Proposed Initiative Would
Eliminate “No-Doc” Foreclosures in Colorado
Stephen A. Brunette
Under current law, a foreclosing party may choose to file a Rule 120 foreclosure either: (1) with competent evidence that it is the holder of the evidence of debt, with authority to invoke the power of sale contained in the deed of trust, or, in the alternative, (2) with a certification that it is a qualified holder of the evidence of debt, or a statement by an attorney that it’s client is a qualified holder of the evidence of debt. The former is referred to herein as a “full-doc” foreclosure, the latter as a “no-doc” foreclosure.
The proposed Initiative would leave intact Colorado law that allows “full-doc” foreclosures, and would embody statutory “full-doc” foreclosure requirements in the Constitution. It would not interfere in any way with foreclosures filed by parties who have the requisite documentation for a “full-doc” foreclosure. On the other hand, the proposed Initiative would constitutionally prohibit “no-doc” foreclosures in Colorado, and repeal current statutory provisions that allow “no-doc” foreclosures. It would require parties who attempt to foreclose to “get their docs in a row” before attempting to foreclose on a Colorado homeowner.
The Business and Economic Development Committee of the Colorado House of Representatives recently passed on the opportunity to support a Bill (HB12-1156) that would have accomplished the same result. This small Committee barred full debate of this important matter on the floors of the Colorado House or Senate, however, so it is necessary and appropriate to provide Colorado voters an opportunity to act directly on this matter of statewide concern. The proposed Initiative would do just that.
1. Constitutional Bases
Article I of the Constitution of the State of Colorado is nothing more – and nothing less – than a legal description of the boundaries of the State, as follows:
The boundaries of the state of Colorado shall be as follows: Commencing on the thirty-seventh parallel of north latitude, where the twenty-fifth meridian of longitude west from Washington crosses the same; thence north, on said meridian, to the forty-first parallel of north latitude; thence along said parallel, west, to the thirty-second meridian of longitude west from Washington; thence south, on said meridian, to the thirty-seventh parallel of north latitude; thence along said thirty-seventh parallel of north latitude to the place of beginning.
Article XIV, Section 1 adopts the Counties of the Territory of Colorado as the Counties of the State of Colorado, and Article XIV, Section 8 requires each County to elect a County Clerk, who shall be the ex officio Recorder of Deeds for the County. Official records of ownership of real property within the boundaries of the State of Colorado – from Territorial Days to the present – are, accordingly, maintained in County Clerk and Recorder offices, under authority of the State Constitution.
The statutory “full-doc” foreclosure provisions – which have been in effect in some form for more than a century prior to the recent enactment of the “no-doc” foreclosure provisions – complement the Constitutionally mandated records of real property ownership by requiring a foreclosing party to produce records of any assignments of interests in a homeowner’s property, to assure the foreclosing party has a right to invoke the power of sale contained in a recorded deed of trust, in the constitutionally grounded records of ownership at the County Clerk and Recorder’s office in the County in which the property is located. The recently enacted “no-doc” provisions, in contrast, require no such proof.
2. Current Statutory Requirements for “Full-Doc” Foreclosure
Under C. R. S. §§38-38-100(3) and 38-38-101, a “holder of evidence of debt” or its attorney may file a foreclosure with:
(1) “. . . [t]he original evidence of debt, together with the original endorsement or assignment thereof, if any, to the holder of the evidence of debt . . .,” (C. R. S. §38-38-101(1)(b)), or “. . . a certified copy of the endorsement or assignment [of the evidence of debt] recorded in the county where the property being foreclosed is located. . .”. C. R. S. §38-38-101(1)(b) and (6)(a) (incorporated by reference in 38-38-101(1)(b)); and
(2) “. . . [t]he original recorded deed of trust securing the evidence of debt . . .” (C. R. S. §38-38-101(1)(c)) or a “. . . certified copy of the recorded deed of trust . . . .”. C. R. S. §38-38-101(1)(c)(I).
See C. R. S. §38-38-101(1) & (6) (emphasis added).
A foreclosing party who meets these requirements, with original or certified copies of recorded documents that show evidence of title and valid assignments of the note to that party, would presumably meet it’s burden of showing that it is a real party in interest [Goodwin v. District Court, 779 P.2d 837, 842-843 (Colo. 1989)) by producing evidence that it currently holds legal title to the note (Platte Valley Savings & Loan v Crall, 821 P.2d 305, 307 (Colo. App. 1991); American Surety Co. v. Scott, 63 F.2d 961, 964 (10th Cir. 1933) and citations therein (under Colorado law, the one who holds the legal title is the real party in interest)]; or that it has a full and complete assignment of the note, valid at the time its claim arose and at the time the case was filed [Alpine Associates, Inc. v. KP & R,, Inc., 802 P. 2d 1119, 1121 (Colo. App. 1990)]. If the foreclosing party claims to be acting as an agent for the real party in interest, it must also prove the existence of the agency relationship with competent evidence. Hancock v. Minneapolis-Moline, Inc., 482 P.2d 426, 428 (Colo.App. 1971) [citing 3 Am.Jur.2d Agency § 348; burden of proof is on the party who claims to be an agent with authority to file suit to prove the existence of the agency relationship].
3. Current Statutory Requirements for “No-Doc” Foreclosure
“Full-doc” foreclosures have become rare in Colorado in recent years, due to the prevalence of securitized mortgages, and various recent amendments to the foreclosure statutes that allow “no-doc” foreclosures of those mortgages.
Specifically, the “certification” provisions of §§38-38-101(1)(b)(II) and (c)(II) allow a foreclosure to be initiated with a certification or a statement of the attorney for a party who “. . . claims to be a qualified holder . . .” (id.) (emphasis added), and also allow (as an alternative to an “ . . . original endorsement or assignment . . . to the holder of the evidence of debt . . .”) “. . . other proper indorsement or assignment in accordance with subsection (6) . . .”. 38-38-101(1)(b) (emphasis added).
Subsection (6), in turn, allows two alternatives for establishing a proper indorsement or assignment. The first, in subsection (a), is an essential part of a “full-doc” foreclosure under current law (C. R. S. §38-38-101 (1)); the second, in subsection (b) allows a “no-doc” foreclosure, by allowing a mere “certification” or “statement” to serve as complete and determinative substitute for any evidence whatsoever of any indorsement or assignment whatsoever. Specifically:
(6) Indorsement or assignment. (a) Proper indorsement or assignment of an evidence of debt shall include the original indorsement or assignment or a certified copy of an indorsement or assignment recorded in the county where the property being foreclosed is located.
(b) Notwithstanding the provisions of paragraph (a) of this subsection (6), the original evidence of debt or a copy thereof without proper indorsement or assignment shall be deemed to be properly indorsed or assigned if a qualified holder presents the original evidence of debt or a copy thereof to the officer together with a statement in the certification of the qualified holder or in the statement of the attorney for the qualified holder pursuant to subparagraph (II) of paragraph (b) of subsection (1) of this section that the party on whose behalf the foreclosure was commenced is the holder of the evidence of debt.
C. R. S. §38-38-101(6) (emphasis added).
This provision allows a mere “statement” by an attorney for one who “claims to be” a qualified holder to serve as a complete and determinative substitute for any evidence whatsoever of any endorsement or assignment whatsoever, and allows an Order Authorizing Sale to be entered based solely on the certification or statement.
That part of §38-38-101(6) that presently deems an improperly endorsed or assigned evidence of debt to be properly endorsed or assigned, based on a mere certification or statement that the foreclosing party is the holder of the evidence of debt, renders all other statutory definitions of “holder of an evidence of debt” meaningless. Specifically:
(10) “Holder of an evidence of debt” means the person in actual possession of or otherwise entitled to enforce an evidence of debt; . . For the purposes of articles 37 to 40 of this title, the following persons are presumed to be the holder of an evidence of debt:
(a) The person who is the obligee of and who is in possession of an original evidence of debt;
(b) The person in possession of an original evidence of debt together with the proper indorsement or assignment thereof to such person in accordance with section 38-38-101 (6);
(c) The person in possession of a negotiable instrument evidencing a debt, which has been duly negotiated to such person or to bearer or indorsed in blank; or
(d) The person in possession of an evidence of debt with authority, which may be granted by the original evidence of debt or deed of trust, to enforce the evidence of debt as agent, nominee, or trustee or in a similar capacity for the obligee of the evidence of debt.
C. R. S. §38-38-100.3(10) (emphasis added)
The problem with the “deemed to be” provision of §38-38-101(6) – cross-referenced in §38-38-100.3(10)(b) – is that it allows a mere certification or statement that a foreclosing party “. . . is the “holder of the evidence of debt”. . . .” (§38-38-101(6)) (emphasis added) to constitute conclusive proof of same. This statute, both on its face and as applied routinely in Rule 120 proceedings, renders the entire definition, and sub-definitions, of “holder of an evidence of debt” in §38-38-100.3(10) unnecessary and meaningless, and effectively eliminates the requirement of evidence to support the foreclosure.
The proposed Initiative would remedy this problem by embodying current statutory requirements for a “full-doc” foreclosure in the Constitution, and by Constitutionally prohibiting “no-doc” foreclosures and repealing recently-enacted statutory provisions that allow them.
4. “No-Doc” Foreclosure Is the Only Proceeding under
Colorado Law that Requires No Disclosures Whatsoever
The proposed Initiative would also restore due process to foreclosure proceedings, by requiring full disclosures of documentation that supports a foreclosure at the outset of the proceeding.
In all other civil proceedings, Rule 26 requires mandatory disclosures of evidence by all parties.
In criminal proceedings, the People must provide “discovery” of the facts on which criminal charges are based.
Even in uncontested divorces, both parties are required to make complete financial disclosures.
But in a “no-doc” foreclosure under the “certification” provisions of 38-38-101, disclosures are not only optional, but a “certification” alone is statutorily “deemed” to be proof of valid assignments of the right to expeditiously take someone’s home, even when the limited documents that have been filed refute the claim of valid assignments. And a homeowner has to litigate for 2-3 years, against the best lawyers money can buy, just to get documentary evidence that should have been disclosed the moment the case was filed. This is logically, morally, legally, and constitutionally unacceptable.
It is the creditor’s responsibility to keep a borrower and the Court informed as to
who owns the note and mortgage and is servicing the loan, not the borrower’s or the Court’s responsibility to ferret out the truth. . . .
In Re Nosek, 2009 U. S. Dist LEXIS 44835, at **9-11 (D. Mass. 2009).