6 Colo.Law. 40
1977, January, Pg. 40.
C.R.C.P. Rule 120: Understanding the Revision
40Vol. 6, No. 1, Pg. 40C.R.C.P. Rule 120: Understanding the Revisionby Hal Tudor and Bruce NelsonHal Tudor and Bruce Nelson, Denver, are associated with the firm of Dawson, Nagel, Sherman & Howard.41In August 1976, C.R.C.P. Rule 120 (the "Rule" or "Rule 120") was revised by the Colorado Supreme Court in response to what had been perceived as possible constitutional deficiencies with the Colorado public trustee foreclosure procedures.
The purpose of this article is not to discuss the constitutional aspects of the revised Rule, but to discuss the substantial changes brought about by the revision.(fn1) However, a brief review of the background of Rule 120 and the circumstances which led to its revision is helpful in understanding the revised Rule.
BackgroundSince the enactment of the Federal Soldiers and Sailors Civil Relief Act of 1940,(fn2) it has been necessary in connection with marketability of title obtained through a public trustee foreclosure to evidence that there has been compliance with this Act. The initial purpose of Rule 120 was to provide a method to establish the status of the debtor with respect to military service and, accordingly, evidence compliance with the Relief Act.(fn3) Prior to Princeville Corp. v. Brooks,(fn4) decided by the Colorado Supreme Court in March 1975, the proceeding under Rule 120 was in no sense an adversary proceeding and the only question to be considered in it was the status of the debtor with respect to military service.(fn5)
With the Rule 120 proceeding so restricted, there was, under a Colorado public trustee foreclosure, no required hearing or other forum provided as part of the foreclosure in which the debtor or parties having an interest in the property being foreclosed could challenge the foreclosure. The recourse for these parties was to institute an independent action challenging the foreclosure and requesting that the foreclosure be enjoined or to attempt to set aside the foreclosure after it had been completed.
Until Snaidach v. Family Finance Corp,(fn6) decided by the U.S. Supreme Court in 1969, various forms of summary mortgage foreclosure, whether by trustee sale under a deed of trust, or pursuant to a power of sale, or by confession of judgment, seemed to be constitutionally secure. However, Snaidach and subsequent cases brought into issue the constitutionality of creditor prejudgment security remedies and established more stringent constitutional requirements with regard to the taking of any significant property interest.(fn7) Consequently, summary foreclosure procedures, such as the Colorado
42public trustee foreclosure, seemed proper subjects for similar constitutional attacks.
The constitutionality of the Colorado public trustee foreclosure procedures was challenged in Patterson v. Serafini,(fn8) in which it was argued that the public trustee foreclosure was unconstitutional in not providing the debtor or property owner an opportunity to be heard as a required part of the foreclosure procedure. However, the court in Patterson declined to reach this constitutional issue. Soon after Patterson followed Princeville Corp. v. Brooks,(fn9) in which the scope of the Rule 120 proceeding was considered.
In Princeville, the trial court had found that the language and scope of Rule 120 was sufficiently broad to allow invoking the jurisdiction of a court in equity when necessary to protect the rights of the respective parties in a public trustee foreclosure and that matters other than military status could be considered. On appeal, the Colorado Supreme Court observed that the modern trend was to restrict ex parte taking of property without a hearing and affirmed the trial court, holding "a Rule 120 hearing may be used to determine, if the circumstances warrant, whether there are factors in addition to military status which require the court to retain a supervising jurisdiction."(fn10) Princeville was notably silent as to whether a hearing of broader scope than that previously provided under Rule 120 was constitutionally required or what those additional "factors" may be. While there was no definite pronouncement as to the constitutional requirement for a hearing for the debtor or property owner in a public trustee foreclosure, it would seem safe to assume that the Supreme Court thought some type of hearing is constitutionally required.
Since Rule 120 as written was not adequate to deal with the expanded scope given it in Princeville, the Supreme Court appointed a committee to revise the Rule in accordance with the principles announced in that case. After a public hearing was held on the committee draft revising the Rule, the Supreme Court repealed and reenacted Rule 120 on August 19, 1976, in essentially the same form as submitted by the committee. The revised Rule became effective October 1, 1976, and was published on p. 1477 of the October issue of The Colorado Lawyer. The forms prepared by the Colorado Bar Association Forms Standardization Committee for use in proceedings under the revised Rule (the "approved forms") follow this article.
Basically, the revised Rule provides a procedure by which an interested party may on specified grounds in addition to military status dispute the moving party's right to an order under the Rule. Also, the Rule now provides for the filing of a response by an interested party desiring to dispute the right to such an order. What follows is a discussion by section of some of the substantial changes in the revised Rule.(fn11)
Rule 120(a): The MotionSection (a) has added additional requirements for the motion filed in the Rule 120 proceeding. The motion filed must: be verified by the party seeking the order or someone on the party's behalf; be accompanied by a copy of the deed of trust; describe the property to be sold; specify the default or other facts claimed by the moving party to justify the invocation of the power of sale; and, as to deeds of trust, state the names of those persons who were the grantor or grantors of the deed of trust and those persons who appear to have acquired a record interest in the real estate being foreclosed upon subsequent to the recording of the deed of trust and prior to the recording of the notice of election and demand for sale.
For those persons who must be listed, the motion must give the address of each
4344person as given in the recorded instrument evidencing that person's interest. In the event the recorded instrument only gives the county and the state for the address of the person having an interest in the property, the county seat of that county is all that is required as an address, and where no address is given in the recorded instrument, no address need be given for such person in the motion. The revised Rule now also requires that the motion must contain the names and last known addresses, as shown by the records of the moving party, of the grantor of the deed of trust, of the record owner of the property to be sold, and of any person known or believed by the moving party to be personally liable on the indebtedness secured by the deed of trust being foreclosed.
The revised Rule adds one class of notice recipients not contained in the notice provisions of the public trustee statutes or designated in the old Rule. That class is made up of any person or persons known to or believed by the moving party to be personally liable on the indebtedness in question.
A copy of the deed of trust must now accompany the motion. Under the revised Rule the motion need not be accompanied by a copy of the promissory note or other instrument secured by the deed of trust. The approved form of motion for order authorizing sale does not provide for a copy of the promissory note to be attached. However, the majority of foreclosures are commenced because of default in payment under the terms of the secured promissory note. Consequently, the terms of the note are of substantial importance. Since, as discussed within, the court must under the revised Rule determine if there is a reasonable probability that the default has occurred even if it dispenses with the hearing, it may be advisable to attach a copy of the note or other instrument secured in addition to reciting the default in the motion so that the court may, if it desires, independently review the terms of the note or...