Yesterday, Senate Bill 11-122 (“SB 122”) was introduced in the Colorado Senate. This bill is similar to the bill introduced by Senator Lundberg last year, lacking many improvements to help associations.

The bill gives the highest bidder at a public trustee foreclosure sale a right to pay off junior lienors – including associations – thereby removing the junior lienors right to redeem. In the past, many associations have been selling their lien rights to investors who are looking to “flip” the homes. It has been a win/win for the association and the investor. The association is paid all or a portion of its debt when it would otherwise likely receive nothing and the investor has the opportunity to make money upon the resale of the home. In the last several years we have seen increased litigation by the highest bidders against junior lienors and, as a result, the investor market for association liens has shrunk significantly.

SB122 will certainly cut down on the litigation we have seen which would be a plus for associations, however, we also believe it will all but eliminate the investor market. The bill provides that the highest bidder at each sale will be entitled to pay off any junior lienors who have filed a notice of intent to redeem. However, the highest bidder is only required to pay the amount included in the intent to redeem statement. This statement may not include “assignment fees, premiums, attorney fees for assignment or other additional charges paid upon any assignment of a lien.” Therefore, if an association sells its lien (which has a balance of $800) to an investor for $1000 plus $250 in attorney fees to prepare the lien assignment documentation, the notice of intent to lien statement can only include the $800 balance. The investor will have spent $1250 for the lien and the highest bidder will pay off the lien and extinguish all redemption rights for $800.

If you were an investor would you make that investment – I DON’T THINK SO!

We do not support this bill and do not believe it will be in the best interests of Colorado associations. We will be monitoring it closely and will let you know if your efforts are needed to help kill the bill.

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