June 26, 2015
by Scott Lundberg
Lundberg & Associates
USFN Member (Utah)
This article appeared in the USFN e-Update (May 2015 ed.); it has been revised and is republished here.
2015 was a fairly quiet legislative year in Utah, as it relates to legislation with an impact on mortgage servicers. Senate Bill 0120 (Regulation of Reverse Mortgages) will be of special interest to default servicers. House Bill 0227 (Real Estate Amendments), also discussed briefly below, addresses only origination. Both bills took effect on May 12, 2015.
Senate Bill 0120 (Regulation of Reverse Mortgages) — enacted the Utah Reverse Mortgage Act, Utah Code sections 57-28-101, et seq. It sets forth requirements for reverse mortgages in Utah and addresses the treatment of reverse mortgage loan proceeds, priority, foreclosure, and lender default. It contains a safe harbor for lenders making reverse mortgages insured by the U.S. Department of Housing and Urban Development, if they comply with the requirements found in 12 U.S.C. Section 1715z-20 and 24 C.F.R. Part 206.
The safe harbor does not apply to foreclosure. For defaulted reverse mortgages, the bill requires that, before commencing foreclosure, the servicer must give the borrower written notice of the default and provide at least 30 days after the day on which the borrower receives the notice to cure the borrower’s default. This requirement will necessitate a change in the breach or demand letters for servicers that currently allow 30 days from the day that the letter or notice is sent.
This change poses several challenges for servicers. First, the servicer will need to use some form of return receipt request with the notices in order to be able to determine when the borrower receives the notice. Even that, however, won’t eliminate the fact that some notices may go unclaimed or undeliverable. Since most defaults under reverse mortgages are the result of the borrower’s death, this is likely to be a commonplace occurrence. The statute is not clear on what happens in that event.
Corrective legislation is anticipated in the 2016 session. Until that occurs, servicers of reverse mortgages will have to give careful consideration to this issue.
House Bill 0227 (Real Estate Amendments) — amended a number of provisions relating to real estate. The principal areas of interest (to mortgage servicers) in the bill are: (a) modification of licensing requirements; (b) affirmative disclosure requirements associated with the lending process; and (c) prohibited conduct for those engaged in the business of residential mortgage loans.
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