redeem.

The proposed legislation passed through the Senate but a House Committee recommended that the House not consider the proposed amendments until further clarifications were made to the proposed legislation.

Hatch Ray Olsen Conant LLC is excited to announce that the Legislature will once again consider proposed legislation that will curb substantially the current abuse of the foreclosure and redemption statutes that is being employed through the use of junior lien redemption rights as described above. The attorneys of Hatch Ray Olsen Conant LLC are working with the Legislature and the stakeholders (i.e., mortgage lenders, title insurers, the Public Trustees, and HOAs) in this matter to ensure that the concerns that the House had last session are addressed so that Colorado’s foreclosure and redemption statutes are amended in a manner that will promote participation and full bidding at the Public Trustee foreclosure auctions, and eliminate backroom foreclosure auctions that are currently happening in the offices of junior lien holders.