Several federal agencies and the attorneys general of all 50 states have initiated investigations based on allegations that banks failed to review foreclosure documents properly or submitted false statements when they foreclosed on properties.
The allegations first arose in the 23 states that require a judicial foreclosure. Several of the largest mortgage lenders in the U.S. have suspended foreclosure proceedings in some or all states. While some lenders have resumed foreclosures in certain states, the uncertainty caused by the controversy has created a chilling effect on foreclosure transactions across the nation.
Colorado is somewhat insulated from the foreclosure controversy since the majority of foreclosures conducted in our state are completed through our unique Public Trustee system. The Colorado foreclosure process differs from most other states in that the Governor appoints a Public Trustee for each county. The Public Trustee’s Office is a statutory mediator in the Colorado foreclosure process. Judicial foreclosure is employed only when no power of sale clause is included in the deed of trust or there is a defect that requires judicial oversight.
The types of documents at issue in the judicial foreclosure states are not required to complete a sale through the Public Trustee.
The Public Trustees are dedicated to fairness for all parties in the foreclosure process. The Public Trustees, by law, serve as the neutral, intermediate party between the lender and the borrower to assure that each party can exercise its legal rights in a foreclosure action:
- Foreclosures are conducted by the Public Trustee’s office on a deed of trust containing a power of sale (right to sell property at public auction in the event of default).
- The procedure for conducting the foreclosure is set by statute and must be followed precisely.
- The deed of trust is an agreement between three parties: the Grantor (owner), the Public Trustee (who has the power of sale), and the Beneficiary (lender).
- It is the responsibility of the Public Trustee’s office to ensure that the owners, junior lienors and lenders understand the Public Trustee’s process and to ensure that each party complies with the statutes.
This is opposed to a judicial foreclosure, where a mortgage is an agreement between two parties, the Mortgagor (owner) and the Mortgagee (lender). Since no power of sale clause is included in the security instrument, the lender must sue the borrower and obtain a court order to foreclose.
It is business as usual at Land Title. We have always thoroughly examined foreclosure proceedings appearing in the chain of title. Our underwriters are not currently requiring any blanket requirements or exceptions.