Colorado Revised Statutes Title 38. Property Real and Personal § 38-40-105. Prohibited acts by participants in certain mortgage loan transactions--unconscionable acts and practices--definitions

(1) The following acts by any mortgage broker, mortgage originator, mortgage lender, mortgage loan applicant, real estate appraiser, or closing agent, other than a person who provides closing or settlement services subject to regulation by the division of insurance, with respect to any loan that is secured by a first or subordinate mortgage or deed or trust lien against a dwelling are prohibited:

(a) To knowingly advertise, display, distribute, broadcast, televise, or cause or permit to be advertised, displayed, distributed, broadcast, or televised, in any manner, any false, misleading, or deceptive statement with regard to rates, terms, or conditions for a mortgage loan;

(b) To make a false promise or misrepresentation or conceal an essential or material fact to entice either a borrower or a creditor to enter into a mortgage agreement when, under the terms and circumstances of the transaction, he or she knew or reasonably should have known of such falsity, misrepresentation, or concealment;

(c) To knowingly and with intent to defraud present, cause to be presented, or prepare with knowledge or belief that it will be presented to or by a lender or an agent thereof any written statement or information in support of an application for a mortgage loan that he or she knows to contain false information concerning any fact material thereto or if he or she knowingly and with intent to defraud or mislead conceals information concerning any fact material thereto;

(d) To facilitate the consummation of a mortgage loan agreement that is unconscionable given the terms and circumstances of the transaction;

(e) To knowingly facilitate the consummation of a mortgage loan transaction that violates, or that is connected with a violation of, section 12-61-905.5, C.R.S .

(1.7)(a) A mortgage broker or mortgage originator shall not commit, or assist or facilitate the commission of, the following acts or practices, which are hereby deemed unconscionable:

(I) Engaging in a pattern or practice of providing residential mortgage loans to consumers based predominantly on acquisition of the foreclosure or liquidation value of the consumer's collateral without regard to the consumer's ability to repay a loan in accordance with its terms;  except that any reasonable method may be used to determine a borrower's ability to repay.  This subparagraph (I) shall not apply to a reverse mortgage that complies with article 38 of title 11, C.R.S.

(II) Knowingly or intentionally flipping a residential mortgage loan.  As used in this subparagraph (II), “flipping” means making a residential mortgage loan that refinances an existing residential mortgage loan when the new loan does not have reasonable, tangible net benefit to the consumer considering all of the circumstances, including the terms of both the new and refinanced loans, the cost of the new loan, and the consumer's circumstances.  This subparagraph (II) applies regardless of whether the interest rate, points, fees, and charges paid or payable by the consumer in connection with the refinancing exceed any thresholds specified by law.

(III) Entering into a residential mortgage loan transaction knowing there was no reasonable probability of payment of the obligation by the consumer.

(b) Except as this subsection (1.7) may be enforced by the attorney general or a district attorney, only the original parties to a transaction shall have a right of action under this subsection (1.7), and no action or claim under this subsection (1.7) may be brought against a purchaser from, or assignee of, a party to the transaction.

(2)(a) Except as provided in subsection (5) of this section, if a court, as a matter of law, finds a mortgage contract or any clause of the contract to have been unconscionable at the time it was made, the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.

(b) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable, the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose, and effect, to aid the court in making the determination.

(c)(I) In order to support a finding of unconscionability, there must be evidence of some bad faith overreaching on the part of the mortgage broker or mortgage originator such as that which results from an unreasonable inequality of bargaining power or under other circumstances in which there is an absence of meaningful choice on the part of one of the parties, together with contract terms that are, under standard industry practices, unreasonably favorable to the mortgage broker, mortgage originator, or lender.

(II) This paragraph (c) shall not apply to an unconscionable act or practice under subsection (1.7) of this section.

(3) A violation of this section shall be deemed a deceptive trade practice as provided in section 6-1-105(1)(uu), C.R.S .

(4) The provisions of this section are in addition to and are not intended to supersede the deceptive trade practices actionable at common law or under other statutes of this state.

(5) No right or claim arising under this section may be raised or asserted in any proceeding against a bona fide purchaser of such mortgage contract or in any proceeding to obtain an order authorizing sale of property by a public trustee as required by section 38-38-105 .

(6) The following acts by any real estate agent or real estate broker, as defined in section 12-61-101, C.R.S ., in connection with any residential mortgage loan transaction, are prohibited:

(a) If directly engaged in negotiating, originating, or offering or attempting to negotiate or originate for a borrower a residential mortgage loan transaction, the real estate agent or real estate broker shall not make a false promise or misrepresentation or conceal an essential or material fact to entice either a borrower or lender to enter into a mortgage loan agreement when the real estate agent or real estate broker actually knew or, under the terms and circumstances of the transaction, reasonably should have known of such falsity, misrepresentation, or concealment.

(b) If not directly engaged in negotiating, originating, or offering or attempting to negotiate or originate for a borrower a residential mortgage loan transaction, the real estate agent or real estate broker shall not make a false promise or misrepresentation or conceal an essential or material fact to entice either a borrower or lender to enter into a mortgage loan agreement when the real estate agent or real estate broker had actual knowledge of such falsity, misrepresentation, or concealment.

(7) As used in this section, unless the context otherwise requires:

(a) “Consumer” has the meaning set forth in section 5-1-301, C.R.S .

(b) “Dwelling” has the meaning set forth in section 5-1-301, C.R.S .

(c) “Mortgage broker” has the same meaning as “mortgage loan originator” as set forth in section 12-61-902, C.R.S .

(d) “Mortgage lender” has the meaning set forth in section 12-61-902, C.R.S .

(e) “Mortgage originator” has the same meaning as “mortgage loan originator” as set forth in section 12-61-902, C.R.S .

(f) “Originate” has the same meaning as “originate a mortgage” as set forth in section 12-61-902, C.R.S .

(g) “Residential mortgage loan” has the meaning set forth in section 12-61-902, C.R.S .


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