FORECLOSURE 101 (Continued)

THE REDEMPTION PERIOD

On the Auction date, the Public Trustee announces the property and opens bidding. The foreclosing lender must bid; other bids are voluntary. The Auction is a public event and anyone with certified funds sufficient to cover a bid can participate. In general, the lender will bid what it is owed (including fees and interest); or less if it believes the property is not worth what is owed. Competitive bidding by the public may occur, particularly if the value of the property is perceived to be significantly more than the amount of the lender’s bid (i.e., the property has equity).

The high bidder at the AuctionInformation Windowreceives a Certificate of Purchase from the Public Trustee. A Certificate of Purchase is not a deed. Colorado law creates a redemption period which must expire before the Public Trustee can issue a deed. The redemption period affords each lien holder junior to the foreclosing lender the opportunity to buy the property. The process is best understood by example:

A third party may be the Auction high bidder. In this case, the Public Trustee collects certified funds from the third party and pays off the foreclosing lender. As a practical matter, many foreclosures end with the foreclosing lender owning the property.

Blackacre has a fair market value of $100,000.00 and is encumbered by three deeds of trust - a first to L1 for $60,000.00, a second to L2 for $20,000.00 and a third to L3 for $10,000.00. Suppose L1 forecloses and is high bidder at the Auction with a $60,000.00 bid. During the redemption period, L2 has the first opportunity to redeem.Information WindowTo do so it must file a Notice of Intent to Redeem and then pay $60,000.00 (plus accrued interest) to the Public Trustee before the expiration of the L2 segment of the redemption period.

In Colorado, redemption is a serial process – the junior lien holder with the senior-most lien relative to the lien of the foreclosing lender has the first redemption right. The next senior-most junior lien holder has the second right, and so on. If an association (HOA) has a lien, it automatically redeems first.

Following the L2 segment, L3 may redeem, assuming timely filing of a Notice of Intent to Redeem, for $60,000.00 plus $20,000.00 (plus all accrued interest). Note that the amount collected from the first redeeming party is the amount paid by the Auction high bidder. Each succeeding redeemer pays that amount plus the amount due the prior redeemer. As the last redeemer, L3 would get the property, free and clear of the liens of L1 and L2. It could then sell the property and apply the difference between the cost of redemption and the sale price to satisfy its own $10,000.00 debt.

Following an Auction, there are two possible scenarios: 

1. No one redeems. In this case, the Public Trustee will issue a Confirmation Deed to the holder of the Certificate of Purchase.Information Window

A Certificate of Purchase can be assigned to another party. A Confirmation Deed will not be issued until the Certificate of Purchase is submitted to the Public Trustee (at the end of the redemption period) and the grantee on the deed will be the assignee, if applicable.

2. A junior lien holder redeems. The Public Trustee will issue a Certificate of Redemption to each redeeming lien holder in succession. A Certificate of Redemption acts as an assignment of the Certificate of Purchase. The holder of the last Certificate of RedemptionInformation Windowwill deliver it to the Public Trustee in exchange for a Confirmation Deed.

A Certificate of Redemption can be assigned to another party. A Confirmation Deed will not be issued until the last Certificate of Redemption is submitted to the Public Trustee (at the end of the redemption period) and the grantee on the deed will be the assignee, if applicable.

 

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