Pub. 5 2015-2016 Issue 5

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S March • April 2016 17 Background and Role of Rule 120 inPublicTrusteeForeclosures in Colorado In creating the office of the public trustee, the General Assembly sought to strike a balance between the competing interests of protecting debtors while still providing a speedy, efficient procedure for creditors. Foreclosure of a deed of trust through the public trustee is granted by the power of sale provision in the deed of trust, which is recorded against the prop- erty securing the underlying debt in the clerk and recorder’s office in the county where the property is situated. In order to sell the secured property, the creditor must obtain a judicial order authorizing the public trustee to conduct the sale. Rule 120 governs the specialized hearing procedure utilized by creditors to obtain the judicial order authorizing the public trustee’s sale. The current version of Rule 120 was the result of amend- ments approved by the Supreme Court in 1976. In its current formulation, Rule 120 requires only two showings by the foreclosing creditor, including compliance with the Soldiers’ and Sailors’ Relief Act of 1940 and the existence of a reasonable probability of a default under the terms of the loan documents. Proposed Amendments to Rule 120 and Recent Legislative Developments Relating to Public-Trustee Foreclosures The proposed amendments to Rule 120 are unfavorable to creditors seeking to obtain an order authorizing sale, for three primary reasons. First, under subsection (a), the motion for an order authorizing sale would have to be verified by a person with “direct knowledge” who is “competent to testify” regarding the facts stated in the motion. Under this language, the creditor’s attor- ney would be precluded fromverifying the motion for an order authorizing sale since attorneys cannot both represent a party and testify in the same action. Attorney verification is commonplace under current Rule 120 practice. The term“direct knowl- edge” also calls into question whether the successor servicer of a mortgage loan could testify regarding a prior servicer’s business records, especially when the prior servicer is no longer in business such that no employee intimately familiar with the recordkeeping procedures of the prior servicer is available to testify. Second, under subsection (c), the debtor is no longer required to verify the objection to the creditor’s motion under oath and does not have to file documen- tation supporting the objection before the Rule 120 hearing. Thus, the debtor can wait until the Rule 120 hearing is already underway before disclosing any of the evi- dentiary support for their objection. This contrasts with the creditor’s obligation to verify its motion under oath through a person that has direct knowledge and is competent to testify as a witness, while including supporting loan documentation. Third, under subsection (d)(1)(D), the court must consider whether the status of any request for a loan modification pre- cludes the foreclosure sale. This appears to incorporate C.R.S. §§ 38-38-103.1 and 103.2, which sets forth a framework of du- ties owed by creditors to debtors inquiring about or involved in loss mitigation. In short, a foreclosing creditor must be able to demonstrate meticulous compliance with internal and external guidelines governing its loss mitigation efforts with the debtor as a predicate to obtaining an order authorizing sale. There are a host of uncertainties created by putting the judiciary in this active oversight role with respect to creditor’s loss mitigation efforts, which are beyond the scope of this article. 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