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Tenth Circuit Cautions Against National Banks Acting as Utah Foreclosure Trustee

Posted By USFN, Tuesday, January 10, 2017
Updated: Monday, January 9, 2017

January 10, 2017

by Brigham J. Lundberg
Lundberg & Associates, PC – USFN Member (Utah)


Under Utah law, the trustee of a deed of trust must be: (i) an active member of the Utah State Bar; (ii) a depository institution or insurance company authorized to do business and actually doing business in Utah; (iii) a corporation authorized to conduct a trust business and actually conducting a trust business in Utah; or (iv) a title insurance company licensed to conduct insurance business in the state. [Utah Code § 57-1-21(1)(a).] However, of the above-named possible trustees, only an active member of the Utah State Bar and a Utah-licensed title insurance company may exercise the power of sale and actually carry out a nonjudicial foreclosure sale in Utah. [Utah Code § 57-1-21(3).]

The issue of the qualification of nonjudicial foreclosure trustees has been contested in Utah over the past five years, and recently came to a head with the opinion by the U.S. Court of Appeals for the Tenth Circuit in Dutcher v. Matheson, 840 F.3d 1183 (10th Cir. Nov. 2, 2016).

In Dutcher, the borrowers brought a putative class action on behalf of similarly situated homeowners who had experienced nonjudicial foreclosure at the hands of ReconTrust Company, N.A. as foreclosure trustee. These plaintiffs challenged the authority of ReconTrust to conduct nonjudicial foreclosures in the state of Utah. The borrowers alleged that, as a federally-chartered national bank with offices in Richardson, Texas, ReconTrust was prohibited from conducting nonjudicial foreclosure sales in Utah because it was not a qualified trustee under Utah Code section 57-1-21(1)(a) and (3). In response, ReconTrust asserted that it was permitted to conduct the foreclosures under federal law — specifically, 12 U.S.C. § 92a(a), as interpreted by the Office of the Comptroller of the Currency (OCC) in 12 C.F.R. § 9.7, which states that the OCC is authorized to grant national banks a special permit to act as a trustee when not in contravention of State or local law or to act in any other fiduciary capacity in which national banks’ competitors are permitted to act under the laws of the State in which the national bank is located. See 12 U.S.C. § 92a(a) [emphasis added].

The dispute turned on the question of which state’s law is incorporated by 12 U.S.C. § 92a(a) — Utah or Texas. More specifically, the identification of the state where ReconTrust is “located” for purposes of section 92a(a) is the main contention. The federal district court granted ReconTrust’s motion to dismiss the borrowers’ claims. However, shortly after that decision, another federal district court in Utah issued an order ruling on the same question, and found that the challenged foreclosures were not lawful. See Bell v. Countrywide Bank, N.A., 860 F. Supp.2d 1290 (D. Utah 2012). The Bell ruling prompted the Dutcher plaintiffs to file a motion for reconsideration, which was denied by the district court. An appeal to the Tenth Circuit followed.

On appeal, the Tenth Circuit panel rejected the borrowers’ arguments and affirmed the ruling of the federal district court in favor of ReconTrust. In doing so, however, both the Tenth Circuit majority opinion and one of the concurring opinions pointed out that it was not able to consider certain arguments raised by the borrowers on appeal because those arguments were not properly preserved below and, thus, had been waived. In fact, one of the concurring opinions went so far as to state that but for the waiver of those arguments, the judge would have ruled in favor of the borrowers and held that ReconTrust “does not have the power to conduct non-judicial foreclosure of trust deeds in Utah.”

Unfortunately, the majority and concurring opinions in Dutcher have done little to clear the muddied waters with respect to foreclosures conducted by ReconTrust in the state of Utah. As a practical matter, local title companies and national underwriters remain hesitant to insure any property that was foreclosed by ReconTrust. While the title industry in Utah may come around and, in time, agree to insure properties previously foreclosed by ReconTrust, they are unanimous in their agreement that it would be ill-advised for ReconTrust or other similarly-situated entities to conduct any future foreclosures in Utah.

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Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

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