Before the foreclosure crisis, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor foreclosing lenders. However, federal and state laws now heavily regulate loan servicing and foreclosure processes.
And many of these federal and state foreclosure laws give protections to borrowers. Servicers generally must provide borrowers with loss mitigation opportunities, account for each foreclosure step, and strictly comply with foreclosure procedure laws.
Also, most people who take out a loan to buy a residential property in Utah sign a promissory note and a deed of trust, which is similar to a mortgage. These documents give homeowners some contractual rights and federal and state legal protections.
In a Utah foreclosure, you'll most likely get the right to:
So, don't get caught off guard if you're a Utah homeowner behind in mortgage payments. Learn about each step in a Utah foreclosure, from missing your first payment to a foreclosure sale.
Once you understand the process, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.
The period after you fall behind in payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. (Sometimes, people refer to the period before a foreclosure sale happens as "preforeclosure," too.)
During this time, the servicer can charge you various fees, like late charges and inspection fees, and, in most cases, must inform you about ways to avoid foreclosure and send you a preforeclosure notice called a "breach letter."
If you miss a payment, most loans include a ten or fifteen-day grace period, after which time the servicer will assess a late fee. Each month you miss a payment, the servicer will charge this fee. Look at the promissory note you signed to find out your loan's late charge amount and grace period. You can also find this information on your monthly mortgage statement.
Also, most Utah deeds of trust allow the lender (or the current loan holder, referred to as the "lender" in this article) to take necessary steps to protect its interest in the property. Property inspections are performed to ensure that the home is occupied and appropriately maintained. Inspections, which are generally drive-by, are usually ordered automatically once the loan goes into default and typically cost around $10 or $15.
Under federal mortgage servicing laws, the servicer must contact, or attempt to contact, you by phone to discuss loss mitigation options, like a loan modification, forbearance, or repayment plan, no later than 36 days after you miss a payment and again within 36 days after each following delinquency. (12 C.F.R. § 1024.39).
No later than 45 days after missing a payment, the servicer has to inform you in writing about loss mitigation options that might be available and appoint personnel to help you try to work out a way to avoid foreclosure. A few exceptions are in place for some of these requirements, though, like if you've filed bankruptcy or asked the servicer not to contact you pursuant to the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39, 12 C.F.R. § 1024.40).
Federal mortgage servicing laws also prohibit dual tracking (pursuing a foreclosure while a complete loss mitigation application is pending).
Many Utah deeds of trust have a provision that requires the lender to send a notice, commonly called a "breach letter," informing you that the loan is in default before the lender can accelerate the loan. The breach letter allows you to cure the default and avoid foreclosure.
Under federal law, the servicer usually can't officially begin a foreclosure until you're more than 120 days past due on payments, subject to a few exceptions. (12 C.F.R. § 1024.41). This 120-day period provides most homeowners ample opportunity to submit a loss mitigation application to the servicer.
If you default on your mortgage payments in Utah, the lender may foreclose using a judicial or nonjudicial method.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. If you don't respond with a written answer, the lender will automatically win the case. But if you choose to defend the foreclosure lawsuit, the court will review the evidence and determine the winner. If the lender wins, the judge will enter a judgment and order your home sold at auction.
If the lender chooses a nonjudicial foreclosure, it must complete the out-of-court procedures described in the state statutes. After completing the required steps, the lender can sell the home at a foreclosure sale.
Most lenders opt for the nonjudicial process because it's quicker and cheaper than litigation in court.
Again, most residential foreclosures in Utah are nonjudicial. Here's how the process works.
Much like the requirement under federal mortgage servicing laws, after determining that the loan is in default, the servicer or lender must appoint a single point of contact who can provide information about the foreclosure and foreclosure relief. (Utah Code Ann. § 57-1-24.3).
Before filing a notice of default (see below), the lender or servicer must mail a notice to you (the borrower) giving you at least 30 days to cure the default by getting current on the loan. The letter will also include the single point of contact's name, telephone number, email address, and mailing address. (Utah Code Ann. § 57-1-24.3). This information will likely be included in the breach letter.
The nonjudicial foreclosure process formally begins when the trustee records a notice of default at the county recorder's office. The notice of default gives you three months to cure the default. (Utah Code Ann. § 57-1-24).
Within ten days of the recording, the trustee mails a copy of the notice of default to anyone who has requested a copy. Most deeds of trust in Utah include a request for notice, so you'll probably get this notification. (Utah Code Ann. § 57-1-26(2)(a)).
If you don't cure the default, after three months, the trustee will record a notice of sale and:
At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less. In some states, including Utah, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower, subject to some limitations (see below). The property becomes "Real Estate Owned" (REO) if the lender is the highest bidder.
But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds—that is, money over and above what's needed to pay off all the liens on your property—you're entitled to that surplus money.
If you don't vacate the property following the foreclosure sale, the new owner will probably:
The eviction process starts with a notice to quit. If you still don't leave by the deadline given in the notice, the new owner will go through the court system to evict you. (Utah Code Ann. § 78B-6-802.5).
A few potential ways to stop a foreclosure include reinstating the loan, redeeming the property before the sale, or filing for bankruptcy. Of course, if you can work out a loss mitigation option, like a loan modification, that will also stop a foreclosure.
Or you might be able to work out a short sale or deed in lieu of foreclosure and avoid a foreclosure (but you'll have to give up your home).
Utah law gives you three months after the trustee records the notice of default to reinstate the loan. (Utah Code Ann. § 57-1-31). Also, the deed of trust might give you more time to reinstate. Check the paperwork you signed when you took out the loan to find out if you get more time to get caught up on past-due amounts and, if so, the deadline to reinstate.
You can also call your loan servicer and ask if the lender will let you reinstate.
One way to stop a foreclosure is by "redeeming" the property. To redeem, you must pay off the full loan amount before the foreclosure sale.
Some states also provide foreclosed borrowers a redemption period after the foreclosure sale, during which they can buy back the home. Under Utah law, however, foreclosed homeowners don't get a right of redemption after a nonjudicial foreclosure. (Utah Code Ann. § 57-1-28(3)).
If you're facing a foreclosure, filing for bankruptcy might help. If a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy. Once you file for bankruptcy, something called an "automatic stay" goes into effect. The stay functions as an injunction, prohibiting the lender from foreclosing on your home or trying to collect its debt, at least temporarily.
In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out the options available, speak with a local bankruptcy attorney.
The borrower's total mortgage debt sometimes exceeds the foreclosure sale price in a foreclosure. The difference between the total debt and the sale price is called a "deficiency." For example, say the total debt owed is $600,000, but the home sells for $550,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount—in our example, $50,000—from the borrower.
In Utah, the lender can get a deficiency judgment after a nonjudicial foreclosure by filing a lawsuit within three months of the sale. (Utah Code Ann. § 57-1-32). The deficiency amount is limited to the difference between the lesser of :
In a judicial foreclosure, the deficiency judgment may be entered as part of that action. (Utah Code Ann. § 78B-6-902).
In this article, you'll find details on foreclosure laws in Utah, with citations to statutes so you can learn more. Statutes change, so checking them is always a good idea.
To find Utah's laws, search online for "Utah statutes" or "Utah laws." Make sure you're reading the most recent, official laws. Usually, the URL will end in ".gov" or the statutes will be on an official state legislature webpage.
For more information on federal mortgage servicing laws and foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
If you have questions about Utah's foreclosure process or want to learn about potential defenses to foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney. Talking to a HUD-approved housing counselor about different loss mitigation options is also a good idea.