With the possibility of an increase in the number of foreclosures on the horizon and the potential easing of state and federal foreclosure moratoriums, a real estate broker will need to be aware of the Colorado Foreclosure Protection Act (“the Act”).
While the Colorado Foreclosure Protection Act is a very complicated piece of legislation, this advisory only covers an overview of the Act and points out some important aspects that real estate brokers need to be aware of. Any real estate broker working with a property that falls under this Act should discuss and get direction from their employing broker and legal counsel.
What is the Colorado Foreclosure Protection Act?
This Act was created in 2006 because: “Unfortunately, too many homeowners in financial distress, especially the poor, elderly, and financially unsophisticated, are vulnerable to a variety of deceptive or unconscionable business practices designed to dispossess them or otherwise strip the equity from their homes. There is a compelling need to curtail and to prevent the most deceptive and unconscionable of these business practices, to provide each homeowner with information necessary to make an informed and intelligent decision regarding transactions with certain foreclosure consultants and equity purchasers, to provide certain minimum requirements for contracts between such parties, including statutory rights to cancel such contracts, and to ensure and foster fair dealing in the sale and purchase of homes in foreclosure.” (§6-1-1101 et. seq., C.R.S.)
The Act deals with situations involving “Equity Purchasers” and “Foreclosure Consultants”.
An Equity purchaser is a person, other than a person who acquires a property for the purpose of using such property as his or her personal residence, who acquires title to a residence in foreclosure. While there are a number of exceptions of who is not an equity purchaser in the statute, one exception that has relevance for the broker is that it does not include a person who acquires such title:
- As a result of a short sale transaction in which a short sale addendum form, as promulgated by the Colorado Real Estate Commission, is part of the contract used to acquire a residence in foreclosure and such transaction complies with section §6-1-1121, C.R.S.
- A short sale under the Act means a transaction in which the residence in foreclosure is sold when:
- A holder of evidence of debt agrees to release its lien for an amount that is less than the outstanding amount due and owing under such evidence of debt; and
- The lien is recorded in the real property records of the county where the residence in foreclosure is located.
As such, brokers should review and be familiar with the following Commission-approved Short Sale Addendums:
- Short Sale Addendum (Seller Listing Contract)
- Short Sale Addendum (Contract to Buy & Sell Real Estate)
A Foreclosure Consultant is a person who does not, directly or through an associate, take or acquire any interest in or title to a homeowner's property and who, in the course of such person's business, vocation, or occupation, makes a solicitation, representation, or offer to a homeowner to perform, in exchange for compensation from the homeowner or from the proceeds of any loan or advance of funds, a service that the person represents will:
- Stop or postpone a foreclosure sale;
- Obtain a forbearance under a deed of trust, mortgage, or other lien;
- Assist the homeowner in exercising a right to cure a default;
- Obtain an extension of the period within which the homeowner may cure a default;
- Obtain a waiver of an acceleration clause contained in an evidence of debt secured by a deed of trust, mortgage, or other lien;
- Assist the homeowner to obtain a loan or advance of funds;
- Avoid or reduce the impairment of the home owner's credit resulting from the recording of a notice of election and demand for sale, commencement of a judicial foreclosure action, or due to any foreclosure sale or the granting of a deed in lieu of foreclosure or resulting from any late payment or other failure to pay or perform under the evidence of debt, the deed of trust, or other lien securing such evidence of debt; or
- In any way delay, hinder, or prevent the foreclosure upon the home owner's residence.
There are many duties, obligations, and legalities placed upon a foreclosure consultant in the statute when working with a homeowner which are beyond the scope of this advisory, therefore, one should seek legal advice regarding these matters.
While there are a number of exceptions of who is not a foreclosure consultant in the statute, one exception that has relevance for the broker is that it does not include:
- A person licensed as a real estate broker under article 10 of title 12 while the person engages in any activity for which the person is licensed.
When to use Colorado Foreclosure Protection Act (Contract)
Flowcharts on the Division’s website will assist you in determining if the Contract to Buy and Sell Real Estate (Residential) (Colorado Foreclosure Protection Act contract) (CBSF1) is required.
If the use of the Foreclosure Protection Act contract is required - How do you fill out certain essential parts of that contract?
The Colorado Foreclosure Protection Act contract is a close variation of the current Contract to Buy and Sell. While this advisory does not cover the entire contract, below are some essential elements to be aware of. Although some of these contract fields may seem obvious to the average broker, the following fields are essential to be included and fully filled out in detail.
The contract must be reviewed and completed with the Buyer in its ENTIRETY with no blanks being left. IN PARTICULAR:
- Enter the street address and FULL legal description.
- Date and time of possession.
- Total Consideration and terms of payment.
- If the buyer is to perform services for the seller of any nature before or after the sale, or any other non-cash items are involved, then these must be completely detailed in contract.
- Buyer name, address and phone number.
The broker should pay particular attention to Section 11 of this contract, as it spells out the applicability and agreed to conditions of the Colorado Foreclosure Protection Act provisions. In addition, Section 31.3 describes the disclosure forms (referenced below) that must be attached to the contract. Also, at the end of the contract before the signature blocks is a Notice Required By Colorado Law provision that needs to be completed concerning the seller’s right to cancel.
- The first blank is for the buyer’s name.
- The second blank is the deadline for the seller’s right to cancel. The specified date and time is the earlier of: 12 Midnight of the 3rd business day after the seller signs the contract; or 12 Noon the day before the foreclosure sale.
What other documents are involved with a sale concerning the Foreclosure Protection Act?
The Notice of Cancellation form notifies the seller that “You may cancel this contract for the sale of your house, without any penalty or obligation, at any time before (Enter Date and Time of Day) ….” and the form also indicates how to deliver the notice if a cancellation is elected.
The completed Notice of Cancellation form is then attached to the Foreclosure Protection Act contract. The date to cancel is the same as that entered in the Notice Required by Law section of the Foreclosure Protection Act contract.
The Seller Warning - Equity Skimming form sets forth a Notice of Warning that the purchaser will not assume any present mortgages, deeds of trust, or other liens or encumbrances against the property.
Also, that the seller understands he/she will remain responsible for all payments due on such mortgages, deeds of trust, or other liens or encumbrances and for any deficiency judgment upon foreclosure.
It is imperative that the seller has reviewed and signed the Seller Warning – Equity Skimming notice. The Warning must be read to and signed by the seller and attached to the Foreclosure Protection Act contract. If the buyer is to assume any of the seller’s legal or financial obligations, then the contract must be prepared by an attorney.
The Homeowner Warning Notice - Right to Cancel form provides notice to the seller that: “This transaction involves important and complex legal consequences, including your right to cancel this transaction within three business days following the date you sign this contract. You should consult with an attorney or seek assistance from a housing counselor by calling: the Colorado Foreclosure Hotline at 1-877-601-4673.”
What if the Seller a Non-English Speaker?
The english language paragraph in the Homeowner Warning Notice – Right to Cancel form must be translated to the seller’s principal language and entered before the seller signs the document. The Notice must then be attached to the contract.
A broker should NOT translate this paragraph. If a translation is needed, the broker should consult with their employing, managing or designated supervisory broker.
What are the Penalties?
Penalties for Violation of the Colorado Foreclosure Protection Act include:
- Criminal penalties and a fine up to $25,000 and/or 1 year in jail.
- Deceptive Trade Practice with triple damages for bad faith plus attorney fees and cost.
Best Practice For Buyer and Seller Brokers Alike:
- First, take education courses on the foreclosure process, the Foreclosure Protection Act, and short sales.
- Unless the broker has proven experience with distressed equity sales, they should present any such offer to the broker’s employing, managing, or other designated supervisory broker PRIOR to submitting the offer to the client for signature, as well as seeking the advice of legal counsel.
Foreclosure Resources for Consumers