A potential 2012 ballot initiative, currently titled the Foreclosure Due Process and Fraud Prevention Initiative, proposes an amendment to the Colorado Constitution that, if passed, would affect the public trustee foreclosure process. The initiative, commonly known as “Initiative 84,” would impose additional requirements on holders of debt secured by real property who acquire their interest in the debt and associated lien via assignment or transfer. Colorado law currently provides banks and other financial institutions that meet the statutory definition of “qualified holder” with the ability to commence a public trustee foreclosure on real property without proving that they are the party entitled to foreclose. Further, qualified holders are not required to produce assignments or other intermediary documentary evidence if their interest is based on an assignment from a previous holder. Instead, all that is necessary is a statement signed by the qualified holder, or its attorney, stating that the qualified holder’s interest is valid. Other non-qualified holders who receive an interest in the debt and associated lien on real property via assignment are required to present endorsements and assignments to the public trustee prior to commencing a foreclosure, but these documents are not required to be recorded. Prior to 2006, Colorado law required all holders of debt and associated liens on real property to produce original documents establishing their interest in the debt and right to foreclose; however, the law did not require that evidence of the debt and related endorsements be recorded.
Initiative 84 would require that “competent evidence” of any holder’s right to foreclose be recorded in the real property records of the applicable county prior to the commencement of a public trustee foreclosure proceeding. “Competent evidence” includes the underlying promissory note or other evidence of the debt, and, in the event of a transfer, all endorsements, assignments or transfers of the debt and any assignments of the deed of trust.
The initiative was originally filed with the Colorado Secretary of State in early April. The ballot initiative process began after House Bill 1156, which shared a similar purpose as Initiative 84, was postponed indefinitely by the Committee on Economic and Business Development of the Colorado House of Representatives. On April 18, 2012, the Title Setting Review Board (Title Board) held a public hearing and approved the title of Initiative 84 as the “Foreclosure Due Process and Fraud Prevention Initiative.” Registered voters then had seven days after the Title Board’s approval to file a motion for rehearing. Such a motion was filed on April 25, 2012, on the grounds that Initiative 84’s title is misleading and violates the single-subject rule. The rehearing will occur on April 27, 2012 at 9:30 a.m. If the objector is still unsatisfied with the Title Board’s ruling after this hearing, the objector will have the opportunity to file an appeal with the Colorado Supreme Court.
If the Colorado Supreme Court approves the Title Board’s ruling, proponents of the initiative will still need to gather more than 87,100 validated signatures (which is 5% of the total number of votes cast in the last election) from registered voters by August 6, 2012 (three months prior to the general election) in order for Initiative 84 to become eligible for the 2012 statewide ballot.
If the initiative passes, the benefits of being a “qualified holder” under the statute would be undermined and all holders of liens against real property would be required to record promissory notes and, if applicable, evidence of any transfers or assignments of the debt and associated lien prior to commencing a public trustee foreclosure. We will be monitoring the status of the initiative process and, if applicable, the outcome of the general election with respect to Initiative 84.
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