colorado supreme court

Colorado Supreme Court justices, back row from left: Carlos A. Samour Jr., Richard L. Gabriel, Melissa Hart and Maria E. Berkenkotter. Front row from left: Monica M. Marquez, Chief Justice Brian D. Boatright, and William W. Hood III.

The Colorado Supreme Court has agreed to review a lower court's ruling that banks and mortgage lenders argue gives an improper incentive to rapidly foreclose on certain homeowners.

On Monday, the justices announced they will hear the case of U.S. Bank National Association v. Silvernagel, which centers on Colorado's six-year statute of limitations for lenders to foreclose on a home. Last year, the state's Court of Appeals decided the six-year clock began when a pair of homeowners exited their bankruptcy proceedings, prompting an outcry from lending institutions that called the interpretation unjust to homeowners.

At least three members of the Supreme Court must agree to review a decision from the Court of Appeals. Alongside the foreclosure case, three appeals pertaining to the state's felony drunken-driving law and liability for fraud fell just short of that threshold, gaining the support of two justices apiece.

In the U.S. Bank case, Jerome D. Silvernagel and Dan Wu of Highlands Ranch bought a house in 2004, and took out a second 30-year mortgage in 2006. However, Silvernagel and Wu entered bankruptcy proceedings, culminating in a 2012 discharge from their debt liability. There was no record of any payments on the second mortgage after that.

U.S. Bank allegedly began demanding payments on the mortgage in 2019, prompting Silvernagel and Wu to file suit asking for a declaration that they owned the home and U.S. Bank had no right to the property.

Although a Douglas County judge dismissed the lawsuit, a three-judge panel of the Court of Appeals reversed the decision in October of last year. The court noted the six-year statute of limitations for foreclosure begins when the debt "becomes due." U.S. Bank had argued the mortgage debt on the Highlands Ranch house was due monthly until the maturity date in 2036, but the Court of Appeals believed the clock actually started in 2012, after the bankruptcy proceedings.

Relying on a 2017 decision of a federal judge in the Western District of Washington, the appellate panel interpreted Colorado's law to similarly mean U.S. Bank needed to take action within six years of 2012 if it wanted to foreclose.

U.S. Bank promptly appealed to the Supreme Court, repudiating the Court of Appeals' reliance on the Washington judge's ruling and blasting the panel for handing a "free house" to certain homeowners.

"Of more concern, the COA decision will negatively impact current and future borrowers because it incentivizes lenders to foreclose on financially vulnerable borrowers coming out of bankruptcy, instead of working with them to stay in their homes," argued attorneys for U.S. Bank.

Writing in support of U.S. Bank were the Colorado Mortgage Lenders Association, Colorado Bankers Association, Independent Bankers of Colorado and other financial groups. They explained people who are coming out of bankruptcy may still make payments to avoid foreclosure, but the Court of Appeals now put lenders "in the untenable position" of needing to foreclose on those borrowers within six years or else losing their right to collect on the debt.

Silvernagel and Wu brushed aside those concerns. U.S. Bank took no action against them for nearly 10 years, they pointed out, only seeking repayment once the Highlands Ranch home had appreciated in value.

"Now it appears before this Court to complain of the consequences of its actions," wrote attorney William A. Morris.

The Supreme Court will evaluate whether the Court of Appeals correctly identified the beginning of the six-year statute of limitations.

Cases narrowly declined

Despite interest from some of its members, the Supreme Court declined to take up a handful of other cases.

In late 2020, court decided in Linnebur v. People on a new reading of the state's felony driving-under-the-influence law. While DUI is a misdemeanor offense, those with at least three prior convictions are guilty of felony DUI, with a corresponding harsher punishment. The standard practice was for juries to convict a defendant of misdemeanor DUI, and for trial judges to elevate the offense to a felony after determining the existence of three priors.

The Linnebur decision clarified the prior offenses were, in fact, an element of the felony charge that needed to be proven to a jury beyond a reasonable doubt, upending scores of DUI convictions on appeal. The Supreme Court later clarified prosecutors could retry defendants for felony DUI without violating the prohibition on double jeopardy.

For cases that were pending on appeal at the time of Linnebur, judges on the Court of Appeals have routinely reversed the felony convictions on the premise that there was structural error — meaning a mistake that fundamentally affected the fairness of those trials. 

But in March 2021, Judge Jerry N. Jones authored an opinion casting doubt on whether the failure to let juries evaluate prior offenses amounted to a structural error. He called on the Supreme Court to "revisit its jurisprudence on this point."

The Colorado Attorney General's Office seized on Jones' statement and began petitioning the Supreme Court to reconsider. In two appeals, People v. Hill and People v. Houghton, the government argued the Supreme Court needed to clarify whether the error should be viewed in light of the law at the time of trial — when it was clear juries did not have to hear about prior offenses — or at the time of appeal, when Linnebur applied.

Chief Justice Brian D. Boatright and Justice Carlos A. Samour Jr. indicated they would have agreed to hear both appeals. Principally, they would have evaluated how appellate courts should decide whether to reverse felony DUI convictions and, broadly, whether errors should be examined in light of the law during the trial or the law once the case is appealed.

The Supreme Court also passed on a case out of Denver implicating the judicially created "economic loss rule," which prevents entities from seeking money for liability claims when the real dispute is over a breach of contract.

Weyerhaeuser NR Co. supplied lumber products for home construction to Dream Finders Homes and a related company that sold Dream Finders' houses. But in mid-2017, Weyerhaeuser announced a newly applied coating on certain materials was emitting a formaldehyde odor, and it would need to remediate the problems.

Even though Weyerhaeuser followed through on its promise and paid more to do so than its contract stipulated, Dream Finders Homes sued Weyerhaeuser for negligence, for violating Colorado's consumer protection law and for fraudulent concealment, among other claims. A jury agreed Weyerhaeuser was liable for negligence and fraud, and awarded more than $14 million to Dream Finders Homes.

On appeal, a panel of the Court of Appeals agreed various contracts Dream Finders Homes had with Weyerhaeuser governed the sale of the defective products. Because Weyerhaeuser had provided the kind of remediation outlined in the contract, the lawsuit "is one of those cases in which the economic loss rule bars fraud claims," wrote Judge Lino S. Lipinsky de Orlov in December, overturning the multimillion-dollar award.

Judge Jacyln Casey Brown wrote separately to say that while she agreed with the outcome, she worried companies may be emboldened to engage in misconduct, knowing courts will shield them from massive jury verdicts.

"It could be read to encourage a contracting party to engage in fraudulent conduct during the course of a contractual relationship and then hide behind the economic loss rule to avoid economic damages caused by the fraud," Brown wrote.

Dream Finders Homes similarly argued to the Supreme Court the economic loss rule should not apply when, as here, a jury decides there was fraudulent behavior. The Colorado Trial Lawyers Association also wrote to the court in support of Dream Finders Homes, warning against the establishment of a "safe harbor for fraud and misrepresentation."

Boatright and Justice William W. Hood III indicated they would have taken up the appeal to decide whether the economic loss rule bars monetary damages specifically for fraud.

The case is Dream Finders Homes LLC v. Weyerhaeuser NR Company.

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