April 5, 2016
by Brigham J. Lundberg
Lundberg & Associates – USFN Member (Utah)
During the 2015 general legislative session, the Utah legislature enacted The Utah Reverse Mortgage Act, Utah Code §§ 57-28-101, et seq., which codifies requirements for reverse mortgages in Utah and addresses the treatment of loan proceeds, priority, foreclosure, and lender default. Particularly troublesome, the Act stated that for defaulted reverse mortgages, prior to 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 default.
As predicted in this firm’s 2015 legislative update (see USFN Report, Summer 2015 Ed.), this legislation has posed significant challenges to servicers of defaulted reverse mortgages. Servicers have had to implement procedures attempting to determine when a borrower receives a demand letter, either by (i) altering mailing practices to use some form of return receipt request, or (ii) using a third-party vendor or foreclosure counsel to accomplish the same. Still, such efforts are often ineffective because many notices return unclaimed or undeliverable. This is commonly due to the fact that the majority of reverse mortgage defaults are caused by the borrower’s death.
While proof of receipt of the demand letter is more readily accomplished for a reverse mortgage in default because of the borrower’s non-occupancy of the property or failure to pay taxes or insurance, proof of receipt by a deceased borrower has proven quite difficult, if not impossible. Servicers and foreclosure counsel have been left to investigate whether any probate action has commenced and, if so, to serve the personal representative of the estate. In cases where no probate exists, service has been attempted upon potential heirs, if any. Accordingly, the demand process for defaulted reverse mortgages has been drawn out significantly, often resulting in servicers finding themselves in danger of violating investors’ “first legal” timeline requirements.
In short, full compliance with the requirement that a borrower of a defaulted reverse mortgage be given 30 days after the borrower receives a demand letter to cure the default has proven to be very challenging — leaving servicers to make the decision to proceed based on their “best efforts” to comply. Relief may be just around the corner, however, as proposed corrective legislation is currently before the Utah legislature. It would only require that a borrower be given a 30-day cure period from the date that the demand letter is sent to (not received by) the borrower.
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