Mortgage Foreclosure Colorado

Mortgage Foreclosure Colorado

I did a short sale, and now a collection agent is trying to collect the deficiency balance. What are my options in Colorado?

I have been divorced for three years. Over the last three years I have been working on paying off my debit. I have been successful in getting a lot of my bills paid off. Recently I had to do a short sale on our house. Now I have a collection agency coming after me for the remaining balance. If I file bankruptcy on the house only how will that affect my credit? My credit is still not good but better than before. I only owe on my car and a personal loan. My car payment has been paid on time for the last three years. My personal loan is less than a $1000 and has been paid very month on time. I am concerned that the bankruptcy will set me back again.

Bankruptcy is indeed one of the most damaging things to have on your credit report. The exact drop, however, is impossible to know, since the three main credit bureaus — Equifax, Experian, and TransUnion — do not publicly release the precise formulas they use to calculate credit scores. Furthermore, other variables, such as your pre-bankruptcy score and credit history, are significant factors.

Whatever the drop turns out to be, the filing for bankruptcy virtually ensures a very low credit score — at least for the while — and it will be listed on your credit report for 10 years.

Deficiency Balance

A deficiency balance arises if the sale proceeds are not sufficient to pay the entire balance owed on all secured loans. The consumer may be liable for the difference. Some lenders may forgive a deficiency balance, but not all do.

Suing for a Deficiency Balance

Generally speaking, it is unsound economically for an original creditor to sue for the deficiency because the debtor usually does not have the financial resources. After all the debtor would not have defaulted if they could have afforded the payments, in most cases.

Original creditors rarely choose to litigate a deficiency balance case. Instead, the original creditor will sell (also called assign) a deficiency balance account to a collection agent. Typically, unsecured debts such as deficiency balances, credit card debt, medical bills, and payday loans are sold for pennies on the dollar. Despite the bargain-basement price of a collection account, a collection agent has the legal right to collect the face value of the account. If a creditor files a lawsuit and wins, it may be able to obtain a judgment, which could lead to wage garnishment, bank levies, and/or property liens, depending on the defendant's state laws.

Consult with an attorney in your state to determine if the creditor has the right file a lawsuit against you in your circumstances, and if so, what the consequences may be. See the resources Collection Laws and Collections Advice.


Following a foreclosure or short-sale, the second mortgage or line of credit becomes an unsecured debt. Negotiate with the creditor in an attempt to reach an out-of-court settlement on the debt. If necessary, enroll the debt in a debt negotiation program. (Go to the debt relief savings center for a no-cost quote.) Another option is to negotiate the debt yourself. Consider offering the creditor 10 cents on the dollar for a lump-sum settlement.


There are two basic types of bankruptcy available to consumers — Chapter 7 and Chapter 13.

Chapter 7

A Chapter 7 bankruptcy, often called a "liquidation bankruptcy," completely discharges many unsecured debts if you qualify to file. Most consumers who do not have significant assets or income choose to file for protection under Chapter 7 bankruptcy. Chapter 7 bankruptcy generally does not stop foreclosure action against consumers. The automatic stay ordered by the court when the case is filed postpones a mortgage company from proceeding with foreclosure. Since secured debts, such as mortgages, are not usually dischargeable in bankruptcy, the court or the trustee will usually grant relief from the stay to mortgage company to proceed with foreclosure if the homeowner’s mortgage remains delinquent.

A Chapter 7 bankruptcy would discharge any deficiency balance resulting from a short sale or deed in lieu of foreclosure. Alternatively if there is no short sale or deed in lie of foreclosure, a Chapter 7 would wipe-out any liability for the mortgage or foreclosure. As mentioned, when filing a Chapter 7, the debtor must file a statement of intention regarding the property. There are two options: Retain or Surrender. If the debtor selects surrender he or she must quit the property. Liability for the deficiency balance following the foreclosure and REO or auction would be discharged.

Chapter 13

Another option is Chapter 13 bankruptcy. This is also called a "wage-earners bankruptcy," and is designed for those debtors who own significant assets and have a regular income, but who cannot afford their monthly debt obligations. In a Chapter 13, the debtor makes payments to the bankruptcy court for a certain period, usually three to five years, until all of the petitioner’s debts are paid. If the consumer cannot afford to repay all of his debts within the time period specified by his Chapter 13 plan, any debts remaining after all payments are made are usually discharged, meaning the debt is "forgiven."

Both Chapters 7 and 13 create an automatic stay when filed, meaning that the debtor’s creditors must cease all collection activity until the bankruptcy case is either finalized or dismissed, unless the stay is lifted by the court.

Colorado & Deficiency Balance

Colorado does not have a mortgage anti-deficiency law. If a foreclosure results in the sale of the property for less than the balance of the loan, then the mortgagor/debtor is liable for the deficiency balance. See Colorado see Chapter 315, Property for details.

Each state legislature created unique foreclosure and anti-deficiency laws. Follow the links just mentioned to learn the foreclosure rules relevant to you.


Bankruptcy is a last resort. It will have an adverse affect on your credit score. Consult with an attorney in your state to confirm you actually owe the deficiency balance. Bring all of your home sale documents, including the short-sale agreement and the original line of credit documents.

Debt distressing you? The Debt Coach is a no-cost online tool that will analyze your debts and show you the options available to resolve them and the costs and benefits of each.

Debt settlement is an alternative to bankruptcy. As discussed, you can negotiate directly with the creditor or hire a debt settlement service to negotiate for you.

I hope this information helps you Find. Learn & Save.