Recently introduced House Bill 13-1249 has been promoted as an attempt to ‘reform’ the public trustee foreclosure process by requiring lenders to prove that they hold the Deeds of Trust being foreclosed and further requiring them to negotiate and work with borrowers requesting a loan modification or other foreclosure prevention alternatives. If the Bill is passed into law, it will undoubtedly provide greater protections to homeowners which may enable them to retain their home and stimulate them to payoff their association delinquencies. A closer reading of the Bill, however, suggests that an association may be negatively impacted from the additional requirements imposed on lenders.
HB 13-1249 will make it increasingly difficult for a lender to proceed with its foreclosure if negotiations with a delinquent borrower prove futile. Prior to proceeding with a foreclosure sale, current law requires a lender to obtain a court order authorizing the sale through a Rule 120 proceeding. A Rule 120 proceeding is typically an expedited proceeding where the court must determine that a debtor is not on active military duty, that the Deed of Trust permits the property to be sold at foreclosure sale and that there is a ‘reasonable probability of a default’ by a borrower. Rarely, a lender will not be able to prove these requirements but can quickly reschedule another hearing to provide the court with any necessary additional information.
HB 13-1249 requires a foreclosing lender to prove the following:
“(A) The moving party is the holder of the evidence of the debt;
(B) The moving party is the real party in interest to foreclose the debt;
(C) The moving party has legal standing to foreclose the debt;
(D) The foreclosure should be deferred pending the outcome of any ongoing negotiations regarding loan modification efforts or other foreclosure prevention alternatives in which the borrower is participating in good faith; and
(E) The documents provided by the moving party are authentic and sufficient to resolve the issues identified in Sub-paragraphs (A) to (C)..................."
Under HB 13-1249, if the lender fails to meet the requirements above, the debtor will be able to request payment of his/her attorneys’ fees incurred and the lender will have to wait at least an additional six months to re-file its Rule 120 action but only if it has “significant new or different evidence in support of the new motion”. The six month refiling delay could prove to be financially harmful to both debtors and associations, due to additional accrual of assessment fees, where a foreclosure sale date can already be continued for a period of one year. Given the difficulties that many lenders have previously experienced in other jurisdictions (i.e. Florida, California) in complying with requirements similar to those laid out above, associations should commence preparing a plan to minimize the resulting financial impact if the Bill is passed into law. Some suggestions will be explored in my follow-up to this article.