Real estate liens are legal claims that can be placed on a property because the owner did not pay a debt. A tax lien is placed on the property because local, state and/or federal taxes are unpaid, while other liens result from court judgments.
What is a lien in real estate? In effect, a real estate liens cause the property to become collateral so the debt is eventually paid at sale time. This is sometimes referred to as a “cloud on title.”
Homebuyers do not want to purchase a home without a clear title, and in general, lenders will not provide mortgages to properties with a cloud on title. This is because a real estate lien on a property will significantly impair the ability of the owner to sell that property until the debt is repaid and the lien is released or cleared. Only then can real estate transfers be completed. That’s why a title search is conducted prior to the granting of a mortgage.
There’s also the issue of a lis pendens, which legal notice on title that there is a pending lawsuit. Even if a pending lawsuit is without merit, it will still affect the title. Fortunately, under Colorado law a property owner who believes such a lawsuit is false can seek an expedited hearing and receive a judge’s decision on whether the lawsuit is meritless.
Colorado Lien Priorities
In Colorado, all real estate liens are not created equal, at least when it comes to payment rights. State and Federal tax liens always receive top priority. The next highest priority for liens would fall under the Colorado Common Interest Ownership Act (CCIOA). These so-called ‘super-liens’ are created so that homeowner’s associations may get some relief for unpaid assessments. Here are the rest of the priorities:
- CCIOA liens – provides a means for an HOA to collect for unpaid monies due for expenses and costs related to CCIOA assessments.
- Second mortgages – also known as home equity loans.
- Third mortgages and more – last on the priority list are third and subsequent mortgages or liens. Also on this list are court judgments against the homeowner as a defendant. Under Colorado law, such judgments are only attached for real estate, while some other states permit judgments to attach to other items of value owned by the defendant.
Real Estate Liens and Foreclosures
When a property owner does not pay the mortgage, the lender may hold a foreclosure auction. Although never advertised that way to potential borrowers, a mortgage is actually a type of lien. Laws on foreclosure differ depending on the state, and in Colorado there are two basic types of foreclosure: Judicial Foreclosure and Public Trustee Foreclosure.
Judicial foreclosure requires filing a lawsuit. Mortgages that did not include a “power of sale” clause begin by filing acomplaint in foreclosure on the unpaid mortgage. The court then issues an Order authorizing the sale if the default is not cured. Foreclosing upon a lien is generally conducted as a judicial foreclosure with the filing of a complaint in foreclosure on the lien or judgment. That complaint puts the debtor on notice of the claim and provides a right to cure. A court will issue an Order authorizing the sale if the matter is not resolved.
If the mortgage or trust deed did include a power of sale, then the foreclosure is non-judicial and falls under the purview of each county’s public trustee. After a Rule 120 hearing the Public Trustee initiates the foreclosure. Thereafter, a borrower in default on a mortgage or lien with a due on sale clause receives a formal Notice of Election and Demand. That particular document starts the foreclosure process and all rights to cure are put in place. The Public Trustee then oversees the foreclosure and sale process.
Either type of foreclosure may result in a public sale, although judicial foreclosure auctions are referred to as sheriff’s sales and public trustee auctions are simply called foreclosure sales.
Tax Lien Sales
A tax lien sale is an auction in which an investor can purchase the property by bidding, starting at the amount due. The money goes to the county or local treasurer to pay the tax debt, and the lien then belongs to the winning bidder. A Tax Lien Sale Certificate of Purchase is issued by the county treasure. This doesn’t mean the bidder automatically owns the home or property. Instead, the property owner has three years in which to pay off the tax debt, along with fees and interest. The fees and interest are the reason most investors purchase tax liens. However, if you don’t pay, or “redeem” the lien holder can gain title to your property after the three-year period by foreclosing upon the home or property after addressing all other liens or encumbrances.
Colorado law requires the property owner to receive just one notice informing them of the tax delinquency and the sale date. The notice is also published in the local newspaper under legal notices. The property owner then must pay the outstanding taxes or the obligation will be sold at a scheduled tax sale.
Contact an Attorney
If you are experiencing issues regarding a real estate lien, trying to figue out what lien release form you need or you need the advice of an experienced Colorado real estate attorney. Contact us or call us today for find out how we can help.