Kenneth Carroll: Changes In Utah Foreclosure Law

A foreclosure can be either judicial (which means the foreclosing party files a lawsuit in court and the case goes through the court system) or non-judicial (which means the foreclosing party follows a set of state-specific, out-of-court procedural steps to foreclose the home). In some states, foreclosures are always judicial. In other states, the foreclosure may be either judicial or non-judicial; in those states, usually one or the other is more commonly used. When a house is sold at a foreclosure sale for less than the amount of the outstanding mortgage debt, the difference between the total debt and the foreclosure sale price is called the deficiency. For example, let’s say you owe $300,000 on your mortgage loan and the home is sold at a foreclosure sale for $250,000. The deficiency is $50,000. Some states let the foreclosing party get a personal judgment called a “deficiency judgment” against the borrower for this amount, while other states prohibit deficiency judgments under particular circumstances. In the chart below, this column states whether a deficiency judgment is allowed in (or after) the most commonly used foreclosure procedure for that particular state. Certain states give foreclosed homeowners a period of time called a “redemption period” to buy back or “redeem” the home after a foreclosure. Depending on state law, in order to redeem you have to reimburse the purchaser for the amount paid at the sale (plus certain allowable costs) or repay the total mortgage debt, plus interest and expenses. In the chart below, this column shows whether a borrower gets a redemption period after the most commonly used foreclosure procedure for that particular state.

A reinstatement occurs when the borrower brings the delinquent loan current in one payment by paying the overdue payments, plus fees and expenses incurred as a result of the default. Once the loan is reinstated, the borrower resumes making regular payments on the debt. In a foreclosure, state law sometimes gives a borrower the right to reinstate up until a specific deadline. You should be aware that, even if state law does not give you the right to reinstate, your mortgage or deed of trust might. The 2016 Utah legislature passed two bills affecting Utah foreclosures and evictions. The effective date for both bills was May 10, 2016. Senate Bill 0022, Foreclosure of Residential Rental Property, created state law protections for tenants of foreclosed residential rental property. Senate Bill 0220, Non-judicial Foreclosure Amendments, made a number of helpful changes, including an amendment to last year’s Utah Reverse Mortgage Act that eliminates the challenge of ensuring that a deceased borrower receives the required pre-foreclosure notice.

Tenant Protection: Senate Bill 0022 enacts certain protections for tenants occupying foreclosed property following foreclosure sale. New Utah Code section 57-1-25.5 allows a “bonafide tenant” to remain in the foreclosed property for up to one year after foreclosure, subject to the right of the new owner to terminate the tenancy upon 45 days’ notice, if the new owner (immediate purchaser of the foreclosed property only) intends to occupy the property as the new owner’s primary residence. A “bona fide tenant” is defined as an individual who is not a child, spouse, or parent of the trustor of the foreclosed deed of trust, whose rental agreement or lease was entered into in an arm’s-length transaction before foreclosure was commenced, and whose rent is not substantially less than fair market rent for the property. As a practical matter, the period of time during which a tenant will be able to remain in the property after foreclosure will be much less than a year. To meet the “bona fide” qualification, the lease cannot be for a period longer than a year and it had to have been entered into prior to the commencement of foreclosure. Since foreclosure requires four and one-half to five months, the actual amount of time that a tenant will typically be able to remain in a foreclosed property is limited to six or seven months at the most.

Foreclosure Amendments: As indicated, Senate Bill 0220 made a number of helpful changes to statutes governing different aspects of non-judicial foreclosures. Two of the most beneficial were a modification to the statute of limitations for non-judicial foreclosures, and a revision to the requirements for giving pre-foreclosure notice to reverse mortgage borrowers.

Statute of Limitations: Utah Code section 57-1-34, which previously required that a non-judicial foreclosure be completed within the six-year statute of limitations, now requires only that the foreclosure be commenced within that time period. This change will be useful to mortgage servicers in light of the increasing number of loans facing statute of limitations issues as a result of multiple loss mitigation or foreclosure relief applications.

Pre-Foreclosure Notice to Reverse Mortgage Borrowers: Utah Code section 57-28-304, enacted in 2015, required that before foreclosure proceedings could be commended for a reverse mortgage, the servicer had to send the borrower written notice, and give the borrower 30 days after the day that the borrower received the notice to cure the default. The event of default is the borrower’s death for many reverse mortgage loans. Since a deceased borrower could not receive the notice, servicers were for all intents and purposes unable to proceed with foreclosure with confidence that the property would be insurable following foreclosure. Senate Bill 0220 changed the statute to only require that the servicer give the borrower 30 days after the day on which the servicer sends the notice to cure the default. This is a welcome change for reverse mortgage lenders and servicers. Senate Bill 0220 made a number of other changes to Utah’s non-judicial foreclosure statutes. A short summary follows:

• The statute now affirmatively allows the appointment of a trustee for a deed of trust where the original trustee was not eligible to serve as a trustee or where no trustee was named in the original deed of trust. (Utah Code § 57-1-22)

• A new code section provides that a party to a legal action involving a deed of trust need not join the trustee as a party unless the action pertains to a breach of the trustee’s obligations. If a party does join the trustee and the trustee is able to have itself dismissed from the action, the trustee is entitled to reasonable attorney fees resulting from its having been joined. (Utah Code § 57-1-22.1)

• Successful third-party bidders at non-judicial foreclosure sales who fail to pay the bid price will forfeit their bidder’s deposit. The forfeited funds will be treated as additional sale proceeds. Previously, defaulting bidders were only liable for any loss resulting from their refusal to pay the bid price. This change should effectively eliminate defaulting bidders in the future. (Utah Code § 57-1-27)

• A clarifying change was made to the provisions regarding postponement of scheduled non-judicial foreclosure sales. Previously, it was unclear whether the trustee could make multiple postponements without re-noticing the sale so long as each postponement did not exceed 45 days from the last scheduled sale date. As amended by the bill, the statute now provides that postponement can only be for a period of up to 45 days after the date designated in the original notice of sale. Beyond that, the sale must be re-noticed. (Utah Code § 57-1-27)

• The bill repealed former Utah Code section 57-1-24.5, which required a foreclosure trustee to give the borrower notice if the servicer did not delay foreclosure proceedings while engaging in loss mitigation or foreclosure relief efforts. With the ban on dual tracking found in the CFPB’s regulations beginning January 2014, that requirement was no longer needed.

How Can I Avoid Foreclosure?

To avoid foreclosure, pay your monthly mortgage. The lender does not want to foreclose on your property because it takes time and money to go through the process. If you cannot make a payment, it is important to contact your mortgage company to agree to make payments. Be sure to get any payment plan in writing. Discuss with your lender how much you owe and how long it will take to catch up on any missed payments. Be prepared to answer
• why you fell behind on your payment,
• what your current financial resources are, and
• if you have a realistic plan for repaying the money you owe.
If you go to your lender with a good attitude and are honest, your problems will likely be easier to solve. You may also ask your lender about modifying the loan. That might reduce your monthly payments to an affordable level.

Trust Deed Foreclosure

To foreclose on a Trust deed, a creditor must follow these steps:
• A trustee records a Notice of Default at the county recorder’s office. The Notice of Default includes the reason the trustee believes your loan is in default. A trustee must give written notice of the default to the borrower and anyone who has filed a Request for Notice. This is usually done by registered mail. Always arrange to get letters sent by registered mail. The notice is valid even if you fail to sign for it or pick it up from the post office.
• You will receive a copy of the Notice of Default. If you suspect you are in default, you should check with the county recorder to see if a notice of default has been filed. You may also file a request for notice with the county recorder’s office so you are notified of any default. A notice of default does not mean you have to move out, but you will have to move once the sale of the property is final.
• After the Notice of Default is filed, you must make a payment plan with your creditor. You will have to pay any past due payments, late fees, collection fees, and legal fees. This must be done within three months of the recording of the Notice of Default. Otherwise, after three months the trustee can issue a Notice of Sale and you will have to pay the entire loan to avoid losing your property.
• If you do not cure the default, the trustee must give written notice of the time and place of the sale. This is done by: Placing an ad in a newspaper once a week for three straight weeks. The last notice must occur more than 10 days but less than 30 days before the date of sale; and, Posting a Notice of Sale at least 20 days before the date of sale on the property and in at least three locations in the county where the property is located.
• The sale can be postponed by the trustee. Once the Notice of Sale has been issued, you can only redeem the property if you pay the entire loan balance plate fees, collection fees, and legal fees. If you cure the default, you should ask the trustee to file a Cancellation of Notice of Default.
• If the house sold for less than what you owe the lender, they may, within three months after the sale, sue you for the rest of the debt owing and expenses. This is called a deficiency judgment. The deficiency judgment is limited to the amount the debt, interest, costs, and expenses of sale is more than the fair market value of the property at the date of the sale. The fair market value is the value of the property to the normal buyer on the date of sale. The fair market value is not always the amount the property sold for at the Trustee’s Sale.
When a trust deed or mortgage goes into default, the lender has the right to declare the entire balance of the loan due and file a lawsuit to collect the debt. To foreclose on the property in this manner, the mortgage holder must file a summons and complaint and serve them on you. You must file a response to these papers in court. It is not a defense that you cannot afford the payments. Once the mortgage holder has a judgment against you, a sheriff can serve an order called a writ of execution that allows your house to be sold to satisfy what you owe on the mortgage. Once the property sells, you have six months to redeem the property. To redeem the property, you must pay the amount the property was purchased for at the foreclosure sale plus any costs incurred by the mortgage holder, plus a 6% redemption fee. If you do not redeem the property, the purchaser will get a deed after six months. You will have to move out. You do not have to pay rent during the six month redemption period. The mortgage holder is entitled to a deficiency judgment if the foreclosure sale price is less than the full amount owed. Unlike the trust deed foreclosure, the mortgage holder is entitled to judgment based on the price of the property at the foreclosure sale rather than the fair market value of the property at the time of the sale.

If you are buying a house using a Uniform Real Estate Contract and the seller wants to foreclose, they must give you a written notice that says what part of the contract you have defaulted on. After you receive a notice, you have the time limit provided under the contract, to cure the default. If you fail to cure the default, the contract may allow the seller to choose one of the following:

• The seller may declare that you are a tenant at will and keep all payments that have been made under the contract. However, if you have a lot of equity in the property, the court can refuse to enforce this provision. The court might force the seller to proceed under options (2) or (3), or force the seller to return a portion of your payments.

• The seller may bring suit and recover judgment for all late payments, costs, and legal fees.

• The seller may treat the contract as a mortgage and proceed under the mortgage foreclosure statutes.

Power of Sale Notice Requirements:

• Prior to initiating a foreclosure, the lender must file a notice of default in the county in which the property is located and with the defaulting borrower within three (3) months of the default. A copy of the notice of default must be published at least once a week for three (3) consecutive weeks in a newspaper of general circulation in the county, with the last notice of sale published at least 30 days before the proposed sale. A notice of the proposed sale must also be recorded with the recorder where the trust property is located.

• The notice of default must contain certain information, including the date, time and place of sale, a description of the default, the lender’s election to sell, and the document recording information from the deed of trust.

• Foreclosure sales must take place as a public auction between 9AM and 5PM on a business day at the time, place and date designated in the notice of sale. The trustee auctions the property to the highest bidder. The foreclosure sale may be postponed for 45 days from the original sale date if written notice is provided to the original recipient of the notice of default.

In Utah, the lenders can also go to court in a judicial foreclosure proceeding where the court must issue a final judgment of foreclosure. A complaint is filed in court along with a lis pendens. A lis pendens is a recorded document that provides public notice that the property is being foreclosed. Judicial foreclosure in Utah is an option which generally follows the same procedure as a non-judicial foreclosure, with the distinction that the process is pursued through the courts. The property is then sold as part of a publicly noticed sale.