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.