Chapter 3 - § 3.8 • FORECLOSURE OF A LANDLORD'S TITLE

• Jurisdiction: Colorado

§ 3.8 • FORECLOSURE OF A LANDLORD'S TITLE

A tenant whose landlord is foreclosed may face a very real problem if the new owner or mortgage holder does not want to enter into a new lease and the tenant has no readily available alternative housing.

§ 3.8.1—Preserving the Tenant's Interest

In First Interstate Bank v. Tanktech, Inc., 864 P.2d 116 (Colo. 1993), the Colorado Supreme Court held that a foreclosure had extinguished a junior lease and that the foreclosing party could not extend a lease so extinguished. The holdover doctrine did not apply in a situation where a lease had been extinguished through foreclosure; it applied only where a lease had expired. According to the court, the foreclosing party did not have the option to affirm a lease that no longer existed. The parties could, however, enter into a new lease or tenancy agreement.

This decision was based on a reading of a statute that was subsequently repealed and reenacted. Under the current C.R.S. § 38-38-506(3), the foreclosing party does have the option to affirm the lease when the lessee is an "omitted party." An omitted party is one who has a possessory interest in the property but who is not included as a defendant in the judicial foreclosure action or has not been served with process, or is not served with notice of levy, seizure or sale of the property, or otherwise is not notified of the foreclosure legal proceedings. C.R.S. §§ 38-38-506(1)(a) and (b). The lessee's interests, subject to the terms and conditions of the lease, whether written or oral, are not affected by a foreclosure if a document is filed with the public trustee or sheriff affirming the lessee's interest in the property. When such affirmation does not take place, the lease is not saved from extinguishment. Elrick v. Merrill, 10 P.3d 689, 695 (Colo. App. 2000). This statute's continuing viability was changed with the passage of the federal Protecting Tenants at Foreclosure Act.

§ 3.8.2—Protecting Tenants at Foreclosure

On May 20, 2009, President Obama signed the Helping Families Save Their Homes Act of 2009, Pub. L. No. 111-22, 123 Stat. 1632 (2009), which includes the Protecting Tenants at Foreclosure Act of 2009 (PTFA). This federal legislation preempts less-protective state and local laws and is designed to protect innocent renters who may be victimized by their landlord's default on mortgages.

The Protecting Tenants at Foreclosure Act of 2009 automatically expired under the...