Waiving Statutory Foreclosure Provisions

by Sherman & Howard L.L.C.

The recently issued opinion of the Colorado Court of Appeals, in Armed Forces Bank v. Hicks, 2014 COA 74. No. 13CA0875 (June 5, 2014), is significant for commercial real estate lenders.

In Hicks, the Bank was the successful bidder at a foreclosure sale under its deed of trust that secured the Bank's loan to its borrower. The Bank's bid resulted in a deficiency claim against the guarantors of the loan in the approximate amount of $6,100,000.00. The borrower had previously filed for bankruptcy protection.

The guarantors asserted a number of defenses in the deficiency action, including a defense under Section 38-38-106(6) (the "Statute") of the Colorado real estate foreclosure statute. The Statute requires the foreclosing lender to bid at least its "good faith estimate of the fair market value of the property being sold," less the amount of unpaid real estate taxes, all amounts secured by liens against the property that are prior to the lien being foreclosed, and the reasonable costs and expenses of holding, marketing, and selling the property, net of any income received. A foreclosing lender is not required to bid more than the debt owed to it by the borrower. Under the Statute, the failure of a foreclosing lender to bid the amount required by the Statute does not affect the validity of the foreclosure sale "but may be raised as a defense by any person sued on a deficiency."

The guarantors in Hicks argued that (1) compliance with the Statute was mandatory, (2) the protections of the Statute could not be contractually waived in advance, and (3) public policy precluded the waiver contained in their guaranties of the statutory defense.

The Hicks court determined that:

  1. Based upon the structure of the entire foreclosure statute, and the specific language of the Statute, which provides that failure of the lender to bid its good faith estimate of the fair market value of the property "may be raised as a defense by any person sued on a deficiency" (emphasis supplied), the Hicks court determined the defense under the Statute was waivable;
  2. Further, the Hicks court held that a waiver of the protections of the Statute does not violate public policy because there was no allegation that the lender was in an "unfairly superior bargaining position, or that the lender overreached in bargaining for the waiver"; and
  3. The Hicks court held that the waiver language in the guarantee, which included the guarantors' express waiver of all of their defenses against the lender "other than actual payment and performance of the indebtedness," was effective to waive the defense of the guarantors based upon the Statute.                                  

In light of the Hicks case, lenders should review and, if indicated, revise the waiver language contained in their commercial guarantee forms to assure that the waiver provisions, if any, comport with the language that the Hicks court found to be effective for waiver. Consideration should be given to adding waiver language to the lender's promissory note since the defense under the Statute is available to "any person sued on a deficiency." Clearly, the legislature intended that the statutory defense to be available to both the primary obligors under the promissory note, and to the guarantors of the promissory note.

The facts of the Hicks case limit its application to commercial loans. Although not stated as a requirement to any of the holdings by the Hicks court, the facts in this case also suggest that the waiver language should be conspicuous. The court also noted that there was no allegation that the Bank's bid violated the implied duty of good faith, which under Colorado law applies to the performance by the parties of their contractual rights and obligations.

Generally, the implied covenant of good faith and fair dealing may not be waived. The Colorado Uniform Commercial Code ("UCC"), provides that the "obligations of good faith . . . reasonableness . . . prescribed by [the UCC] . . . may not be disclaimed by agreement." C.R.S. Section 4-1-302(b). However, the very next sentence of that section of the UCC provides that "[t]he parties, by agreement, may determine the standards by which the performance of those obligations is to be measured if the standards are not manifestly unreasonable." Both the UCC and the Hicks decision give deference to the parties' freedom to contract. Any attempt to limit the implied covenant of good faith should include standards by which good faith and fair dealing are measured.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sherman & Howard L.L.C. | Attorney Advertising

Written by:

Sherman & Howard L.L.C.

Sherman & Howard L.L.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.