Court of Appeal Decision Mandates Junior Lienor Accept Payoff of Judgment Lien After Foreclosure Sal
The Colorado Court of Appeal's recent decision in Mortgage Investments Enterprises, LLC v. Oakwood Holdings, LLC, 2016COA111 (Colo.App.July 14, 2016) clarifies the respective rights and obligations of Certificate of Purchase Holders and Junior Liners following a foreclosure sale. The foreclosure process, whether through the Public Trustees office or via Sheriff's sale, is one method by which creditors can secure repayment of debts. Once a property is auctioned and sold, the proceedings are used to pay the outstanding debt. If there are multiple liens against the property, they are ranked in order of priority and such junior lienors are entitled to redeem after the sale in the order of their priority by paying the total outstanding amount paid by the purchaser or by the more senior lienor ahead of them. Title to the property is ultimately issued to the last redeeming lienor.
In this case, a homeowner's association obtained a judgment for delinquent assessments and the sheriff sold the property which was purchased by Mortgage Investments. There were also two judgments and another junior lien against the property which Oakwood purchased in order to be able to redeem. Mortgage Investments obtained a power of attorney from the debtors on the two judgments and lien and tendered payment in satisfaction of the lien before Oakwood's redemption period commenced. Oakwood filed a Notice of Intent to Redeem and refused to accept the tender of payment to satisfy the judgment. The Court held debtors have a right to pay liens and money judgments and creditors must accept such tenders, up until the time a junior lienor's redemption period begins and the creditor actually tenders the redemption funds to the sheriff or public trustee.
This case should provide some guidance to investors engaged in buying and selling foreclosed properties and junior liens seeking to obtaining title to such properties without bidding at the sale itself.