The lien assignment process almost always begins with the owner’s mortgage lender (i.e. bank) commencing a foreclosure on its first deed of trust. Prior to the bank proceeding to foreclosure sale, it must submit a bid to the Public Trustee’s office. At that time, investors review the bank’s bid and determine if they would be interested in paying off the bank in exchange for acquiring the property. This is usually about the same time that investors obtain title work on the property and contact the association, its management company or our office to inquire about the potential purchase of the association’s lien. Most investors realize that even if no recorded lien exists, the association still may have an assignable lien by operation of Colorado Common Interest Ownership Act.
Assuming the investor gets in touch with our office (whether directly or following a referral from the manager or association), our firm will contact the board or management company for an updated ledger on the property. We then review the ledger and add in any time that may have been written off because of a bankruptcy and additional attorney fees that are not yet reflected on the ledger. We use this information to formulate a lien sale price. In some instances we will attempt to sell the lien for more than the total amount owed, but we always assign the lien for at least payment in full through the current month. Following an agreement with an investor to purchase the lien, our office processes the lien sale through the execution of a lien assignment document. This document sets forth the legal rights and obligations between the investor and the association and allows the investor to acquire property through a redemption process.
If the lien is sold, the association receives payment in full (or occasionally, more than payment in full) and the investor receives all rights associated with the association’s lien. The investor takes the completed lien assignment to the Public Trustee and files what is known as an Intent to Redeem. This document tells the Public Trustee that the investor has purchased the association’s lien and corresponding right to redeem at the Public Trustee’s sale. The investor then tenders payment to the Public Trustee for all amounts owed to the foreclosing lender. This process is known as redemption.
Following a successful redemption, the investor will take title to the property and will be issued a Public Trustee’s Deed. This Deed confirms that the investor now owns the property. It is important to remember that the Public Trustee’s Deed is sometimes issued several weeks after the investor actually takes legal title to a property. Technically, legal title transfers once all applicable redemption periods expire. Associations should contact our office if there are any questions about the actual date that a title transferred to an investor.
Usually, investors that acquire association liens through the lien assignment process are interested in rehabilitating the property and reselling it relatively quickly. However, during the time the investor owns the property, he or she is subject to all the same covenants as any other owner, including the obligation to pay assessments.