Mountain Law: What happens to a foreclosure deferred?
September 7, 2010
In 2009, Governor Ritter signed into law House Bill 1276, which created the Colorado Foreclosure Deferment Program. The program permits qualified borrowers to delay the foreclosure process on their homes by 90 days. The program does not allow these borrowers to completely stop a foreclosure, but it may give them time to work out a permanent loan modification with the foreclosing lender or make new living arrangements before a foreclosure is completed. Borrowers facing foreclosure and lenders should understand how the program works.
In order for a borrower to be “eligible” for the program, the foreclosure must concern a first deed of trust in the principal amount of $500,000 or less; the property must be residential; and the property must be a primary residence.
If the foreclosing lender believes the borrower is eligible for the program, it must post a specified notice at the property within a certain time after the foreclosure begins … and provide the public trustee conducting the foreclosure with an affidavit indicating that the notice was posted. If the lender does not file the affidavit and the trustee believes the borrower is eligible, the trustee will inform the lender of this fact and postpone the sale until the lender files the affidavit.
After the notice is posted, the borrower has 20 days to contact a foreclosure counselor provided by the State of Colorado in person, on the phone, or electronically. The counselor will require the borrower to provide documentation about household expenses, monthly income, and similar factors to determine if the borrower is qualified for deferral under state and federal guidelines. If the counselor is satisfied that the requirements are met, he or she will certify to the borrower, the lender, and the public trustee within 30 days that the borrower is “qualified.” If the counselor determines that the requirements are not met, he or she will inform the lender and the borrower (but not the public trustee) that the borrower is not qualified.
A borrower may not qualify for the program if the following factors apply:
• The borrower abandons the property;
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• The borrower provided false information on the original loan application;
• The borrower has not taken sufficient care of the property; has been cited for major code violations; or has used the property for illegal purposes;
• The borrower is in bankruptcy or had a Chapter 7 bankruptcy discharged in the preceding two years in which the property was a part; or
• The debt has already been modified by the lender.
If the public trustee does not receive certification that the borrower is qualified for the program within 30 days after the borrower contacts a foreclosure counselor, the trustee will permit the lender to continue the foreclosure. If the counselor certifies to the public trustee that the borrower is qualified for the program, the trustee will delay the sale for a 90-day deferral period.
During the deferral period, the borrower and lender will likely discuss modification of the loan. The borrower is required to make monthly loan payments during this period equal to two-thirds of the monthly payment prior to the foreclosure. The first payment is due five days after a counselor certifies that the borrower is qualified for the program. The deferral period may terminate early upon the occurrence of certain conditions such as the borrower failing to make timely payments or another lender starting a foreclosure of the same property.
If the borrower and lender agree to a loan modification during the deferral period, the borrower will be bound by the terms of the agreement. In the absence of agreement between the borrower and lender, the lender can proceed with the foreclosure after the deferral period. There is no guarantee that it will work, but the program may help qualified borrowers stay in their homes.
Noah Klug is principal of The Klug Law Firm, LLC, a general law practice in Summit County emphasizing real estate, business law and litigation. He may be reached at (970)468-4953 or Noah@TheKlugLawFirm.com.
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