In Utah, trust deeds are often used to secure loans, ranging from loans for homebuyers to loans for general contractors used to finance real estate developments. The real property identified in the trust deed acts as collateral. If the debtor fails to pay, the lender can sell the property in a foreclosure sale to recover the unpaid debt. Various timelines govern that foreclosure process and when it must begin—or else be barred forever based on what is called the statute of limitations. This article explains the basics of those timelines, as well as some other key principles regarding trust deeds.
Why are trust deeds used in Utah?
In Utah, loans to purchase real property, including residential home loans, are usually based on two documents: 1) a promissory note and 2) a deed of trust. The lender requires the borrower to sign a promissory note, which explains the borrower’s obligations for repayment, including the interest rate, monthly payment amounts, and the date the entire debt becomes due (or is paid off, which is the maturity date). The borrower then signs a deed of trust that gives the lender a security interest in the borrower’s real property. If the borrower does not pay the debt, the security interest or secured property can be sold to pay the debt. Often the security interest is the very property that the borrower purchases. For instance, a bank will lend a homebuyer the money to purchase a home, and once the seller transfers the home to the homebuyer, the homebuyer immediately transfers an interest in the home (in the amount of the loan) to the bank. This could be seen as a mortgage relationship.
Not all loans secured by trust deeds, however, relate to residential purchases. When a lender makes a loan to any borrower, the lender may require the borrower to sign a trust deed granting an interest in real property, including property already owned. This can happen as part of a home equity loan, or it can happen as part of a loan between friends to finance a start-up business, for instance. A trust deed can be used to provide real property as security for any type of loan.
Who are the parties to a trust deed?
There are three parties to a trust deed: 1) the grantor, 2) the beneficiary, 3) and the trustee. The grantor is the party giving a security interest in real property. For example, when a homeowner purchases a home that is financed by a bank, the grantor is the homeowner. After purchasing the property, the homeowner/grantor executes a trust deed that gives a security interest to the bank, who is the beneficiary of the rights under the trust deed, including the right to authorize a sale of the home if the homeowner does not pay the loan. The trustee is a third party who holds the legal title to the property while payments are being made. Once all payments are made, the bank/beneficiary authorizes the trustee to reconvey the trust deed back to the homeowner/grantor, which frees the property from the debt obligation. But if the homeowner/grantor does not pay, the bank/beneficiary authorizes the trustee to sell the home through a trustee’s sale.
How quickly can real property be sold after a borrower defaults?
If a borrower defaults on a note, as explained above, the real property can be sold to pay the debt. The trust deed specifically grants this right. Each foreclosure sale based on trust deeds is generally a non-judicial foreclosure, which means that the lender can tell the trustee to sell the property without first getting authorization from a court. Utah statutes explain the basic process and timeline of a non-judicial foreclosure:
- Notice of Default. The lender authorizes the trustee to record in the county recorder’s office where the property is located a notice of default.
- Notice of Trustee’s Sale. Three months later, the trustee can publish and record notice of the scheduled trustee’s sale. Among other things, the notice of the sale must be published for three consecutive weeks in a newspaper, with the last notice occurring between 10 and 30 days before the scheduled sale.
- Sale of the Property by the Trustee. If the debt is not paid, the foreclosure sale occurs on the scheduled date. The trustee sells the property to the highest bidder, and the proceeds of the sale are used to pay the lender (or beneficiary).
Based on these timeframes, a foreclosure sale can occur within less than six months.
How long does a lender have to initiate a foreclosure sale?
Utah law explains that a non-judicial foreclosure sale must commence “within the period prescribed by law for the commencement of an action on an obligation secured by a trust deed.” This is a fancy way of saying that there is a period in which a foreclosure must begin, and if not, the foreclosure is barred forever. This period of time is called a statute of limitations.
The underlying obligations for which a trust deed acts as security is a promissory note, and the applicable statute of limitations for an “instrument in writing,” such as a promissory note, is usually six years from the date of last payment. Almost all written contracts have a six-year statute of limitations. However, a more specific statute of limitations applies to a promissory note secured by a deed of trust. For such notes requiring payment(s) at a definite time, an action must be taken (i.e. a foreclosure proceeding) within six years from the final due date (or the maturity date) or, alternatively, within six years after the note is accelerated. A note is accelerated when, after the borrower defaults, the lender demands that all payments are due immediately. In other words, all future amounts owing must now be paid.
Thus, if a borrower does not make payments for years—even longer than six years—but the maturity date has still not arrived, the lender can probably begin a foreclosure proceeding. And even after six years beyond the maturity date has passed, a lender may still have the right to begin a foreclosure based on certain laws and court decisions.
Do you need help with a trust deed?
The above article does not explain every nuance of a trust deed, the foreclosure process and timelines, or the statute of limitations for bringing a foreclosure action. If you have questions about a specific loan or promissory note secured by a trust deed, you should talk to an attorney who has experience in this area of law. I am happy to help, and I offer a free consultation. My direct dial is 801-365-1021, and you can e-mail me at [email protected].