Chapter 11 - § 11.3 • MORTGAGES AND DEEDS OF TRUST
| Jurisdiction | Colorado |
§ 11.3.1—Definition and Nature
In General
A deed of trust (trust deed) is a trust in the nature of a mortgage in which the land is encumbered for the payment of the debt, and whenever the debt is paid the conveyance is defeated and the trustee must convey the property to the trustor. Such trust deeds, prior to 1894 when made to a private trustee and now when made to the public trustee, were and are used quite generally in Colorado instead of mortgages.19
A deed of trust, by reference to a note, puts all purchasers on inquiry as to its terms and so they are charged with notice of them.20 A note listing described real property as security is in effect a mortgage.21
Mortgages and Deeds of Trust as Liens
Several early cases involving deeds of trust held that title vested in the trustee.22 These early cases were explained on the ground that "The legal title of the mortgagee is recognized only for the benefit of the holder of the mortgage debt."23 Now, however, it is provided by statute that:
Mortgages, trust deeds, or other instruments intended to secure the payment of an obligation affecting title to or an interest in real property shall not be deemed a conveyance, regardless of its terms, so as to enable the owner of the obligation secured to recover possession of real property without foreclosure and sale, but the same shall be deemed a lien.24
Thus, by statute, a mortgage25 or a deed of trust26 is a lien, not a conveyance, and the mortgagor remains the owner of the land, notwithstanding the mortgage.27 Therefore, a second deed of trust may be foreclosed notwithstanding the assertion that the legal title is in the trustee under the first deed of trust only.28 Nevertheless, the Colorado courts continued to speak of legal title being in the trustee.29
Since a mortgage is a chose in action which creates a lien on land but not an interest in land, the Statute of Frauds does not apply to an oral agreement to execute and deliver a mortgage upon real property.30
§ 11.3.2—Form
C.R.S. § 38-30-117(1) provides that a mortgage of real property may be in substantially the following form:
__________, whose address is __________, County of __________ and State of __________, hereby mortgage(s) to __________, whose address is __________, County of __________ and State of __________, to secure the payment of __________ dollars due as follows: __________ the following described real property in the County of __________ and State of Colorado, to wit: __________ with all its appurtenances, and warrant(s) title to the same, subject to __________.
Signed this __________ day of __________, 20___
Failure to state the address or the county or state or residence of the grantor or the grantee does not affect the validity of the mortgage.31 A mortgage may be acknowledged in accordance with C.R.S. § 38-35-101.32
An instrument which "partakes of the nature and character of a mortgage" will, irrespective of form, be treated as an equitable mortgage.33
§ 11.3.3—Mortgage as Incident of Obligation
A mortgage is but an incident of the debt it secures.34 In the absence of a controlling equity calling for some qualification, when the promissory note is paid or when the indebtedness represented by that note is released, there can be no valid sale under a mortgage securing the debt.35 But the debt and liability for the debt are distinct things. A mortgage lien is not discharged if it is the intention of the parties merely to release the mortgagor's personal liability and not to extinguish the debt.36
§ 11.3.4—Absolute Conveyance as Mortgage Only
A deed and a bond to reconvey together have the effect of a mortgage only,37 and a conveyance absolute in form may have the force and effect of a mortgage.38 The intention of the parties and the true nature of the transaction determine whether a transaction is a conveyance or a mortgage.39 If the parties intend to create a security interest in real property, the transaction is a mortgage.40 Relevant factors which may be considered in determining whether a transaction is a sale or a mortgage include (1) the existence of debt;41 (2) the relationship between the parties; (3) the availability of legal advice; (4) the sophistication and circumstances of the parties; (5) the adequacy of the consideration; and (6) the possession of the property.42 The real character of such an instrument may be shown by parol evidence.43 It was formerly held that in order to take the case out of the Statute of Frauds, the proof must have satisfied the standard of clear and convincing evidence,44 or even the standard of beyond a reasonable doubt.45 C.R.S. § 13-25-127 now provides that the burden of proof in any civil action is by a preponderance of the evidence. One of the recognized tests of whether a transaction is a mortgage or not is the relationship between...
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