Colorado’s Foreclosure Rules Challenged – Prater et al v. Bank of New York Mellon et al
Colorado’s Foreclosure Rules Challenged
Some excerpts from the report.(Case file below)
Borrowers say they don’t get a fair hearing from public trustees and limited court hearings.
Denver attorney
John Prater sued the state of Colorado in federal court Friday,
alleging that it is allowing lenders to seize properties without the due
process required under the U.S. Constitution.
“Colorado’s foreclosure process and law are unconstitutional,” said Andrew O’Connor with the Prater Legal Offices.
He said borrowers aren’t getting a fair
hearing under the state’s current system of public trustees and limited
“Rule 120″ court hearings.
Prater is fighting a foreclosure on his
Douglas County home and filed a federal lawsuit after failing to get the
hearing he wanted in state courts.
Under Colorado’s current system, lenders
can foreclose even if a fraudulent origination contributed to the
delinquency. They can foreclose even while promising a loan
modification that never gets fulfilled. And they can foreclose without
ever providing proof before a judge that they have clear legal standing
to do so, O’Connor said.
He said Colorado serves a lender’s
interest by having judges in Rule 120 hearings address only two issues:
Is a borrower in the active military, which allows special
consideration, or are they delinquent?
O’Connor comes from Florida, one of 20
states where judges oversee foreclosures. Another 29 states use a
private trustee working on behalf of the lender to reclaim property.
Colorado alone uses an elected official or appointee of the governor as trustee.
Defenders of the current system contend that Colorado offers a more balanced approach.
Borrowers have more protections than
offered in private- trustee states, without the added strain and costs
of putting everything into the courts.
“I am not sure how the judicial system
would protect people’s rights that aren’t being protected,” said Mike
Rosser, a lending industry veteran and former chairman of the Colorado
Foreclosure Prevention Task Force.
Changes benefit lenders.
Although public trustees are neutral, they
must follow the letter of the law. Whoever has the most influence in
writing the rules controls the process, consumer advocates claim.
“It looks to me like the lending industry
knew what they needed and were able to get it passed without thinking
about the ramifications for debtors,” said Nancy Bentson Essex, a
Crested Butte attorney.
One example is a change in 2006 that
allowed lenders or their attorneys to sign a certificate claiming they
are the “qualified holder” of a note and to provide a copy of the
original note to the public trustee.
Lenders initiating a foreclosure don’t
have to prove to the public trustee that a note was properly endorsed or
assigned to them, Essex said.
Colorado doesn’t require that assignments and transfers on a mortgage be recorded with the country clerk.
Eliminating that paper trail makes it
easier to sell mortgages and pool them into securities, now common
industry practice. But it also means borrowers can lose their homes
without ever knowing if the wrong or right party is foreclosing.
Without that knowledge, they can’t mount a defense.
Denver County Clerk and Recorder Stephanie
O’Malley, who is also Denver’s public trustee, would like to see
assignments once again recorded in the public record.
She also knows that the lending industry will fight that kind of change.
“The truth is that they have a heavy lobby,” she said. “They are going to protect their interests.”
Aurora resident Kathy Linder is attempting to sue Snyder, the Adams County public trustee, after losing her home last year.
She alleges that Snyder allowed the wrong
lender to foreclose on her home and that Snyder oversaw its sale at
auction without a judge’s approval.
“The foreclosure attorneys know what they are doing is illegal,” Linder said. “The public trustees know what they are doing is illegal.”
Read more: Colorado’s foreclosure rules challenged
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