Colorado home ownership trends right along with the national average at 63%, down from about 70% in the last few years. Homeowners in the Golden State have seen prices going up while getting a mortgage loan becomes more difficult. Many buyers in Colorado seek out special financing options and one of the more popular options these days is called a hard money loan. These are not offered by the big banks and mortgage lenders. Individual and small group investors offer hard money loans to buyers who are willing put their home or other owned real estate up as collateral to secure the funds. These loans generally process much faster than a traditional mortgage and require less paperwork, making them a popular alternative for many.
Colorado Foreclosure Laws
Colorado has a unique foreclosure system, different from all other states. In most states, foreclosures are either judicial (managed in the courts) or non-judicial (managed outside of the courts). Some states allow for both. Colorado's option for lenders seeking non-judicial options is special. In these situations, the state provides a county public trustee to administer the foreclosure. In other parts of the country, a private trustee handles the process in a non-judicial process, largely unfettered by oversight from the courts. In all states, non-judicial foreclosures move faster than those that are managed by the courts. That is no different in Colorado. Even though the court is slightly more involved because they appoint a special administrator, they still stay mostly out of the process and allow the lender to move quickly as long as basic rules of notification and process are followed.
Property Redemption after Foreclosure Sale
In some states, you can redeem (repurchase) your home within a certain period of time after the foreclosure. In Colorado, foreclosed homeowners cannot redeem the home following the foreclosure. Colo. Rev. Stat. § 38-38-302.
Deficiency Judgments in Colorado
Sometimes, a home that is sold in foreclosure will not bring in enough money to cover what was owed by the borrower in default. In these cases, it is sometimes possible for the lender to get a deficiency judgement against the homeowner, making them responsible to pay that remaining balance. Some states protect homeowners from this kind of additional cost after losing a home but Colorado does not have anti-deficiency laws. The foreclosing party can obtain a deficiency judgment after a non-judicial foreclosure by filing a separate lawsuit within six years. Colo. Rev. Stat § 4-3-118. However, if the lender buys the property at auction or does not bring in the fair market value of the home at the foreclosure sale, the former homeowner may raise this as a defense in the deficiency action. Colo. Rev. Stat § 38-38-106.
Deed in Lieu of Foreclosure
Most homeowners facing foreclosure do have the option to walk away. This does not save them from the fininancial burden or the loss of a good credit rating but it does end the fight with lenders. To do this, a borrower will make an agreement with the lender, called a deed in lieu of foreclosure, saying they will walk away without incident and allow the lender to take possession of the home immediately. In some cases, lenders are willing to provide a small amount of money to help pay for moving out. But the biggest reason people do this is to end the struggle. This kind of agreement does not save the home but it does save time and allows the homeowner to move on.
Grace Period Notice
Colorado has some provisions or rules in place around foreclosures that serve to help a homeowner in distress catch up on back payments or to access special programs to help save their home. Thirty days before officially foreclosing by recording the Notice of Election and Demand, and at least 30 days after the first default in payments, a borrower must be provided with information about the Colorado state hotline for foreclosure assistance as well as information about how to contact the foreclosing party's loss-mitigation department. After the Notice of Election and Demand has been recorded (110 to 125 calendar days before the sale date), the public trustee must mail a Combined Notice of Sale, Right to Cure, and Right to Redeem to the borrower within 20 calendar days after the recording date. The trustee must mail the notice again between 45 and 60 days before the sale date. Notice of the Rule 120 hearing must be mailed to the borrower and posted on the property not less than 14 days prior to the hearing date.
Military Mortgage Protections
There are federal laws in place to help federal military personnel to stave off or avoid foreclosure proceedings in cases where the homeowner is on active duty or deployed away from home. Colorado law also provides special protections against foreclosure for their National Guard members who are called to state military service or to state defense force active duty for more than 30 days. Colo. Rev. Stat. § 28-3-1406
High Risk Mortgage Protections
Some homeowners might have what is known as a high risk mortgage. They have very high interest rates, big balloon payments or were purchased by someone with a negative credit history so the terms of the agreement or less favorable. Some states have special protections in place to help protect these people from foreclosure as they are often more likely to face the loss of home for failure to pay. In Colorado, there are no statewide special or additional protections against predatory lending.
Additional State Laws
The maximum interest rate allowed by law is 8%. Colorado's consumer loan interest rate limit of 12 percent doesn't apply to savings and loans, mortgages, business loans, and agricultural loans. And even though there's a statutory limit, it's not always enforceable because consumers may agree to higher rates when signing the contract or simply clicking 'I agree' on a Web browser.
If there's no agreement to the terms of the loan, it's capped at 8 percent. Colorado also has one of the highest interest rate limits in the country for non-consumer loans, at 45 percent. Violation of this limit is charged as a Class 6 Felony, punishable by 12 to 18 months in prison and a fine of $1,000 to $100,000.
Colorado is a homestead state. Under the Colorado exemption system, homeowners can exempt up to $75,000 of their home or other property covered by the homestead exemption. The homestead exemption is $105,000 if the homeowner, his or her spouse, or dependent is disabled or 60 years of age or older.
Example 1. If you own a house worth $120,000 and you have a mortgage balance of $80,000, you have $40,000 of equity in the property. If you file a Chapter 7 bankruptcy, you can use the Colorado homestead exemption to protect your entire equity.
Example 2. If your mortgage was only $20,000, then you could only exempt $75,000 of your $100,000 of equity. In that case, the bankruptcy trustee would likely sell your house, give you $75,000 from the proceeds for your exemption and use the rest of the proceeds to pay his or her fees and your creditors.
Lender Licensing Requirements
A Mortgage Loan Originator license is required for all persons who originate a mortgage, offer to originate a mortgage, act as a mortgage loan originator, or offer to act as a mortgage loan originator in Colorado.
Hard Money Legal Issues in the News in Colorado