Chapter 11 - § 11.11 • TRANSFER

• Jurisdiction: Colorado

§ 11.11 • TRANSFER

§ 11.11.1—Transfer by Mortgagor or Trustor

In the absence of a due-on-sale clause, a transfer by the mortgagor or trustor is not a breach of the note or its security.²⁶⁹

When a seller transfers real property that is encumbered by a deed of trust, the buyer may either take the property subject to the encumbrance or assume the obligation secured by the encumbrance. When a grantee accepts a deed containing an assumption clause, he or she becomes primarily liable to the mortgagee.²⁷⁰ The grantor then becomes a surety.²⁷¹ Upon assumption, the prior encumbrance becomes a personal obligation of the grantee, and he or she is subject to foreclosure on the property,²⁷² action on the note, or both.²⁷³ There are two theories upon which the grantee's liability is based: (1) equitable subrogation, and (2) contract for the benefit of a third person. Colorado has adopted the latter theory, and in Colorado, therefore, the obligation arises out of contract, not equitable subrogation.²⁷⁴ The mortgagee may proceed to personal judgment upon the contract of assumption without resorting to foreclosure.²⁷⁵ To sustain the grantee's liability under the assumption clause, all of the essentials of a contract must exist.²⁷⁶ There is no requirement that any particular language be used to create an assumption.²⁷⁷ But if the scrivener by mistake inserts an assumption clause in a deed where neither of the parties intended to place this liability upon the grantee, and the grantee did not know of the insertion of the clause, the mortgagee cannot avail himself or herself of it.²⁷⁸

When an assuming grantee reconveys the property to his or her grantor for a value that reflects a deduction for the amount of the assumed obligation, the grantor once again becomes primarily liable, with the grantee becoming a surety. As between the grantor and the grantee, the property becomes the primary fund for the satisfaction of the encumbrance, with the grantee being personally liable only for any deficiency resulting from an insufficiency of the security.²⁷⁹

One who takes subject to a mortgage does not assume the obligation secured by the mortgage.²⁸⁰ When a conveyance of the entire estate is made subject to a mortgage, in the absence of specification therein or proof aliunde to the contrary, the grantee takes simply the equity of redemption.²⁸¹ In other words, the phrase "subject to" qualifies the estate granted.²⁸² When a conveyance is made subject to an existing mortgage, a principal and surety relationship arises between the land and the seller/mortgagor, the mortgagor being the surety and the land itself taking on the characteristics of the principal debtor. The seller/mortgagor is then entitled to all the protection which the law gives to sureties.²⁸³ A surety is entitled to be subrogated to the benefit of all the securities and means of payment under the creditor's control, and in the absence of any assent, waiver, or estoppel, he or she is generally released by any act of the creditor which deprives him or her of such right.²⁸⁴

§ 11.11.2—Transfer by Trustee

The object of a power of sale in a trust deed is not to enable the trustee to convey the title vested in himself or herself, but to clothe him or her with authority to sell and convey the equitable title remaining in the trustor. The trustee may divest himself or herself of the legal title without compliance with the...