When a homeowner fails to make payments in Utah, he or she is typically in danger of what is called a “non-judicial foreclosure.” What this means is that the lender (usually a bank but whoever is financing the loan) can sell the home to recover the amount that the buyer owes, and the lender doesn’t need approval from a court or judge. The lender has these rights under a deed of trust (or trust deed). Below, I explain what a trust deed is and a couple options a homeowner may have after he or she defaults and the non-judicial foreclosure process has begun.
The Trust Deed Relationship
Most Utah home sales involve a trust deed rather than a mortgage. Under a trust deed relationship, there are three parties: 1) the lender, 2) the buyer, and 3) the trustee. The buyer purchases the home and receives title to the home, but he or she transfers title to a third party who essentially safeguards the title for the buyer and lender. This third party is called the trustee, and the trustee holds title until one of two things happens. If the buyer pays off the loan, the trustee then transfers title to the property back to the buyer. However, if the buyer defaults under the loan, the trustee has the authority to sell the property and use the sale proceeds to pay the lender what is owed.
The Non-Judicial Foreclosure Process
Once a buyer fails to make a payment, the lender can tell the trustee to begin the non-judicial foreclosure process, which has three main parts. First, the trustee files a document with the county recorder’s office called a “Notice of Default and Election to Sell.” The trustee must give notice of this default by mail to the buyer. After three months passes, the second phase begins with the filing of a “Notice of Sale.” In addition to mailing notice to the buyer, the trustee must also publish a notice of the sale date and time in a newspaper. The third and final phase is an auction in which the property is sold to the highest bidder. This auction can occur less than a month after the second notice has been filed, so the entire process can take less than four months.
During the first phase of the non-judicial foreclosure, the buyer can either reinstate the loan or pay off the outstanding amount. To reinstate the loan, the buyer must make a formal request to the trustee for a reinstatement quote. This request must be made at least 10 days before the first stage of the foreclosure process ends—or the three-month period after the trustee files a notice of default. The reinstatement amount is the amount that the seller must pay to come current on the loan, as if no default had occurred in the first place. However, it is important to note that this amount will not only include overdue payments, interest, and late fees but other costs related to the foreclosure process, such as attorney fees, trustee fees, cost of publication, and title fees. What is not included in this amount is the outstanding principal, and the trustee does not reconvey the trust deed back to the buyer; rather, after reinstatement, the seller resumes making its monthly or normal payments. Importantly, the seller must reinstate in the first phase of a foreclosure—the three-month period following the notice of default. After this time, he or she cannot reinstate but instead must pay off the entire amount that is owed or else lose the property to foreclosure.
Up until the property is sold at auction, the buyer can pay off the entire outstanding amount. The seller can request a payoff quote even after the three-month period of the first phase runs. Like a reinstatement amount, a payoff amount includes overdue payments, interest, and late fees in addition to other costs related to the foreclosure process (attorney fees, trustee fees, cost of publication, title fees, etc.), but unlike the reinstatement amount, a payoff amount also includes the outstanding principal. In short, the difference between a payoff and a reinstatement is that the payoff excludes the principal. After a buyer pays the payoff amount, the trustee is obligated to reconvey the trust deed back to the buyer, who is then free from his or her obligations to the lender. If, however, the seller does not reinstate or pay off what is owed, the trustee will sell the property, and after the property is sold, the buyer cannot redeem the property—or get the property back.
Assistance with Non-Judicial Foreclosure Issues
Whether you are a lender or a home owner, navigating Utah’s trust deed laws can be a little tricky. If you have any questions, I am happy to assist with a free consultation. My direct dial is 801-365-1021, and you can e-mail me at [email protected].