As many associations are aware, when a property enters into public trustee (mortgage) foreclosure, the association is entitled to a super lien payment from the foreclosing lender. In addition, the association is provided redemption rights after the property is sold at the foreclosure sale. A redemption right permits a common interest community to ‘step into the shoes’ of the successful bidder at the foreclosure sale and either (a) take title to the property or (b) recover any surplus funds from the foreclosure sale up to the amount that it is owed. For example, if a lender is owed $90,000 but the property sells at foreclosure sale for $100,000, there is a $10,000 overbid. An association is permitted to file a Notice of Intent to Redeem to seize those overbid funds to satisfy any unpaid debt that it is owed from the foreclosed homeowner. Alternatively, an association could take title to the property for the amount of the successful bid at sale ($100,000) plus other nominal administrative costs in lieu of payment. This can be a very valuable right, since many properties are sold at a foreclosure sale for less than their fair market value.
The Colorado Supreme Court in Oakwood Holdings v. Mortgage Investments Enterprise, LLC (opinion published on February 12, 2018) specifically preserved redemption rights by permitting a secured creditor (such as an association holding a lien) to take title to a foreclosed property even if the successful bidder/investor from the foreclosure sale tenders the full amount owed to an association. Previously, the Court of Appeals held that the successful bidder could pay off the amount owed to the association and preclude them from taking title. The Supreme Court’s decision is a huge win for community associations.