The Colorado Foreclosure Protection Act was created because “too many home owners in financial distress, especially the poor, elderly, and financially unsophisticated, are vulnerable to a variety of deceptive or unconscionable business practices designed to dispossess them or otherwise strip the equity from their homes. There is a compelling need to curtail and to prevent the most deceptive and unconscionable of these business practices, to provide each home owner with information necessary to make an informed and intelligent decision regarding transactions with certain foreclosure consultants and equity purchasers, to provide certain minimum requirements for contracts between such parties, including statutory rights to cancel such contracts, and to ensure and foster fair dealing in the sale and purchase of homes in foreclosure.” The Act can be found at Colorado Revised Statutes §6-1-1101 et. seq.
The Act addresses the industry who refer to themselves as “foreclosure consultants”. Foreclosure consultants are persons who represent that, in exchange for compensation, they can stop or postpone a foreclosure sale or somehow otherwise affect the outcome of a lender’s attempt to foreclose on the borrower’s home. Foreclosure consultants do not include attorneys. Any contract between a foreclosure consultant and a borrower must be in writing, cannot ask the borrower to assign any interest in his home to the foreclosure consultant, or guarantee that the borrow will be able to refinance his home or arrange to keep his home. A borrower has the right to cancel such a contract at any time.
In addition, a foreclosure consultant may not:
- Claim, demand, charge, collect, or receive any compensation until after the foreclosure consultant has fully performed each and every service the foreclosure consultant contracted to perform or represented that the foreclosure consultant would perform;
- Claim, demand, charge, collect, or receive any interest or any other compensation for a loan that the foreclosure consultant makes to the home owner that exceeds the prime rate published by the federal reserve at the time of any loan plus two percentage points, with the total interest rate not to exceed eight percent per year;
- Take a wage assignment, lien of any type on real or personal property, or other security to secure the payment of compensation;
- Receive any consideration from a third party in connection with foreclosure consulting services provided to a home owner unless the consideration is first fully disclosed in writing to the home owner;
- Acquire an interest, directly, indirectly, or through an associate, in the real or personal property of a home owner with whom the foreclosure consultant has contracted;
- Obtain a power of attorney from a home owner for any purpose other than to inspect documents as provided by law;
- Induce or attempt to induce a home owner to enter into a foreclosure consulting contract that does not comply in all respects with this the Colorado Foreclosure Protection Act; or
- Facilitate or engage in any transaction that is unconscionable given the terms and circumstances of the transaction.
I think borrowers need to think twice before they hire a foreclosure consultant. They want your money, and in exchange will try to stop the foreclosure. The fact of the matter is that there is really only one solid defense to foreclosure, and that is that you have paid your mortgage. If you haven’t, then the foreclosure is going to happen. Consider spending the money the foreclosure consultant wants on getting into a home you can afford or a bankruptcy attorney’s retainer. This advice sounds harsh and crass, I know. But by hiring a foreclosure consultant when you are in default, you are just putting off the inevitable. Your money can be put to better use.