Insights

Utah has enacted two new rules in connection with mortgage foreclosures. First, Utah has limited the time a lender has to file an action for a deficiency after a short sale to three months, unless the lender and borrower have agreed that the borrower will pay the deficiency before the short sale. This rule was effective March 15, 2012. Second, Utah now requires the servicer to appoint a single point of contact for a borrower in default, and a new notice must go out before the notice of default is filed.

Deficiencies After A Short Sale Of Single Family Residential Property.

Under Utah Code Ann. § 78B-2-313, an action for a deficiency after a short sale of single family residential real property is time barred unless the lender commences the action no more than three months after the date it records a release of mortgage or reconveyance of trust deed. Utah Code Ann. § 78B-2-313(2). 2012 UT S.B. 42.

The three-month rule does not apply to an agreement that is executed:

• Between one or more obligors and the secured lender;
• In connection with a short sale; and
• The agreement obligates an obligor to pay some or all of a deficiency.

Utah Code Ann. § 78B-2-313(4).

It also does not apply if the obligor or owner engaged in fraud in connection with the short sale. Utah Code Ann. § 78B-2-313(3).

The term “short sale” is defined as a sale:

• Of single family residential real property;
• By the owner of the property;
• That results in the lender being paid less than the balance owing under the secured loan; and
• Made with the lender’s consent and resulting in the secured lender releasing the mortgage or reconveying the trust deed on the secured property.

Utah Code Ann. § 78B-2-313(1)(F).

Single Point of Contact Rule.

Utah Code Ann. § 57-1-24.3 requires the servicer to appoint a single point of contact for a borrower in default. 2012 UT HB 164. The new law is effective May 8, 2012.

Before a notice of default is filed for record under Utah Code Ann. § 57-1-24, a beneficiary or servicer must:

• Designate a single point of contact; and
• Send notice by U. S. mail to the default trustor.

Utah Code Ann. § 57-1-24.3(2)(a).

The notice must:

• Advise the default trustor of the beneficiary or servicer’s intent to file a notice of default;
• State:
  • The nature of the default;
  • The total amount the default trustor must pay in order to cure the default and avoid the filing of a notice of default, itemized by the type and amount of each component part of the total cure amount; and
  • The date by which the default trustor is required to pay the amount to cure the default and avoid the filing of a notice of default;
• Disclose the name, telephone number, email address, and mailing address of the single point of contact designated by the beneficiary or servicer; and
• Direct the default trustor to contact the single point of contact regarding foreclosure relief available through the beneficiary or servicer for which a default trustor may apply, if the beneficiary or servicer offers foreclosure relief.

Utah Code Ann. § 57-1-24.3(2)(b).

During the three-month period after the servicer files the notice of default, the default trustor may apply directly with the single point of contact for any available foreclosure relief offered by the beneficiary or servicer. Utah Code Ann. § 57-1-24.3(3). The default trustor must provide any financial and other information requested by the single point of contact to enable the beneficiary or servicer to determine whether the default trustor qualifies for the foreclosure relief. Utah Code Ann. § 57-1-24.3(4).

The single point of contact must:

• Inform the default trustor about and make available to the default trust any available foreclosure relief;
• Undertake reasonable and good faith efforts, consistent with applicable law, to consider the default trustor for foreclosure relief for which the default trustor is eligible;
• Ensure timely and appropriate communication with the default trustor concerning foreclosure relief for which the default trustor applies; and
• Notify the default trustor by U.S. mail of the decision of the beneficiary or servicer regarding the foreclosure relief for which the default trustor applies.

Utah Code Ann. § 57-1-24.3(5).

If the trustor applies for foreclosure relief, the trustee may not deliver a notice of a trustee’s sale until after the single point of contact provides the notice. Utah Code Ann. § 57-1-24.3(6).

A beneficiary or servicer may cause a notice of a trustee’s sale to be given with respect to the trust property of a default trustor who has applied for foreclosure relief if, in the exercise of the sole discretion of the beneficiary or servicer, the beneficiary or servicer:

• Determines that the default trustor does not qualify for the foreclosure relief for which the default trustor has applied; or
• Elects not to enter into a written agreement with the default trustor to implement the foreclosure relief.

Utah Code Ann. § 57-1-24.3(7).

A beneficiary or servicer may postpone a trustee’s sale of the trust property in order to allow further time for negotiations relating to foreclosure relief. A postponement of a trustee’s sale under these circumstances does not require the trustee to file for record a new or additional notice of default under Utah Code Ann. § 57-1-24 .

Utah Code Ann. § 57-1-24.3(8).

A beneficiary or servicer must cancel the notice of default filed on the trust property of a default trustor if the beneficiary or servicer:

• Determines that the default trustor qualifies for the foreclosure relief for which the default trustor has applied; and
• Enters into a written agreement with the default trustor to implement the foreclosure relief.

Utah Code Ann. § 57-1-24.3(9).

The new law does not require a beneficiary or servicer to:

• Establish foreclosure relief; or
• Approve an application for foreclosure relief submitted by a default trustor.

Utah Code Ann. § 57-1-24.3(10).

A beneficiary and servicer must each take reasonable measures to ensure that their respective practices in the foreclosure of owner-occupied residential property and any foreclosure relief with respect to a loan:

• Comply with all applicable federal and state fair lending statutes; and
• Ensure appropriate treatment of default trustors in the foreclosure process.

Utah Code Ann. § 57-1-24.3(11).

The new law does not apply if the beneficiary is an individual.

Utah Code Ann. § 57-1-24.3(12).

A beneficiary or servicer is considered to have complied with the new requirements if the beneficiary or servicer designates and uses a single point of contact in compliance with federal law, rules, regulations, guidance, or guidelines governing the beneficiary or servicer and issued by, as applicable, the Board Of Governors of the Federal Reserve System, The Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, or the Consumer Financial Protection Bureau. Utah Code Ann. § 57-1-24.3(13).

The failure of a beneficiary or servicer to comply with a requirement of Utah Code Ann. § 57-1-24.3 does not affect the validity of a trustee’s sale of the trust property to a bona fide purchaser.

Utah Code Ann. § 57-1-24.3(14).

The following terms are defined in the statute:

• Default trustor -- means a trustor under a trust deed that secures a loan that the beneficiary or servicer claims is in default. Utah Code Ann. § 57-1-24.3(1)(a).Foreclosure relief -- means a mortgage modification program or other foreclosure relief option offered by a beneficiary or servicer. Utah Code Ann. § 57-1-24.3(1)(b).
• Loan -- means an obligation incurred for personal, family, or household purposes, evidenced by a promissory note or other credit agreement for which a trust deed encumbering owner-occupied residential property is given as security. Utah Code Ann. § 57-1-24.3(1)(c).
• Owner-occupied residential property -- means real property that is occupied by its owner as the owner’s primary residence. Utah Code Ann. § 57-1-24.3(1)(d).
• Servicer -- means an entity, retained by the beneficiary:
  • For the purpose of receiving a scheduled periodic payment from a borrower pursuant to the terms of a loan; or
  • That meets the definition of servicer under 12 USC §. 2605(i)(2) with respect to residential mortgage loans.

Utah Code Ann. § 57-1-24.3(1)(e).

• Single point of contact-- means a person who, as the designated representative of the beneficiary or servicer, is authorized to:
  • Coordinate and ensure effective communication with a default trustor concerning:
    • foreclosure proceedings initiated by the beneficiary or servicer relating to the trust property; and
    • any foreclosure relief offered by or acceptable to the beneficiary or servicer; and
  • Direct all foreclosure proceedings initiated by the beneficiary or servicer relating to the trust property, including:
    • the filing of a notice of default under section 57-1-24 and any cancellation of a notice of default;
    • the publication of a notice of trustee’s sale under section 57-1-25; and
    • the postponement of a trustee’s sale under section under Utah Code Ann. § 57-1-27 or Utah Code Ann. § 57-1-24.3.

Utah Code Ann. § 57-1-24.3(1)(f).

Timothy P. Meredith is a partner in the Maryland office of Hudson Cook, LLP. Tim can be reached at 410-865-5404 or by email at tmeredith@hudco.com.