Homestead Marshalling
| Publication year | 1985 |
| Pages | 1612 |
| Citation | Vol. 14 No. 9 Pg. 1612 |
1985, September, Pg. 1612. Homestead Marshalling
Be it ever so humble, there is no place like the homestead. The drafters of the Colorado Constitution recognized the importance of protecting the homestead from creditors' claims by including a provision requiring the Colorado legislature to enact liberal homestead laws.(fn1) Homestead legislation has existed in Colorado since statehood.(fn2) The underlying purpose of this legislation is to preserve the home for the family, even at the expense of unsatisfied creditors, to promote "local interest, pride and affection of the individual, so essential to the stability and prosperity of government."(fn3)
The Colorado Homestead Act exempts from levy and execution a house and lot or lots or a farm consisting of any number of acres occupied as a home by its owner or the owner's family when the value of the property does not exceed $20,000 of liens or encumbrances existing at the time of the levy and execution.(fn4) In 1982, the Colorado legislature expanded the definition of "house" to include mobile homes.(fn5)
Recognizing the necessity of creating encumbrances on the homestead free and clear of the exemption, the Colorado legislature has statutorily empowered homeowners to encumber their homes free and clear of homestead rights.(fn6) Most modern mortgage or security instruments contain a waiver of the homestead exemption. Homestead waivers benefit not only the beneficiary of a mortgage(fn7) containing the waiver, but all persons purchasing or redeeming homestead property at judicial or non-judicial foreclosure sales in relation to a mortgage containing a valid homestead waiver.(fn8) Despite a valid homestead waiver in the foreclosing lender's mortgage, a mortgagor may have marshalling rights, which will save the homestead from foreclosure.
"Marshalling is the ranking or ordering of several estates or parcels of land for the satisfaction of a judgment or mortgage to which all are liable."(fn9) This doctrine adjusts the rights of a senior foreclosing mortgagee, the mortgagor, junior lienors and later purchasers with respect to which portions of mortgaged property must be sold first to satisfy the senior mortgage indebtedness. It adjusts these rights by application of the rule of sale in the inverse order of alienation ("inverse order rule") or the two funds doctrine.
Under the inverse order rule, where property subject to a mortgage is conveyed in parcels at different times, those parcels retained by the mortgagor are sold first to satisfy the mortgage indebtedness and the parcels conveyed are then sold in the inverse order of alienation. The two funds rule requires that where a junior lienor has security in a portion of property securing a senior mortgagee, the property not encumbered by the junior mortgagee shall be sold first to satisfy the senior mortgage indebtedness.(fn10)
Marshalling is usually asserted by junior lienors and later purchasers, and a mortgagor may not invoke the doctrine. In some circumstances, however, the mortgagor may have marshalling rights without regard to homestead...
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