DELINQUENCY: The day after a payment is due, a loan is DELINQUENT if there are no other unpaid payments. If the grace period runs until the 16th of each month (as it does for all FHA loans) and payments are posted each month on the 10th, then the loan becomes DELINQUENT for a short period each month.

DEFAULT: A loan is IN DEFAULT as soon as any payment has been due and unpaid for more than 30 days. Lenders often have subdivided collection departments dealing with loans that are in different stages or default.

FORECLOSURE: When a lender says a loan is in FORECLOSURE, they usually mean that the loan file has been transferred to an internal department whose job is to decide if and when to send the loan to the lawyers who handle the lender’s foreclosures in Colorado. Most lenders use an outside law firm.

FHA loans cannot be put into foreclosure status until at least three payments are due and unpaid. However, a foreclosure on an FHA loan CAN begin before the grace period expires for the third payment.

Conventional (non-government insured) loans can be put in foreclosure AS SOON AS THE LOAN IS IN DEFAULT, which may be only 15-20 days after the grace period ends. However, most lenders will choose not to begin foreclosure until three payments are due and unpaid.

LEGAL WORK: After the lender transfers a loan file to their foreclosure attorneys, the borrower will become responsible for the lender’s legal costs, the total of which can be up to $2500 or more. Foreclosure costs and fees including all legal fees incurred must be paid in addition to back payments and late fees in order to CURE the loan and stop the foreclosure. The attorneys usually spend two to four weeks preparing documents, which, assuming the lender is foreclosing on a Deed of Trust, will be sent to the Public Trustee’s Office for the county where the property is located.

PUBLIC AUCTION: When the Public Trustee receives the foreclosure documents from the lender’s attorneys, the Public Trustee will schedule a public auction of the property 110-125 days in the future (45-60 days if the Notice of Election and Demand was filed prior to 2008) and longer for agricultural properties. The borrower’s RIGHT TO CURE the loan ends 15 calendar days before the public auction of the property, unless they file an INTENT TO CURE form with the Public Trustee’s office for the appropriate county. By filing this form they should receive the CURE FIGURES, i.e. the amount of money needed to reinstate their loan, within one week before the sale. The Public Trustee’s Office must receive a cashier’s check of the total amount due before 12 Noon, one day prior to the public auction.

The lender’s attorneys must schedule a RULE 120 HEARING to take place before the auction date. The judge may cancel this hearing if the borrower does not officially respond when given notice. The purpose of the hearing is to legally establish whether the lender has the right to foreclose on the property and have it sold at the public auction.

The borrower is not required to attend the RULE 120 HEARING, but their legal rights will be at stake.

REDEMPTION PERIOD:

Note: The homeowner redemption period only applies to foreclosures with a Notice of Election and Demand filed prior to 2008. If a home is sold at the public auction, it is followed by a 75 day REDEMPTION PERIOD during which time the homeowner can retain the equity in the property by paying off the amount bid at auction plus “allowable fees” i.e. taxes, insurance, and any interest accrued per day, made payable to the county Public Trustee’s Office.

To receive the REDEMPTION FIGURES the INTENT TO REDEEM must be filed at the county Public Trustee’s office at least 15 calendar days prior to the end of the redemption period. Within 8 days, the exact amount to redeem should be received, leaving a homeowner a week to acquire the funds for this option.

One benefit of the redemption period is that it gives borrowers additional time to sell the home. This allows many homeowners with significant equity to salvage most of it even after the auction of their property, as well as keeping a completed foreclosure off of their credit history.

It is also possible to pay off the whole debt during the redemption period without selling the home by REFINANCING the loan. Some lenders are willing to refinance at a higher interest rate, up to 5% above the going rate, even after the auction date. However, this normally requires at least 20% equity to even be considered (80% loan to value).

NOTE: The loan CANNOT BE CURED during this period; in essence, the loan no longer exists.

Junior Lienor Redemption Period Junior lienholders have a short redemption period after the sale. For NEDs filed prior to 2008, the junior lienors must file an Intent to Redeem at least 15 days prior to the end of the homeowner redemption period. For NEDs filed 2008 and later, the junior lienors can file their Intent to Redeem after the sale.

DEFICIENCY JUDGMENT: If the debt on the home exceeds what the lender thinks the home is worth, a homeowner could still owe the lender money even after the loss of the home. If a court can be convinced that the lender bid is less than a good faith estimate of the property’s value at the public auction, then a DEFICIENCY JUDGMENT for additional debt may be avoided. Otherwise the owner of the property will be held responsible for the deficient amount.