Second Regular Session Sixty-eighth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 12-0186.01 Duane Gall x4335 HOUSE BILL 12-1156 HOUSE SPONSORSHIP McCann, Duran, Fields, Kefalas, Lee, Vigil SENATE SPONSORSHIP Johnston, House Committees Senate Committees Economic and Business Development A BILL FOR AN ACT Concerning measures to improve the reliability of information provided in connection with real estate foreclosures. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) Current law allows a "holder of an evidence of debt" (holder), generally, a bank or other financial institution, to foreclose on real property under a deed of trust even if the holder's interest is based on an assignment from the original lender and the assignment or other intermediate documents are not produced, simply by providing a statement from the holder's attorney that the holder's interest in the property is valid. Sections 1 and 3 of the bill remove this provision and otherwise tighten the rules for documentation of the holder's interest that must be filed with the public trustee before a foreclosure sale is authorized. Section 2 amends provisions governing the court order authorizing sale by a public trustee (rule 120 order, referring to C.R.C.P. 120) to place the burden of proof on the holder in all cases to demonstrate that the holder does in fact have a valid assignment or other basis for its assertion that it is entitled to foreclose on the property. Section 2 also explicitly states that the rule 120 order is not a final judgment adjudicating all claims of rights and interests in the property, as a judgment under rule 105 (a "quiet title judgment") would be. Section 4 suspends any eviction proceeding if the rule 120 order has been challenged, until the challenge is resolved. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. In Colorado Revised Statutes, 38-38-101, amend (1) introductory portion, (1) (b) introductory portion, (1) (b) (II), (1) (c) introductory portion, (1) (c) (II), (1) (g), (2) (a), and (8); repeal (6) (b); and add (1) (i) and (1) (j) as follows: 38-38-101. Holder of evidence of debt may elect to foreclose. (1) Documents required. Whenever a holder of an evidence of debt declares a violation of a covenant of a deed of trust and elects to publish all or a portion of the property therein described in the deed of trust for sale, the holder or the attorney for the holder shall file the following with the public trustee of the county where the property is located: (b) The original evidence of debt, including any modifications to the original evidence of debt, together with and the original indorsement or assignment thereof of the evidence of debt, if any, to the holder of the evidence of debt or other proper indorsement or assignment in accordance with subsection (6) of this section or, in lieu of the original evidence of debt, one of the following: (II) A copy of the evidence of debt and a certification an affidavit signed and properly acknowledged by a the holder of an the evidence of debt, acting for itself or as agent, nominee, or trustee under subsection (2) of this section, or a statement signed by the attorney for such holder citing the paragraph of section 38-38-100.3 (20) under which the holder claims to be a qualified holder and certifying or stating that the copy of the evidence of debt is true and correct and that the use of the copy is subject to the conditions described in paragraph (a) of subsection (2) of this section; or (c) The original recorded deed of trust securing the evidence of debt and any original recorded modifications of the deed of trust or any recorded partial releases of the deed of trust, or in lieu thereof of the original recorded deed of trust, modifications, or partial releases, one of the following: (II) Copies of the recorded deed of trust and any recorded modifications of the deed of trust or recorded partial releases of the deed of trust and a certification an affidavit signed and properly acknowledged by a the holder of an the evidence of debt, acting for itself or as an agent, nominee, or trustee under subsection (2) of this section, or a signed statement by the attorney for such holder citing the paragraph of section 38-38-100.3 (20) under which the holder claims to be a qualified holder and certifying or stating that the copies of the recorded deed of trust and any recorded modifications of the deed of trust or recorded partial releases of the deed of trust are true and correct and that the use of the copies is subject to the conditions described in paragraph (a) of subsection (2) of this section; (g) A statement, executed by the holder of an the evidence of debt, or the attorney for such holder, identifying, to the best knowledge of the person executing such the statement, the name and address of the current owner of the property described in the notice of election and demand; and (i) Copies of all documents not otherwise listed in paragraphs (a) to (h) of this subsection (1) showing an unbroken series of intervening indorsements or assignments between the original evidence of debt secured by the deed of trust and the holder filing the notice of election and demand; and (j) If the person commencing the foreclosure is acting as an agent, nominee, or trustee for another person, documents demonstrating the person's authorization to enforce the evidence of debt. (2) Foreclosure by qualified holder without original evidence of debt, original or certified copy of deed of trust, or proper indorsement. (a) (I) A qualified holder, whether acting for itself or as agent, nominee, or trustee under section 38-38-100.3 (20) (j), that elects to foreclose without the original evidence of debt pursuant to subparagraph (II) of paragraph (b) of subsection (1) of this section, or without the original recorded deed of trust or a certified copy thereof of the original recorded deed of trust pursuant to subparagraph (II) of paragraph (c) of subsection (1) of this section, or without the proper indorsement or assignment of an evidence of debt under paragraph (b) of subsection (1) of this section, shall, by operation of law, be deemed to have agreed agrees to indemnify and defend: (A) Any person liable for repayment of any portion of the original evidence of debt in the event that the original evidence of debt is presented for payment to the extent of any amount, other than the amount of a deficiency remaining under the evidence of debt after deducting the amount bid at sale; and (B) Any person who sustains a loss due to any title defect that results from reliance upon a sale at which the original evidence of debt was not presented. The indemnity granted by this subsection (2) shall be limited to actual economic loss suffered together with any court costs and reasonable attorney fees and costs incurred in defending a claim brought as a direct and proximate cause of the failure to produce the original evidence of debt, but such indemnity shall not include, and no claimant shall be entitled to, any special, incidental, consequential, reliance, expectation, or punitive damages of any kind. (II) A qualified holder acting as agent, nominee, or trustee shall be is liable for the indemnity pursuant to this subsection (2). (6) Indorsement or assignment. (b) Notwithstanding the provisions of paragraph (a) of this subsection (6), the original evidence of debt or a copy thereof without proper indorsement or assignment shall be deemed to be properly indorsed or assigned if a qualified holder presents the original evidence of debt or a copy thereof to the officer together with a statement in the certification of the qualified holder or in the statement of the attorney for the qualified holder pursuant to subparagraph (II) of paragraph (b) of subsection (1) of this section that the party on whose behalf the foreclosure was commenced is the holder of the evidence of debt. (8) Assignment or transfer of debt during foreclosure. (a) (I) The holder of the evidence of debt may assign or transfer the secured indebtedness at any time during the pendency of a foreclosure action without affecting the validity of the secured indebtedness. Upon receipt of written notice signed by the holder who commenced the foreclosure action or the attorney for the holder stating that the evidence of debt has been assigned and transferred and identifying the assignee or transferee, the public trustee shall complete the foreclosure as directed by the assignee or transferee or the attorney for the assignee or transferee. (II) Each assignee or transferee described in subparagraph (I) of this paragraph (a) shall comply with the documentation requirements of paragraphs (i) and (j) of subsection (1) of this section and shall supplement the record accordingly. (III) No A holder of an evidence of debt, certificate of purchase, or certificate of redemption shall be is not liable to any third party for the acts or omissions of any assignee or transferee that occur after the date of the assignment or transfer. (b) The assignment or transfer of the secured indebtedness during the pendency of a foreclosure shall be deemed is made without recourse unless otherwise agreed in a written statement signed by the assignor or transferor. The holder of the evidence of debt, certificate of purchase, or certificate of redemption making the assignment or transfer and the attorney for the holder shall have no duty, obligation, or liability to the assignee or transferee or to any third party for any act or omission with respect to the foreclosure or the loan servicing of the secured indebtedness after the assignment or transfer. If an assignment or transfer is made by a qualified holder that commenced the foreclosure pursuant to subsection (2) of this section, the qualified holder's indemnity under said subsection (2) shall remain in effect with respect to all parties except to the assignee or transferee, unless otherwise agreed in a writing signed by the assignee or transferee if the assignee or transferee is a qualified holder. (c) If an assignment or transfer is made to a holder of an evidence of debt other than a qualified holder, the holder must shall file with the officer the original evidence of debt and the original recorded deed of trust or, in lieu thereof of the original documents, the documents required in paragraphs (b) and (c) of subsection (1) of this section. An assignee or transferee shall be presumed to not be a qualified holder, and as such, shall be subject to the provisions of this paragraph (c), unless a signed statement by the attorney for such assignee or transferee that cites the paragraph of section 38-38-100.3 (20) under which the assignee or transferee claims to be a qualified holder is filed with the officer. SECTION 2. In Colorado Revised Statutes, 38-38-105, amend (2) (a) as follows: 38-38-105. Court order authorizing sale mandatory - notice of hearing for residential properties. (2) (a) (I) On and after January 1, 2008, Whenever a public trustee forecloses upon a deed of trust under this article, the holder of the evidence of debt or the attorney for the holder shall obtain an order authorizing sale from a court of competent jurisdiction to issue the same pursuant to rule 120 or other rule of the Colorado rules of civil procedure. The order shall must recite the date the hearing was scheduled if no hearing was held, or the date the hearing was completed if a hearing was held, which date in either case must be no later than the day prior to the last day on which an effective notice of intent to cure may be filed with the public trustee under section 38-38-104. (II) Notwithstanding any other provision of law and regardless of whether a hearing is held, the court shall review the application and supporting documents filed by the applicant for the order authorizing sale and shall make specific findings on the following issues: (A) Whether the applicant is the holder of the evidence of debt; (B) Whether the applicant is the real party in interest to foreclose the debt; (C) Whether the applicant has legal standing to foreclose the debt; and (D) Whether the documents provided by the applicant are authentic and sufficient to resolve the issues identified in sub-subparagraphs (A) to (C) of this subparagraph (II). (III) The court shall set forth all findings on the issues identified in subparagraph (II) of this paragraph (a) in the court's order that either grants or denies the application for an order authorizing sale. The burden of proof is on the applicant to demonstrate compliance with all documentation requirements set forth in this article as part of its application for an order authorizing sale. (IV) A sale held without an order authorizing sale issued in compliance with this paragraph (a) shall be is invalid. (V) An order authorizing sale that is issued pursuant to this section is not a final judgment and is entered without prejudice to any party seeking injunctive or other relief, including a complete adjudication of all claims of rights and interests in the subject property under C.R.C.P. 105 in a court of competent jurisdiction. SECTION 3. In Colorado Revised Statutes, 38-38-100.3, amend (10) (d) as follows: 38-38-100.3. Definitions. As used in articles 37 to 39 of this title, unless the context otherwise requires: (10) "Holder of an evidence of debt" means the person in actual possession of or person entitled to enforce an evidence of debt; except that "holder of an evidence of debt" does not include a person acting as a nominee solely for the purpose of holding the evidence of debt or deed of trust as an electronic registry without any authority to enforce the evidence of debt or deed of trust. For the purposes of articles 37 to 40 of this title, the following persons are presumed to be the holder of an evidence of debt: (d) The person in possession of an evidence of debt with evidence that proves the person's authority, which may be granted by the original evidence of debt or deed of trust, to enforce the evidence of debt as agent, nominee, or trustee or in a similar capacity for the obligee of the evidence of debt. SECTION 4. In Colorado Revised Statutes, 13-40-104, amend (1) introductory portion and (1) (f) as follows: 13-40-104. Unlawful detention defined. (1) Any A person is guilty of an unlawful detention of real property in the following cases: (f) (I) Except as provided in subparagraph (II) of this paragraph (f), when: (A) The property has been duly sold under any power of sale, contained in any mortgage or trust deed that was executed by such the person, or any person under whom such the person claims by title subsequent to the date of the recording of such the mortgage or trust deed; and (B) The title under such the sale has been duly perfected; and (C) The purchaser at such the sale, or his or her assigns, has duly demanded the possession thereof of the property. (II) If an action for injunctive or other relief that challenges the sale of the property under a power of sale under C.R.C.P. 120 (d) has been filed in a court of competent jurisdiction, the court shall stay or dismiss without prejudice an action for possession under this paragraph (f) until the action for injunctive or other relief has been determined by judgment on the merits in that court; SECTION 5. Applicability. The provisions of this act apply to foreclosure proceedings in which the notice of election and demand is filed on or after the effective date of this act. SECTION 6. Safety clause. The general assembly hereby finds, determines, and declares that this act is necessary for the immediate preservation of the public peace, health, and safety.