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Silvernagel v. US Bank National Ass’n.

2021 COA 128. No. 20CA1035. Bankruptcy Discharge—Foreclosure on a Deed of Trust—Statute of Limitations—Declaratory Relief.

October 21, 2021

In 2006, plaintiffs Silvernagel and Wu, who are married, took out a second mortgage on their home with lender New Century Mortgage Corporation. Silvernagel and Wu both signed the deed of trust, but only Silvernagel signed the promissory note. In 2012, a bankruptcy court discharged Silvernagel’s personal liability on the note, and he made no payments thereafter.

In 2019, plaintiffs filed this action for declaratory relief against US Bank National Association (US Bank), asserting that US Bank (1) had begun demanding payment that year on the underlying debt and threatening them with foreclosure, (2) lacked standing to foreclose because it could not prove it was the owner or holder of the deed of trust, and (3) was barred from initiating foreclosure by either the statute of limitation or laches. US Bank filed a CRCP 12(b)(5) motion to dismiss the complaint. The district concluded, among other things, that US Bank provided a copy of the Mortgage Electronic Registration Systems, Inc. (MERS) report showing it was the current trustee, and it granted the motion.

On appeal, plaintiffs argued that the district court erred when it concluded that US Bank has standing to enforce the note and deed of trust because the MERS milestone report is insufficient to establish US Bank’s standing to foreclose on the property. A creditor’s right to foreclose on a deed of trust survives a discharge of the underlying debt in bankruptcy, and Colorado law allows a holder of an evidence of debt to foreclose upon breach of the terms of the deed of trust. As an initial matter, the Court of Appeals found that because the district court had considered the MERS report, which was outside the complaint, the motion was converted to one for summary judgment. Accordingly, the Court reviewed the matter according to summary judgment principles and concluded that there were no disputed issues of material fact necessary for the Court to resolve the appeal. Because US Bank is the defendant in this declaratory judgment action, it did not need to establish standing.

Plaintiffs also argued that the district court erroneously dismissed the complaint based on its rejection, as a matter of law, of their claim that any suit by US Bank would be barred by the statute of limitations. Here, the district court determined that the period for pursuing a claim on the debt underlying the deed of trust had not yet commenced, and it concluded, as a matter of law, that US Bank would not be barred by the statute of limitations from foreclosing on the property. However, according to the allegations in the complaint, (1) Silvernagel was discharged in bankruptcy of personal responsibility for the underlying debt in October 2012; and (2) as of June 2019, US Bank had not initiated foreclosure proceedings with respect to the deed of trust. If these allegations are true, US Bank would have failed to timely seek relief within the applicable six-year limitations period and, consequently, would be barred from foreclosing on plaintiffs’ property. Plaintiffs would thus be entitled to the relief sought in their complaint, so the district court erred.

The judgment was reversed and the case was remanded with directions to reinstate the complaint and conduct further proceedings.

Official Colorado Court of Appeals proceedings can be found at the Colorado Court of Appeals website.

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