Office of Sen.

Mike Johnston
Colorado General Assembly | 200 E. Colfax Avenue | Denver, CO 80203 | 303.866.4864

FACT SHEET MEMORANDUM

HB 12-1156 Public Trustee Foreclosure Document Requirements Rep. McCann & Sen. Johnston Staff Name: Damion LeeNatali What the Bill Does: HB 12-1156 heightens the requirements for certain lenders seeking to foreclose on property. Under current law, lenders may foreclose on property through the Public Trustee system. Public Trustees in each county are appointed by the Governor and are charged with providing an impartial foreclosure process.1 Under current law, the foreclosure process begins when a lenders attorney files a Notice of Election and Demand (Notice) with a Public Trustee.2 The Notice states that the homeowner is in default and is accompanied by original copies of property documents. If a Public Trustee has deemed a property fit for foreclosure, the lender must then obtain a court order authorizing sale of the property.3 Due to changes in the home mortgage industry, mortgages are often originated by a lender, divided into pieces, and sold as securities to downstream lenders. Under current law, a downstream lender who seeks to foreclose on a property is not required to provide evidence that the debt was sold to him.4 Instead, the downstream lenders attorney can certify that the lender is the qualified debt holder.5 If a lender chooses to foreclose on a property without producing original documents, the lender is liable for any loss that a homeowner sustains as the result of an improper foreclosure.6 However, the homeowner can only sue for economic losses, not punitive damages, and in some circumstances the homeowner can only sue the lender, not the lenders attorney.7 Where debt has been sold from one lender to another, HB 12-1156 requires a downstream lenders attorney to file documentation demonstrating that the debt has been passed from the original lender to the downstream lender. HB 12-1156 also subjects the lender to increased liability if the lender does not produce original documents and the foreclosure is improper. Finally, HB 12-1156 requires that a court make certain findings before authorizing a foreclosure sale. Specifically, the court must determine whether (a) the lender is the holder of the debt, (b) the lender has legal standing to foreclose the debt, and (c) the documents provided by the lender are authentic and sufficient.
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See Colo. Rev. Stat. 38-37-101 to -113 (West 2011). C.R.S. 38-38-101(1). 3 Id. 38-38-105(2)(a). 4 Id. 38-38-101(6)(b). 5 Id. 6 Id. 38-38-101(2)(a). 7 Id.

DRAFT 1/22/2012 11:49 AM

For a complete list of fact sheets, visit www.mikejohnston.org/in-the-legislature.

Colorado Context: Colorado law previously required lenders to provide original documents demonstrating that the lenders were the qualified holders of debt, but the statute was amended in 2002 to allow lenders to provide attorney certification in lieu of original documents.8 Some critics of the 2002 legislation noted that the legislation was partially drafted by foreclosure attorneys who stood to benefit from the new laws.9 At the height of the housing bust, Colorado ranked 9th in the country for foreclosure rates.10 By 2011, Colorado had receded to 11th place.11 National Context: In the 2011 legislative session, Nevada passed legislation tightening documentation requirements for transfers of debt among lenders.12 The Georgia General Assembly proposed similar legislation, but it has not yet passed out of committee.13 Bill Provisions: Requires a lender or a lenders attorney to file documentation demonstrating that property debt has been assigned to the lender Removes the limitation that lender liability is confined to economic losses Requires that a court authorizing a foreclosure sale make the following findings: o Whether the applicant for foreclosure is the holder of the evidence of the debt; o Whether the applicant is the real party in interest to foreclose the debt; o Whether the applicant has legal standing to foreclose the debt; and o Whether the documents provided by the applicant are authentic and sufficient Specifies that the applicant has the burden of proof in establishing the authenticity and sufficiency of the documents Specifies that an order authorizing a foreclosure sale is issued without prejudice to any party seeking injunctive or other relief Requires a court to stay any foreclosing proceedings if a homeowner has sued for injunctive relief in another court and the injunctive order has not yet been granted or denied Fiscal Impact: No fiscal note for HB 12-1156 is available at this time.

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See Laws 2002, Ch. 315, 6, eff. July 1, 2002. David Migoya, Colorado Public Trustees Pushed to Make It Easier to Foreclose on Homes, THE DENVER POST (Sept. 25, 2011). 10 Realtytrac.com, Foreclosure Activity Hits Record High in Third Quarter (Oct. 15, 2009), available at www.realtytrac.com/foreclosure/foreclosure-rates.html. 11 Associated Press, Colorado Ranks 11th in Foreclosures in November (Dec. 15, 2011), available at www.denverpost.com/breakingnews/ci_19553566. 12 See Laws 2011, Ch. 84, available at www.leg.state.nv.us/Session/76th2011/Bills/AB/AB284_EN.pdf. 13 Georgia General Assembly, 2011-2012 Regular Session, Senate Bill 123, available at www.legis.ga.gov/legislation/en-US/display/32956.

DRAFT 1/22/2012 11:49 AM

For a complete list of fact sheets, visit www.mikejohnston.org/in-the-legislature.