An Analysis of the Effect of S.b. 123 on Foreclosures
| Publication year | 1988 |
| Pages | 845 |
| Citation | Vol. 17 No. 5 Pg. 845 |
1988, May, Pg. 845. An Analysis of the Effect of S.B. 123 on Foreclosures
Senate Bill ("S.B.") 123 was signed into law by Governor Romer on July 1, 1987. It contains measures to ease the effects of the adverse economy on the agricultural community. The changes and additions to existing statutes are significant, and all lenders and their counsel should be aware of the major effects of this new legislation. This article discusses primarily the effect of S.B. 123 on foreclosures.
The economic problems facing farmers in Colorado created an impetus to provide them some protection from the enforcement of creditors' security interests in farm property. H.B. 1284, enacted in 1986, was an attempt to provide such relief.(fn1) H.B. 1284 affected three major areas of the law: real estate foreclosures, the rights of a farmer/owner after a foreclosure and the enforcement of creditors' rights in connection with security interests in personal property of a farmer.
The changes implemented by H.B. 1284 caused an immediate reaction from the agricultural lending community. Agricultural lenders were concerned that the provisions regarding the implementation of the rights provided by H.B. 1284 were unclear and that there would be lengthy delays in proceedings to enforce their rights in collateral. As a result, many lenders expressed reluctance to make new loans on agricultural real estate.
At meetings during the summer of 1986 regarding H.B. 1284 and the availability of agricultural credit, interested parties were asked to work out their differences and present amendments to H.B. 1284 acceptable to both lenders and borrowers. A task force was created composed of representatives from the agricultural community and agricultural lending institutions. S.B. 123 is the end result of the task force's efforts.
Some of the goals in drafting this legislation were to:
1) Make certain those exercising rights under S.B. 123 are farmers and are engaged in farming or ranching operations on the subject property;
2) Provide better direction and more detailed procedures for exercising the rights granted;
3) Move the steps required by the debtor to exercise its rights to an earlier stage of the enforcement proceedings;
4) Keep the existing foreclosure system intact; and
5) Soften some of the harsh effects of H.B. 1284 on secured creditors.
S.B. 123 repeals many of the H.B. 1284 provisions regarding a secured creditor's enforcement of its rights in real and personal property of the farmer.(fn2) Both H.B. 1284 and S.B. 123 contain provisions for automatic repeal---H.B. 1284 was to have been automatically repealed on January 31, 1990, but S.B. 123 moves this date up to January 31, 1989.(fn3)
The provisions of S.B. 123 affecting redemption rights apply only to security interests in property "held" (presumably, this means created, even if not yet perfected) as of January 1, 1986, which were not refinanced with different lending institutions subsequent to that date. If such a security interest was refinanced with the same lending institution, the transaction also will be excluded "if the owner has provided informed consent." Refinancing is given a broad definition by S.B. 123 to include "obligations which are renewed or amended to provide for different interest rates, payment terms, or any other terms"(fn4) (emphasis supplied).
S.B. 123 creates CRS § 38-39-120, Prohibited Purchases, which prohibits certain individuals related to lenders from purchasing at a foreclosure sale. One purpose of this provision is to prohibit transfers made to avoid the rights granted to a "qualified farm-owner tenant"(fn5) under H.B. 1284.
S.B. 123 provides for different effective dates for different parts of the act. For example, it applies to "any notice of election and demand filed . . . on or after" July 1, 1987.(fn6) It also applies to "any agreement entered into between any qualified farm owner tenant and any owner of property. . . on or after" July 1, 1987.(fn7) Following these guidelines, a
The major change in foreclosure rights and procedures resulting from H.B. 1284 was the right of a farmer to redeem separately a portion of the property encumbered by the lender's deed of trust. H.B. 1284 defined a portion of the farmer's property referred to as the "agricultural homestead real estate," which the debtor could redeem separately after the foreclosure sale by taking certain actions. The agricultural homestead real estate could include up to forty acres, but could not exceed five acres without the approval of the lender.
S.B. 123 still allows a...
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