National Bank Cannot Conduct Nonjudicial Foreclosures in Utah
Utah has specific requirements as to who may serve as a foreclosing trustee. Find out what they are and what you can do if your trustee is not in compliance.
In a recent case, the Utah Supreme Court ruled that a national bank did not have authority to conduct foreclosures in the state because it did not meet the qualifications of a trustee under Utah law. What does this mean for you? If you are in foreclosure and the foreclosing trustee has not complied with Utah law, you may be able to delay the sale of your home.
Read on to learn more about the trustee’s role in a nonjudicial foreclosure and how Utah state law governs who may conduct foreclosures in that state.
(To learn the ins and outs of the foreclosure process, visit our Foreclosure Center.)
Residential mortgage transactions in Utah typically involve deeds of trust. Deeds of trust, like mortgages, pledge real property to secure a loan. Deeds of trust involve three parties:
- the trustor (the borrower)
- the beneficiary (the lender), and
- the trustee.
In Utah, most residential foreclosures are nonjudicial. This means the lender can foreclose without going to court so long as the deed of trust contains a power of sale clause. (For more information about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)
The deed of trust gives the trustee the authority to foreclose and sell the home to pay off the loan balance at the request of the lender if the borrower defaults (fails to make payments).
State law sets out the procedural requirements for nonjudicial foreclosures. (To learn about the foreclosure process in Utah, read our Summary of Utah’s Foreclosure Laws.)
Federal National Mortgage Association v. Sundquist
The Utah Supreme Court recently ruled in the case of Federal National Mortgage Association v. Sundquist, 2013 UT 45 (July 23, 2013), that a national bank does not have authority to conduct foreclosures in the state because it did not meet the qualifications of a trustee under Utah law.
The homeowner challenging the foreclosure in this case had defaulted on her residential loan, which was secured by a deed of trust. The beneficiary appointed ReconTrust, a national bank, as the successor trustee to carry out the foreclosure. (Generally, the trustee who is originally named in the deed of trust will not be the trustee that conducts the foreclosure. Instead, the beneficiary will appoint a successor trustee to complete the foreclosure.)
ReconTrust used the Utah nonjudicial foreclosure process to foreclose, then deeded the property to the Federal National Mortgage Association (FNMA). The FNMA initiated an unlawful detainer (eviction) action against the homeowner, claiming ownership of the home pursuant to a trustee's deed that it obtained from ReconTrust after ReconTrust conducted the nonjudicial foreclosure sale in its capacity as trustee.
The homeowner asserted that the FNMA had no right to the property because ReconTrust had no authority under state law to act as a trustee and carry out the foreclosure.
Utah State Law
Utah law limits the power of sale to trustees who are:
- attorneys who are members of the Utah State Bar who maintain a place within the state where the trustor or other interested parties may meet with the trustee, or
- title insurance companies with an office in Utah (Utah Code Ann. § 57-1-21).
The homeowner argued that since ReconTrust is neither a member of the Utah State Bar nor a title insurance company or agency with an office in the State of Utah, it was therefore not a qualified trustee with the power of sale under Utah law.
District Court Decides Federal Law Preempts State Law
After an immediate occupancy hearing, the district court entered an order of restitution requiring that the homeowner vacate the property.
The district court decided that the federal National Banking Act, which grants national banks “the right to act as trustee…under the laws of the State in which the national bank is located” (12 U.S.C. § 92a[a]) preempted Utah state law. As such, the district court concluded that ReconTrust, as a national bank based in Texas, was authorized to conduct the sale under federal law and that federal law preempted Utah law.
The Utah Supreme Court disagreed with this decision.
Utah Supreme Court Decides National Bank Cannot Act as Foreclosure Trustee
In coming to its decision, the Utah Supreme Court stated that the National Bank Act did not preempt the state’s laws and to decide otherwise would be an unreasonable interpretation of the law because it would give out-of-state banks an advantage over banks located in Utah, which could not act as trustees.
In the end, the Utah Supreme Court held that federal law does not preempt the relevant Utah statutes, and therefore, a national bank seeking to foreclose real property in Utah must comply with Utah law. This means that only Utah State Bar members or title companies in Utah are permitted to conduct nonjudicial foreclosures in the state.
U.S. Supreme Court Declines to Hear the Case
FNMA appealed the case to the U.S. Supreme Court, but the court refused to hear the case. This means that, for the time being, the Utah Supreme Court ruling that ReconTrust illegally foreclosed on thousands of Utah homeowners, remains intact.
What Does This Mean If You Are Facing Foreclosure in Utah?
If you are facing foreclosure in Utah and the foreclosing trustee does not meet Utah requirements discussed above, you may be able to temporarily stop the foreclosure. If you think this may be the case in your situation, contact an attorney immediately. To learn more, see State Law Determines Who Can Conduct Nonjudicial Foreclosures.
If you were previously foreclosed on by ReconTrust, you may wish to speak to an Utah attorney to find out the latest information about this issue and see if you have any options, particularly if you haven't been evicted yet. (Since the Sundquist decision, one Utah judge has determined that a couple could not be evicted following an illegal ReconTrust foreclosure. See Distressed Asset Solutions Fund I, LLC v Adamson.)