Monday, February 15, 2010, 2:33pm MST

Bill would let foreclosure bidders buy out lesser lienholders

Denver Business Journal

Senate Bill 93, a state measure related to Colorado foreclosure law, was to be heard in the Senate Business, Labor and Technology Committee on Monday.

The bill, sponsored by Sen. Kevin Lundberg, R-Berthoud, would give the successful bidder for a home at foreclosure auction the right to buy out lesser holders of liens against the property, or junior lienholders, such as those with mechanic’s liens. The junior lienholders would have to accept the payment from the bidder and release the lien, according to the bill.

Lundberg contends, in a statement, that his bill “will get rid of a loophole that exists in the current law, and give more clarity and evenhandedness to the foreclosure process. … This is a good policy that will make foreclosure sales more competitive, and should help the overall housing market recover.”

SB 93 was introduced in the Senate on Jan. 20, and assigned to the Business, Labor and Technology Committee. The committee heard witness testimony on Feb. 1, according to the Legislature.

Colorado law currently states that the successful bidder in a home foreclosure sale gets a certificate of purchase (COP) entitling them to a confirmation deed, unless the property is redeemed by a junior lienholder. But sometimes, a junior lien is bought by someone who won’t accept payment from the COP holder and exercises their right, as an unpaid lienholder, to redeem the property.

Lundberg contends that if potential bidders for a home know of a lien purchase, they may be discouraged from bidding on the property and “this may depress sales prices of foreclosed homes, leaving defaulting homeowners with little or not cash proceeds from the sale or a greater deficiency,” the bill states.

— Paula Moore