While The Denver Post recently reported that completed foreclosure sales were at a five-year low in May of this year, and an informal survey by this office of various metro and mountain county public trustees confirmed that, based on filings for the first half of 2012, foreclosures are expected to be generally lower this year than in recent years, some signs suggest that lenders may just be gearing up for a new wave of foreclosures.  Although the current slow down in foreclosures could reflect an improvement in Colorado’s economy, it could also result from caution by lenders after the recent $25 billion joint state and federal settlement with the nation’s five largest lenders for alleged foreclosure abuses.  In addition, loans which were previously spared from foreclosure as a result of modifications may now be in default again.  A recent article in The Denver Post noted that the recording of assignments of deeds of trust from mortgage loan servicers to the actual lenders who hold the loans, which recording often precedes the filing of a foreclosure, has more than doubled in the first half of this year compared with last year, and some experts warn that if only half of those recordings become actual foreclosures, “it could approach the worst of the foreclosure crisis that mushroomed in 2007.”

The dramatic rise in the number of foreclosures filed in Colorado during the last five years has led to increased scrutiny of both the foreclosure laws and the actions of Colorado’s public trustees.  As detailed in an April 4 post in this blog, proponents of ballot Initiative 84 had sought to correct perceived problems in the state’s foreclosure laws with an amendment to the Colorado Constitution.  A recent article in The Denver Post indicates that these efforts are being redirected to effect legislative reform instead.  In addition, the resignation on July 10 of nine of the public trustees appointed by Governor Hickenlooper and the retirement of the tenth followed two days after allegations by The Denver Post that some trustees had used public funds to benefit themselves and their employees.  While public trustees for the majority of Colorado’s 64 counties are elected, ten trustees in some of the most populous counties, including Adams, Arapahoe, Boulder, Douglas, El Paso, Jefferson, Larimer, Mesa, Pueblo and Weld Counties, are appointed by the governor.  The appointed trustees operate with greater autonomy and less oversight of how they spend millions of dollars in foreclosure fees collected by their offices than those trustees who are elected and whose budgets and expenditures must be approved by county commissioners.  The governor’s office has indicated that the positions will be filled by mid-August, though Representative Ray Scott, R-Grand Junction, who sponsored legislation passed in May intended to rein in the authority of public trustees, has asked the governor not to fill the positions but to wait for the General Assembly to pass legislation in January to overhaul the foreclosure process and possibly eliminate the office of the public trustee in its entirety. 

Established in 1894 when Colorado’s economy collapsed upon the federal government’s switch to the gold standard from silver, Colorado’s unique public trustee system was designed to provide a fair venue that would protect the interests of both lenders and property owners.  While some have argued that recent changes in the laws have compromised the rights of property owners, others feel that the current process works fine and that calls to eliminate the public trustee’s office entirely would be throwing the baby out with the bath water.  The resigning public trustees are each eligible to re-apply for their posts and several have already indicated their intent to do so, including El Paso County Public Trustee Tom Mowle, whom our office has found to be one of the most knowledgeable trustees with one of the best-run offices.  We will be interested to see the actions that will be taken by the governor and the legislature, and how those actions will help Colorado address an expected new wave of foreclosures, if one comes.

Yesterday, Reuters reported on California federal law enforcement authorities’ latest effort to crack down on medical marijuana businesses.  Though medical marijuana is legal under California state law, it remains illegal under federal law.  In recent months, federal authorities have sent hundreds of letters to California property owners/landlords of properties housing medical marijuana businesses, demanding that marijuana activities at their properties be terminated.  In absence of compliance with the demand, the letters threaten institution of civil forfeiture proceedings against the properties, and criminal charges against the owners/landlords.

Under federal law, real property used to commit or facilitate the commission of violation of federal drug laws is subject to forfeiture by the government.  Apparently, given the legality of medical marijuana on the state level, many owners/landlords are not aware of their exposure under federal law.  The article referenced above describes how using this threat (as well as the threat of criminal prosecution) has proven more effective and less costly than other avenues of enforcement.  In many cases, the threat of forfeiture will spur the property owner/landlord to evict the medical marijuana business tenant, thereby accomplishing the authorities’ goal of shutting down the operation.  According to the article, targeting owners/landlords has led to the shutdown of hundreds of medical marijuana businesses. 

Significantly for property owners/landlords, while eviction spares the owner/landlord of the risk of losing the property to forfeiture and also criminal prosecution, it also comes with its own costs for owners/landlords.  These include significant legal expenses, and potential exposure to state law civil claims from the medical marijuana business tenants. 

This approach seems to be a broad and coordinated effort among federal authorities in California.  In contrast, while federal authorities in Colorado have also targeted property owners/landlords of medical marijuana businesses, their efforts have been much focused.  Thus far, at least, only properties located near schools have come under federal scrutiny in Colorado, with the United States Attorney’s office in Colorado sending out letters to groups of owners/landlords of such properties on multiple occasions.  These letters also threatened seizure of property, and have been effective in causing the owners/landlords to ensure that the medical marijuana activities in their properties cease. 

It is unclear whether federal enforcement efforts targeting landlords will spread in Colorado.  Colorado has a much more extensive regulatory system for medical marijuana than does California, which many believe has contributed to the largely hands-off approach of federal authorities in Colorado.  However, the apparently broad use of real property forfeiture proceedings in California, or at least threats of doing so, should serve as a reminder to property owners/landlords in Colorado that allowing their properties to be used for medical marijuana activities, even in full compliance with Colorado law, places them at risk of losing their properties in federal forfeiture proceedings.  Criminal prosecution of owners/landlords is also a possibility. 

The Colorado legislature recently adopted a bill amending the Colorado Common Interest Ownership Act (CCIOA).   House Bill 12-1237, which currently awaits Governor Hickenlooper’s signature, overhauls the record keeping requirements imposed upon Colorado’s property owners’ associations under CCIOA.   Generally speaking, the requirements of this bill are more detailed than CCIOA’s old provisions on record keeping, and speak to topics previously covered such as financial records and records of member and board meetings.  In addition, the bill addresses additional types of records and clarifies which records must be provided and must not be provided to members upon request, and which records can, at the association’s option, be withheld. 

Some of the new types of records specifically addressed in the bill include records related to construction defects.  The bill requires that property owners’ associations keep records of claims for construction defects and amounts received pursuant to settlement of those claims and that those records be made available to members upon request.  The bill also requires that when action is taken by the board of directors without a meeting, the property owners’ association maintain all written communications among the board members that are directly related to those actions, which presumably includes emails.  These records must be provided to members upon request.

The records that the board of directors may withhold, at its option, include, among other things, communications with legal counsel that are otherwise protected by the attorney-client privilege, records related to an executive session of the board of directors and records related to transactions to purchase goods or services that are currently under negotiation.  Those items that must be withheld from members include personal information related to employees or members (salary, medical information, bank account information, phone numbers, email addresses, drivers license numbers and social security numbers).  Because email communication is so prevalent today, property owners’ associations will need to take precautions not to disclose email addresses of its members under the new bill.  Note, however, the email addresses of board members must be provided to any owner who requests the information. 

Assuming this bill is signed by Governor Hickenlooper (and not challenged by referendum), its provisions will take effect January 1, 2013. 

This article in today’s Denver Post discusses how, despite some regional variation in vacancy rates and rents, the statewide trends suggest optimism among property managers and landlords concerning future demand. 

The recent uptick in multi-family housing construction in some parts of Colorado indicates that developers may be feeling the same way. 

It will be interesting to watch whether this results in sustained multi-family growth.