In the state of Colorado, homeowners considering foreclosure or short sale should be aware of Colorado foreclosure statutes relevant to deficiency judgment actions. Unlike many other states, Colorado foreclosure statutes, specifically those in Title 38, Articles 37 through 39 of Colorado’s Revised Statutes, allow lenders to obtain deficiency judgments in the event of foreclosure sale or short sale. Of course, these allowances are only valid, provided a homeowner has not taken steps beforehand in negotiations with their lender to prevent deficiency judgment.
What Creates a Deficiency Judgment?
If a property in foreclosure is sold at public auction for an amount less than underlying mortgage or deed of trust debt obligation secures it for, a lender can pursue and obtain a court judgment requiring homeowners repay the left over debt amounts in what is known as a deficiency judgment. In the same respect, any short sale agreement, if not properly negotiated, can lead to deficiency judgment for unpaid debt obligations as well. Lenders, if they possess the right to a deficiency judgment lien, may take any necessary action to collect the judgment award, including wage garnishments of up to twenty-five percent of one’s income.
Foreclosure Sale and Deficiency Judgment Laws Specific to Colorado
Under past and current Colorado foreclosure sale laws, lenders have had the ability to collect deficiency judgments against borrowers. Typically, the terms of a loan agreement may preempt a lender’s ability to do so, or in other cases, may explicitly allow such actions to occur. Furthermore, any second or third mortgage secured by a given property in foreclosure, which is sold, can result in deficiency judgment awards, as well.
Short Sale and Deficiency Judgment Laws Specific to Colorado
Per the Colorado Division of Real Estate, short sales resulting in deficiency can be pursued by lenders in form of court awarded judgments. Though federal laws provide protections for homeowners with debt forgiven related to a mortgage under the Mortgage Forgiveness Debt Relief Act of 2007, this is only applicable to tax liability and not the amount owed to the lender per the deficiency award. In essence, a short sale transaction can create deficiency liabilities for homeowners in the same manner as foreclosure sales do, unless a homeowner takes action to prevent such judgments from being obtained during the negotiations of a short sale agreement.
Getting Legal Help
Having an attorney negotiate any short sale agreement, or represent a homeowner during a forced foreclosure sale, can potentially involve actions preventing lenders from obtaining the right to claim deficiency judgment. Consult with an attorney well before foreclosure or any short sale agreement occurs in order to mitigate the potential losses incurred with a deficiency judgment obtained by your lender.
