Rights and Remedies in Foreclosure Matters – The Lender’s Perspective

by Russ Mitchell

Lenders come in all shapes and sizes. When parties want to borrow money to buy and/or develop real property, they can borrow from a variety of financial institutions, or they can see if the seller of the property will “carry the note” – that is, take payments over time. Property sellers become lenders the moment they agree to carry the note. The rights of a lender are governed by the terms of the trust deed (the contract between the borrower and lender regarding using the property as collateral), the promissory note (the contract for how the money is to be repaid), and the Utah statutes on foreclosure. When a borrower fails to make the required payments or otherwise defaults on the trust deed, the lender can enforce its right to take title to the property securing the loan through a process referred to as foreclosure. The borrower’s perspective in this process is described in a separate article.

A nonjudicial foreclosure, which does not require any court filing, is the most common way for a lender to enforce its rights if the borrower defaults on the loan. Another type of foreclosure is called a judicial foreclosure, which means a lawsuit is filed and the lender enforces its rights in court to collect its judgment by having a sale of the property. In many cases, lenders prefer a nonjudicial foreclosure because it is a much quicker way to get title to the property. The lender begins a nonjudicial foreclosure by having the trustee record and serve an appropriate notice of default. If the borrower does not come current with its financial obligation in the 90-day period after the recording of the notice of default, the lender can then set a sale date that is approximately 30 days later. Therefore, in a period of about 120 days, the lender can get the property in its possession to be resold to recoup the money it loaned. This is subject to the borrower’s statutory right of reinstatement (the lender is required by statute to reinstate the loan if the borrower brings the loan current in the first 90 days) and the borrower’s contractual right to pay off the note (the lender is required by contract to accept full payment on the loan if tendered before the sale).

If the foreclosure continues to the sale, the lender can credit bid based on the amount it is owed up to the total amount of principal, interest, fees, and costs associated with the foreclosure, thereby requiring any other person who bids on the property at the sale to pay off the lender in full in order to obtain the property. The lender may also choose to bid less than what is owed so that the successful bidder pays most of what the lender is owed. This strategy will vary from lender to lender, but in either case it can result in the lender receiving the property based on it’s credit bid. Once the sale has been conducted, it is final, and the borrower no longer has the right to occupy the property and must move out. If the borrower does not move out, it will be considered a squatter, or a tenant at will, and will be subject to eviction proceedings.

If the fair market value of the property, at the time of the foreclosure sale, is less than what the lender is owed under the terms of the promissory note, it is referred to as a deficiency. If the lender, in following statutory requirements, wants to collect this deficiency from the borrower, the lender can file a timely lawsuit. The purpose in doing this is to obtain a judgment that can be collected from other assets of the borrower in an attempt to make the lender whole.

This article is not intended to be legal advice. Receipt of this information does not create an attorney-client relationship.

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