Election to Sue on a Mortgage Note in Lieu of Foreclosure
| Publication year | 1984 |
| Pages | 621 |
| Citation | Vol. 13 No. 4 Pg. 621 |
1984, April, Pg. 621. Election to Sue on a Mortgage Note in Lieu of Foreclosure
Colorado follows the general rule that the holder of a note secured by a deed of trust, upon default by the mortgagor, has two remedies available: "A suit on the debt evidenced by the promissory notes and... a specific action against the particular property which has been given as security for the payment of the debt."(fn1) However, CRS § 38-39-118 allows a mortgagor, whose only default is nonpayment of any sum due under a note and deed of trust or under a mortgage being foreclosed, to cure that default by tender of delinquent sums and other sums resulting from the default. This statute has been construed as a restraint on the ability of a mortgagee to pursue the two remedies concurrently or successively.
Foster Lumber Co. v. Weston Constructors, Inc.(fn2) was the first opinion construing the curative statute. The Colorado Court of Appeals held that the curative statute, applicable because foreclosure proceedings had begun, also barred an action on the note based upon the same default. In Foster, the mortgagee began a public trustee foreclosure and the mortgagor tendered the sums required by the curative statute. The tender was refused by the mortgagee. The mortgagee filed an action for the amount due on the note, arguing that the curative statute prohibited only foreclosure on the deed of trust and not an action on the note.
In rejecting that argument, the court reasoned that when foreclosure was begun and proper tender of delinquent sums was made under the statute to cure for purposes of the foreclosure, no default remained to serve as a basis for an action on the note. The court did note that, while the curative statute refers to a default in either a note or a deed of trust, it "applies only to deeds of trust or mortgages 'being foreclosed.'"(fn3) It is the foreclosure proceeding, according to the court, that engages the mortgagor's statutory right to cure.
Several years later, in Certified Realty Corp. v. Smith,(fn4) the effect of the curative statute on the reverse order of remedies was at issue. The mortgagee sued to recover the balance due on a promissory note which was secured by a deed of trust. No foreclosure was instituted. The mortgagor argued that the curative statute allowed a cure of the default. This defense was dismissed by the trial court on the grounds that the mortgagee had not commenced foreclosure proceedings. No appeal was taken on the issue.
The mortgagor also argued that an equitable remedy similar to the curative provisions of CRS 38-39-118 should be applied to allow a cure of the monetary default, notwithstanding the absence of any action to foreclose the security for the note. The trial court agreed and held that a tender of delinquent sums precluded acceleration of the remaining sums due under the note.
In reversing the trial court, the Colorado Court of Appeals reiterated the general rule of Foothills Holding Corp. that two distinct remedies are available to the holder of a note secured by a deed of trust.(fn5) The court held:
Where suit is on the note only and the creditor does not bring an action to foreclose on the security, i.e., the deed of trust, the acceleration clause in the note is enforceable, and the debtor has no statutory or equitable right to cure the money default.(fn6)
The decision of the Court of Appeals
was affirmed by the Colorado Supreme Court: "Here, since there was no foreclosure action, the statute does not operate to permit cure of the default."(fn7)
The Certified Realty decisions have been criticized as being based on an excessively literal reading of the curative statute that is at odds with the legislature's intent to protect a mortgagor's equitable interest in property while compensating a mortgagee for costs resulting from a default.(fn8) Theoretically, under Certified Realty a mortgagee can elect to sue on the note alone, provided no foreclosure on the security is commenced, without triggering the curative statute. However...
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