Quite a bit of information and advice is available on the Internet for those seeking to defend against foreclosures initiated by their lender. Like all other topics on the Internet, some of this information is helpful, and some is simply fallacious. In this guide, I hope to provide some guidance on the pitfalls to avoid, and arguments that stand a chance of succeeding when you get in front of a judge.
Colorado is the only state in the US with a Public Trustee system designed to handle non-judicial foreclosures. The Public Trustees are government officials, as opposed to private ttrustees, usually attorneys, who oversee foreclosures in other states which have non-judicial foreclosure statutes. The Public Trustee foreclosure process is well explained on the various County Public Trustee websites, and involve a statutorily defined process that Lenders must adhere to in order to initiate and complete a foreclosure.
There is minimal Court involvement, usually at the outset, called a Rule 120 hearing. In this hearing, which every homewoner being foreclosed on should reply to and attend, the Lender seeks authority to proceed with a sale. The judge decides only two issues. 1) Is the Borrower actively engaged in military service (for which there is a special exemption), and 2) is the Borrower in default on his payments. The Judge will not listen to any other arguments. Motions for injunctive relief are commonly raised at this hearing, and just as commonly dismissed. However, if a Borrower believes that the delinquency figures are incorrect, or that payments have not been properly applied, this is where that argument needs to be made.
Show Me the Note" Defense
The "show me the Note" defense has repeatedly failed in the Colorado Courts and is irrelevant in a Rule 120 hearing. The reason is simply this. Before 2006, the Lender was required to produce the original Promissory Note or a certified copy to the Public Trustee in order to commence foreclosure on the Note. In 2006, this statutory requirement in Colorado was successfuly changed by the banking lobby. Now, all that is required is a statement from the attorney handling the foreclosure for the Lender, certifying that the Lender is the proper party to conduct the foreclosure, either as the Owner, or as someone who has authority on behalf of the Owner to foreclose. There is no longer any legal requirement to produce the actual Note or a certified copy before the foreclosure commences.
The "MERS is a Sham Beneficiary" Defense
- The "MERS is a sham beneficiary" argument has likewise not fared well in Colorado. While there have been no specific cases addressing that question in Colorado courts, other State Courts are split on that question. Colorado has routinely upheld that MERS can act as an agent of the true holder of the Note. However, that could change, as the Washington Supreme Court has recently ruled that MERS is not a beneficiary of the Note or Deed of Trust in their Bain v. Metropolitan Mortgage Group decision in August.
The "Lender Violated the FDCPA / CFDCPA Act" Defense
Claims that the Lender violated either the Federal or State Fair Debt Collections and Practices Act also routinely fail for the simple fact that Owners of the Note, and their servicers, are exempted by law from the provisions of the Act. However, any law firm corresponding with the Borrower regarding the delinquency on a Note has been construed to be a debt collector, and would fall under the purview of the Act, particularly if the correspondence from the attorney acting on behalf of the Lender claims to be acting as a debt collector in an attempt to collect on a debt.
The "Lender/Sponsor/Trustee Volated Their Own Pooling & Servicing Agreement" Defense
Claims that the Lender, or Trustee/Sponsor in a Pooling and Servicing Agreement (PSA) violated the terms of that agreement also arise when the loan was sold and rolled into to a Mortgage Backed Security (MBS) at the time it was originated. However, since the Borrower is not a party to that Agreement, the Borrower is not entitled (by virtue of lack of standing) to raise this argument, and such claims are again dismissed by the Court. However, if the Borrower can show that he was a 3rd party beneficiary to the PSA, or that the PSA is used soley to prove that the Note is not held by the Lender, then the Courts have indicated that the claim has enough merit to avoid an immediate dismissal.
The "I Can Wipe the Debt Off My Home" Theory
False hopes that the Borrower can somehow get his loan "wiped off the books" and own his home free and clear are just that, false hopes fueled by anecdotal stories on the Internet. If the borrower signed a Promissory Note, he owes the money to someone, even if it is not the Lender doing the foreclosure.
The "I Can Fight the Lender Myself" Theory
Defending against a foreclosure is an extremely complex task, and is best left to an experienced attorney. However, it is often the case that the Borrower does not have any money to pay legal fees. After all, if they can't pay the house payment, how could they afford to pay an attorney? I have reviewed over 25 cases brought between 20120 and 2012 in the 10th Circuit Court by borrowers not represented by counsel in an attempt to stop their foreclosure. Virtually every one was dismissed within 6 months without a trial. The end result was a lot of time and expense wasted by the Borrower without anything to show for it.
In summary, it is important to know what arguments will succeed and what arguments are doomed to failure before you start a successful foreclosure defense. I highly recommend getting competent legal assistance, as the road is long and the there are many twists and turns before you can successfully defend against a non-judicial foreclosure in Colorado. In a follow up article, I will present arguments that the Colorado courts have entertained and that might prove successful in battling a wrongful foreclosure.