Who gets paid first: lienholders, then you
Finding and claiming surplus money · 1 study hours
Bottom line: After the redemption periods end, qualified junior lienholders are paid from the overbid in recording order up to what they are owed, and the borrower gets only what remains.
Bottom line first. An overbid is not all yours automatically. After the redemption periods end, the public trustee pays junior lienholders who qualified, in the order their liens were recorded, up to what each is owed. Whatever is left goes to the borrower. So the size of your check depends on who else had a claim on the house.
That can feel unfair when you are already hurting. The good news is that the order is written in the law, it is the same for everyone, and you can ask the public trustee's office to show you the math.
Liens in plain words
A lien is a legal claim on a property for a debt. If the debt is not paid, the lien can force a sale. The loan that was foreclosed was one lien. A house often has others: a second mortgage, a home equity line, a judgment from a court case, a contractor's claim, or an association's claim.
The statute calls any lien that ranks behind the one being foreclosed a junior lien, and the person who holds it a junior lienor (C.R.S. 38-38-100.3(11), (12)). "Junior" only means "ranked later." The foreclosure sale wipes out junior liens, but it gives their holders a short chance to redeem (C.R.S. 38-38-302(10)).
How redemption works
To redeem is to step in after the sale and take over the buyer's position by paying what the buyer paid, plus interest and some allowed costs. In Colorado this right belongs to junior lienors, not to every person with a claim. The sections this lesson relies on give the right to redeem to a lienor whose lien is junior, was recorded properly before the foreclosure started, and who meets the filing rules (C.R.S. 38-38-302(1)).
One rule matters most for the overbid: the lienor must file a notice of intent to redeem with the officer within eight business days after the sale (C.R.S. 38-38-302(1)(d)). A late notice is allowed only in narrow cases. Miss the deadline and, in most cases, that lienor loses its claim to the overbid too.
The redemption periods run one after another. No sooner than fifteen business days and no later than nineteen business days after the sale, the junior lienor with the most senior recorded lien may redeem. Each later lienor then gets an additional five business days (C.R.S. 38-38-302(4)). Redemption payments are due by 12 noon on the last day of the lienor's period. When a lienor redeems, the officer records a certificate of redemption (C.R.S. 38-38-402).
Who gets the overbid, in order
After every redemption period has expired, the remaining overbid is paid in this order (C.R.S. 38-38-111(2)):
- Junior lienors, in the order their liens were recorded. Priority is judged as of the date the notice of election and demand (or lis pendens) was recorded. Each is paid up to the unpaid amount of its lien plus fees and costs.
- Only lienors who filed a timely notice of intent to redeem, and whose liens have not been redeemed.
- The holder, if it is entitled to a portion.
- The borrower, who receives whatever remains.
Two new words here. A notice of election and demand is the paper recorded to start a public trustee foreclosure. A lis pendens is the recorded notice of a pending court case about the property (C.R.S. 38-38-100.3(13), (16)). Liens recorded before that date can claim. Liens recorded after it cannot.
Who gets nothing from the overbid
- A lienor whose lien was recorded after the notice of election and demand or lis pendens.
- A lienor who did not timely file a notice of intent to redeem.
- A lienor who accepts less than a full redemption (C.R.S. 38-38-111(2) and (4)).
- A lienor whose lien was already redeemed by someone else.
If a lienor falls into one of these groups, its share does not disappear. It stays in the pot, and the next person in line is paid. In the end that can raise the borrower's share.
What a redemption can do to your number
If a lienor redeems, the sale does not simply end with the overbid unchanged. The redeeming lienor pays money to the officer, a certificate of redemption is recorded, and the people who were paid off by redemption are no longer in line for the overbid. The sources read for this course do not walk through every case of how a redemption changes the overbid, so ask the public trustee for the written figures after the last redemption period ends.
Example with real numbers
The numbers are made up. Jordan's house sold at auction. The holder's bid was $200,000 with no deficiency, and an outside buyer won at $260,000. Overbid: $260,000 - $200,000 = $60,000, held in escrow. Three other liens exist.
| Lien | Recorded | Unpaid plus fees | Filed intent to redeem in time? |
|---|---|---|---|
| A: home equity line | Before the foreclosure notice, 1st among junior liens | $26,000 | Yes |
| B: court judgment | Before the foreclosure notice, 2nd | $15,500 | Yes |
| C: contractor claim | After the foreclosure notice | $10,000 | Not eligible |
Suppose no one actually redeems, so the redemption periods run out.
- Start with $60,000.
- Lien A is first in order and qualified. Pay $26,000. Left: $60,000 - $26,000 = $34,000.
- Lien B is next and qualified. Pay $15,500. Left: $34,000 - $15,500 = $18,500.
- Lien C was recorded too late. It has no claim to the overbid.
- The rest goes to Jordan: $18,500.
What if lien B accepts less than a full redemption? Then B has no claim on the overbid (C.R.S. 38-38-111(2)). After A is paid, $34,000 remains, and it all goes to Jordan.
What if the overbid had been only $30,000? Lien A would take $26,000, B would take the last $4,000 of its $15,500, and Jordan would receive nothing. That is why you need the actual numbers.
What to ask the public trustee
- How much was the holder's bid, and how much was the winning bid?
- Which junior lienors filed a notice of intent to redeem?
- Did anyone redeem? When did the last redemption period end?
- What is the remaining overbid, if any?
General education, not legal advice. Lien priority can be complex; a lawyer can check it for a large amount.
Law cited
- C.R.S. 38-38-100.3
- C.R.S. 38-38-111
- C.R.S. 38-38-302
- C.R.S. 38-38-402
Key terms
- Lien
- A legal claim on property for a debt, which can force a sale if the debt is not paid.
- Junior lien
- A lien that ranks behind the lien being foreclosed.
- Junior lienor
- The person who holds a junior lien.
- Redeem
- To step in after the sale and take over the buyer's position by paying the sale price plus interest and allowed costs.
- Notice of intent to redeem
- A paper a lienor must file with the officer, generally within eight business days after the sale, to keep its redemption right and its claim to the overbid.
- Certificate of redemption
- A recorded paper the officer issues when a lienor redeems.
- Notice of election and demand
- The notice recorded to start a public trustee foreclosure; it sets the date used to rank liens.
- Lis pendens
- A recorded notice that a court case about the property is pending.
- Recording priority
- The order in which liens were officially recorded with the clerk and recorder; earlier generally means paid first.
- Full redemption
- A redemption that pays all that is required; a lienor who takes less loses its claim to the overbid.
- Escrow
- Money kept safe by a neutral party until it can be paid to the right person.
- Business day
- A working day. Redemption deadlines are counted in business days, not calendar days.
Flashcards
What is a junior lienor?
Someone who holds a lien ranked behind the lien being foreclosed.
In what order are junior lienors paid from the overbid?
In order of recording priority, up to the unpaid amount of each lien plus fees and costs.
Who is paid last from the overbid?
The borrower, who gets whatever remains.
How soon after the sale must a lienor file its notice of intent to redeem?
Within eight business days (late filing is allowed only in narrow cases).
What date decides which liens rank for the overbid?
The recording date of the notice of election and demand or the lis pendens.
Does a lien recorded after that date share in the overbid?
No.
What happens to a lienor who accepts less than a full redemption?
It has no claim to any part of the overbid.
When does the first junior lienor's redemption period run?
No sooner than 15 and no later than 19 business days after the sale.
How much extra time does each later lienor get to redeem?
An additional five business days, in order.
What should you ask the public trustee after the last redemption period?
The holder's bid, the winning bid, who filed to redeem, and the remaining overbid.
Quiz: 10 questions
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After all redemption periods expire, who is paid from the overbid first?
- A The borrower
- B Qualified junior lienors, in order of recording priority
- C The buyer at the auction
- D The state treasurer
Show answer and why
Answer: B. Qualified junior lienors, in order of recording priority
Under the statute, remaining overbid is paid to qualified junior lienors in order of recording priority before the borrower receives any remainder.
C.R.S. 38-38-111(2)
Which lienor has NO claim to the overbid?
- A One whose lien was recorded before it and who filed in time
- B The first junior lienor in line who filed in time
- C A lienor with a recorded judgment lien who filed a timely notice
- D One whose lien was recorded after the notice of election and demand
Show answer and why
Answer: D. One whose lien was recorded after the notice of election and demand
A lien recorded after the notice of election and demand or lis pendens is not entitled to redeem and shares nothing from the overbid.
C.R.S. 38-38-111(2)
What is the filing deadline for a notice of intent to redeem?
- A Within eight business days after the sale
- B Within one year after the sale
- C On the day before the sale
- D Within 90 calendar days after the sale
Show answer and why
Answer: A. Within eight business days after the sale
The rule says a lienor must file within eight business days after the sale, with a narrow exception for late filings.
C.R.S. 38-38-302(1)(d)
An overbid is $50,000. Lien A (qualified, first) is owed $30,000 and lien B (qualified, second) is owed $12,000. How much is left for the borrower?
- A $20,000
- B $12,000
- C $8,000
- D $0
Show answer and why
Answer: C. $8,000
$50,000 - $30,000 = $20,000, then $20,000 - $12,000 = $8,000 for the borrower.
C.R.S. 38-38-111(2)
Which statement about redemption is true?
- A All lienors redeem at the same moment
- B Each later lienor gets an additional five business days to redeem, in order
- C Only the borrower may redeem
- D The redemption payment is due at midnight
Show answer and why
Answer: B. Each later lienor gets an additional five business days to redeem, in order
The statute gives the most senior junior lienor the first window and each next lienor five more business days; payment is due by 12 noon.
C.R.S. 38-38-302(4)
Which of these is NOT a reason a lienor loses its claim to the overbid?
- A It did not timely file a notice of intent to redeem
- B It accepted less than full redemption
- C Its lien was recorded after the notice of election and demand
- D It holds a lien recorded before the notice of election and demand
Show answer and why
Answer: D. It holds a lien recorded before the notice of election and demand
A lien recorded before the notice that filed on time is the normal case of a qualified lienor. The other three are listed as losing a claim.
C.R.S. 38-38-111(2)
In the lesson's example, the overbid is $60,000. Lien A is owed $26,000 and lien B $15,500, both qualified. What does Jordan receive?
- A $18,500
- B $34,000
- C $60,000
- D $41,500
Show answer and why
Answer: A. $18,500
$60,000 - $26,000 = $34,000, then $34,000 - $15,500 = $18,500. The $41,500 is what A and B receive together.
C.R.S. 38-38-111(2)
Lien B accepts less than a full redemption in the same example. What does Jordan get?
- A $34,000
- B $18,500
- C $15,500
- D $60,000
Show answer and why
Answer: A. $34,000
B loses its claim, so only A ($26,000) is paid: $60,000 - $26,000 = $34,000 goes to Jordan.
C.R.S. 38-38-111(2), (4)
What is a lis pendens?
- A A loan payoff statement
- B The buyer's deed after the sale
- C A recorded notice that a court case about the property is pending
- D A fee paid to the public trustee
Show answer and why
Answer: C. A recorded notice that a court case about the property is pending
The statute defines it as a recorded notice that refers to a judicial action including a claim for foreclosure and sale, or asserting a claim in the property.
C.R.S. 38-38-100.3(13)
Which question is best to ask the public trustee after the last redemption period ends?
- A Can I pay you to move my claim up?
- B Which buyer will sell the house back to me?
- C Will the lender forgive the loan?
- D What is the remaining overbid after lienors are paid, and how was it figured?
Show answer and why
Answer: D. What is the remaining overbid after lienors are paid, and how was it figured?
The remaining overbid and the lienor payments are what decide your share. The other questions have nothing to do with the overbid order.
C.R.S. 38-38-111(2)
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