August 1, 2016
by J. Scott Lundberg
Lundberg & Associates, PC
USFN Member (Utah)
The 2016 Utah legislature passed two bills affecting Utah foreclosures and evictions. The effective date for both bills was May 10, 2016.
Senate Bill 0022, Foreclosure of Residential Rental Property, created state law protections for tenants of foreclosed residential rental property.
Senate Bill 0220, Nonjudicial Foreclosure Amendments, made a number of helpful changes, including an amendment to last year’s Utah Reverse Mortgage Act that eliminates the challenge of ensuring that a deceased borrower receives the required pre-foreclosure notice.
Tenant Protection — Senate Bill 0022 enacts certain protections for tenants occupying foreclosed property following foreclosure sale. New Utah Code section 57-1-25.5 allows a “bona fide tenant” to remain in the foreclosed property for up to one year after foreclosure, subject to the right of the new owner to terminate the tenancy upon 45 days’ notice, if the new owner (immediate purchaser of the foreclosed property only) intends to occupy the property as the new owner’s primary residence.
A “bona fide tenant” is defined as an individual who is not a child, spouse, or parent of the trustor of the foreclosed deed of trust, whose rental agreement or lease was entered into in an arm’s-length transaction before foreclosure was commenced, and whose rent is not substantially less than fair market rent for the property.
As a practical matter, the period of time during which a tenant will be able to remain in the property after foreclosure will be much less than a year. To meet the “bona fide” qualification, the lease cannot be for a period longer than a year and it had to have been entered into prior to the commencement of foreclosure. Since foreclosure requires four and one-half to five months, the actual amount of time that a tenant will typically be able to remain in a foreclosed property is limited to six or seven months at the most. [This new section (57-1-25.5) will sunset on July 1, 2018.]
Foreclosure Amendments — As indicated, Senate Bill 0220 made a number of helpful changes to statutes governing different aspects of nonjudicial foreclosures. Two of the most beneficial were a modification to the statute of limitations for nonjudicial foreclosures, and a revision to the requirements for giving pre-foreclosure notice to reverse mortgage borrowers.
Statute of Limitations: Utah Code section 57-1-34, which previously required that a nonjudicial foreclosure be completed within the six-year statute of limitations, now requires only that the foreclosure be commenced within that time period. This change will be useful to mortgage servicers in light of the increasing number of loans facing statute of limitations issues as a result of multiple loss mitigation or foreclosure relief applications.
Pre-Foreclosure Notice to Reverse Mortgage Borrowers: Utah Code section 57-28-304, enacted in 2015, required that before foreclosure proceedings could be commenced for a reverse mortgage, the servicer had to send the borrower written notice, and give the borrower 30 days after the day that the borrower received the notice to cure the default. The event of default is the borrower’s death for many reverse mortgage loans. Since a deceased borrower could not receive the notice, servicers were — for all intents and purposes — unable to proceed with foreclosure with confidence that the property would be insurable following foreclosure. Senate Bill 0220 changed the statute to only require that the servicer give the borrower 30 days after the day on which the servicer sends the notice to cure the default. This is a welcome change for reverse mortgage lenders and servicers.
Senate Bill 0220 made a number of other changes to Utah’s nonjudicial foreclosure statutes. A short summary follows:
• The statute now affirmatively allows the appointment of a trustee for a deed of trust where the original trustee was not eligible to serve as a trustee or where no trustee was named in the original deed of trust. (Utah Code § 57-1-22)
• A new code section provides that a party to a legal action involving a deed of trust need not join the trustee as a party unless the action pertains to a breach of the trustee’s obligations. If a party does join the trustee and the trustee is able to have itself dismissed from the action, the trustee is entitled to reasonable attorney fees resulting from its having been joined. (Utah Code § 57-1-22.1)
• Successful third-party bidders at nonjudicial foreclosure sales who fail to pay the bid price will forfeit their bidder’s deposit. The forfeited funds will be treated as additional sale proceeds. Previously, defaulting bidders were only liable for any loss resulting from their refusal to pay the bid price. This change should effectively eliminate defaulting bidders in the future. (Utah Code § 57-1-27)
• A clarifying change was made to the provisions regarding postponement of scheduled nonjudicial foreclosure sales. Previously, it was unclear whether the trustee could make multiple postponements without re-noticing the sale so long as each postponement did not exceed 45 days from the last scheduled sale date. As amended by the bill, the statute now provides that postponement can only be for a period of up to 45 days after the date designated in the original notice of sale. Beyond that, the sale must be re-noticed. (Utah Code § 57-1-27)
• The bill repealed former Utah Code section 57-1-24.5, which required a foreclosure trustee to give the borrower notice if the servicer did not delay foreclosure proceedings while engaging in loss mitigation or foreclosure relief efforts. With the ban on dual tracking found in the CFPB’s regulations beginning January 2014, that requirement was no longer needed.
Copyright © 2016 USFN. All rights reserved.
Summer USFN Report
Note for consideration of the USFN Award of Excellence: This article is a "Feature."