When a borrower decides to take out any type of commercial real estate loan, it is crucial they understand the fundamentals of the foreclosure process. It doesn’t matter whether borrowers choose to borrow from private capital lenders or institutional lenders; there are real risks involved. Understanding the foreclosure process helps both real estate lenders and borrowers know the risk, foresee possible options if you end up in this situation, and have the best possible experience with hard money lenders.

Each state has its own foreclosure rules and regulations. The following explanation is intended for Colorado hard money borrowers only, although certain aspects of Colorado’s foreclosure proceedings may be applicable in other states. It is vital to contact an attorney in your state to understand your local foreclosure laws.

Steps in the Colorado Foreclosure Process

Step One: The Foreclosure Demand Letter

Prior to initiating a foreclosure, a foreclosing lender almost always sends a “demand letter” to the borrower “demanding” that defaults in the loan are cured. These defaults may be non-payment of interest, failure to pay taxes or insurance, or placing a lien on the property without the lender’s permission. The default letter typically gives the borrower a certain number of business days to cure the default and states that if it is not cured within that time frame, the loan will be put into foreclosure.

Step Two: Filing the Foreclosure

If the lender’s demands are not met by the required date, the lender files what is called the “Notice of Election and Demand” (NED) with the Public Trustee (PT) of the county in Colorado in which the property is located. Colorado is the only state that uses the Public Trustee system.

In Colorado, when documenting a loan, the borrower signs the lender’s Deed of Trust form. A Deed of Trust literally transfers ownership of the collateral property to a Public Trustee (an appointed county official) during the term of the loan. So long as the loan is not in default, the Public Trustee does not need to exercise its ownership of the property. On the other hand, when a default is declared by the recording of the NED, the Public Trustee must follow certain regulations created by the state legislature.

Unless the default is cured, the Public Trustee will transfer its ownership of the property to the private capital lender.

Step Three: Notification of the Borrower and Other Creditors by the Public Trustee

According to the rules set up by the legislature, the Public Trustee must send a letter to the borrower and to any other creditors that are junior (i.e., that have an interest in the property like a second mortgage) to the lender when foreclosure actions have commenced.

This notice must also be published in a newspaper on three separate occasions to give the public notice that a foreclosure is in process. The entire Colorado foreclosure process takes approximately four and a half months from start to finish.

Step Four: The Rule 120 Hearing

Colorado law requires that the lender schedule a hearing in the District Court in the county in which the property is located. The purpose of this hearing is to determine if there is, in fact, a default and if the property owner is a member of the armed forces.

Other issues concerning the borrower’s claims against the lender are typically not able to be heard in this hearing, and the borrower would have to bring a separate case against the lender to raise these concerns. The borrower is notified of the hearing and may file an answer to the lender’s claim of a default through their counsel or on their own.

Step Five: Receivership

If the property in foreclosure is an improved income-producing property, the lender may ask the District Court to appoint a Receiver. The Receiver is an agent of the court and takes over management and control of the property. The Receiver will collect the rental income from the property and has wide authority to maintain the property in good condition and can even rent vacant space. The borrower must surrender control of the property to the Receiver when this order is entered.

Step Six: The Cure Period

The borrower may “cure” the default for a set time after the filing of the Notice of Election and Demand. To cure a default means that the borrower must pay the lender all past due interest (including default interest and other charges) as well as pay the lender’s legal and other costs incurred in the foreclosure process.

Once the borrower pays these fees and costs, the loan is taken out of default and the Public Trustee cancels the foreclosure.

Step Seven: Transfer of Title to Lender

After the final day “cure” period ends, assuming the borrower has not cured the default, the Public Trustee issues a “Certificate of Purchase” to the lender, which is the next-to-final step in transferring the borrower’s title to the property to the lender. There is an additional period during which any junior lienholder (i.e., a second mortgage holder or anyone who has a recorded interest in the property that was recorded after the first deed of trust) may “redeem” the property by paying off the first mortgage lender in full. This right does not extend to the borrower.

Once this redemption period expires, the Public Trustee issues what is called a “Confirmation Deed,” which officially transfers ownership of the property to the lender. The borrower loses all rights to the property once the Confirmation Deed is recorded, and this brings the foreclosure process to its conclusion.

Contact Montegra Today

Understanding the foreclosure process in Colorado is crucial for both borrowers and lenders. Borrowers can benefit from knowing their rights, exploring options to cure defaults, and seeking professional guidance to make the best decisions.

At Montegra, we believe in providing transparent, fair, and reliable hard money lending solutions. With decades of experience in the Colorado real estate market, we guide our clients through every step of the process to ensure clarity and confidence in their financial decisions.

If you’re exploring hard money loans or want a trusted partner for your next Denver real estate investment, contact Montegra today. Let us help you achieve your goals with lending solutions tailored to your needs.

This post is not intended to provide legal advice to anyone. If you are the subject of a foreclosure, Montegra urges you to retain your own attorney and follow their advice on the best way to deal with the default and/or foreclosure. These posts are only meant to give a general overview of the foreclosure process in Colorado and are not written by an attorney.