The Uncertain Effect of 28 U.s.c. º 2410 on Colorado Foreclosure Law
| Publication year | 1991 |
| Pages | 1199 |
| Citation | Vol. 20 No. 6 Pg. 1199 |
1991, June, Pg. 1199. The Uncertain Effect of 28 U.S.C. º 2410 on Colorado Foreclosure Law
Under the terms of 28 U.S.C. º 2410(c), federal agencies often have the benefit of an extended redemption period following the foreclosure of a prior lien on property on which the United States claims a mortgage or other lien. Many Colorado real estate attorneys know that this statute and 26 U.S.C. º 7425(fn1) typically grant the federal government not less than 120 days to redeem from a foreclosure sale of property subject to a subordinate federal tax lien. It is less well known that 28 U.S.C. º 2410(c) usually grants the United States a full year to redeem when it holds a non-tax lien junior to the encumbrance being foreclosed.
This article discusses the essential provisions of 28 U.S.C. º 2410 and the interpretive case law. It also examines the potentially unsettling effects of imposing the statute's specific conditions on Colorado's public trustee foreclosure system. Indeed, there is a possibility that a public trustee foreclosure may not be effective to extinguish a junior deed of trust held by a federal agency, such as the Federal Deposit Insurance Corporation ("FDIC") or the Resolution Trust Corporation ("RTC"). Finally, this article suggests that the basic incompatibility between º 2410 and Colorado foreclosure law has created the need for a clarifying statement of policy from the federal agencies most directly involved.
Subsection (a) of 28 U.S.C. º 2410 waives the sovereign immunity from suit that otherwise would be available to the federal government.(fn2) Provided that certain conditions are satisfied, the subsection allows the United States to be named as a party, in federal or state court, in any civil action:
(1) to quiet title to, (2) to foreclose a mortgage or other lien upon, (3) to partition, (4) to condemn, or (5) of interpleader or in the nature of interpleader with respect to, any real or personal property on which the United States has or claims a mortgage or other lien.
However, the subsection preserves the initial right of the United States under 28 U.S.C. º 1444 to remove any such state proceeding to the federal district court for the district and division in which the state proceeding is pending. The courts have generally upheld the federal government's right under º 1444 to remove to federal court a foreclosure action which, except for the presence of a federal lien and the strictures of º 2410, would involve purely state-law subject matter and procedure.(fn3)
Subsection (b) of 28 U.S.C. º 2410 requires, in all actions within the statute's scope, that the complaint or other pleading set forth, with particularity, the nature of the federal government's interest or lien.(fn4) It also prescribes the proper manner of obtaining service on the United States in foreclosure actions initiated in state court. The state court's process and a copy of the complaint must be served on the local U.S. attorney or a designee. Additional copies of the process and complaint must be sent by registered or certified mail to the Attorney General in Washington, D.C. After service has been properly obtained, the federal government has a minimum of sixty days to answer or otherwise plead in the state proceeding.
Subsection (c) of 28 U.S.C. º 2410 provides for the expanded federal redemption periods described above. It is especially important to note that the one-year federal redemption period apparently
is available to the FDIC and RTC, among other government agencies, as successors in interest to failed banking and thrift institutions.(fn5)
Foreclosing lenders and their attorneys, as well as title insurance companies, need to be aware that junior deeds of trust originally held by local banks or savings and loans whose assets have been acquired by the FDIC or RTC now may carry with them an expanded, one-year federal redemption period that supersedes the otherwise applicable redemption provisions of CRS º 38-38-303.
A recent telephone survey of the six public trustees' offices in the Denver metropolitan area disclosed that a number were familiar with the 120-day Internal Revenue Service redemption period. However, not one was aware of the one-year redemption period applicable to subordinate federal non-tax liens under the same federal statute. Local title examiners and title companies appear to know that 28 U.S.C. º 2410(c) exists, but as a group they have yet to reach a consistent practice for dealing with the statute. Some formally take exception to (or require the expiration of) the one-year federal redemption period, while others choose to ignore---albeit uneasily---the statute's potential effect on the marketability of title to the foreclosed property.
Those who have ignored the effect of 28 U.S.C. º 2410(c) may be relieved to observe that the United States does not have an extended redemption right in every case. The subsection provides that "there shall be no right of redemption" in any case in...
To continue reading
Request your trial