When a person has borrowed money to purchase property, build a structure, or add on to an existing building, the lender generally requires that the borrower execute not only a promissory note promising to pay back the money, but a trust deed as well, putting the title to the property in trust to be held for the benefit of the lender in case of nonpayment. A qualified trustee is appointed in the trust deed and is responsible to carry out the terms in case of nonpayment by the borrower. In a typical transaction, the trust deed requires the borrower to make its monthly payments, keep taxes current, and perform upkeep and maintenance on the property as might be needed under the circumstances. As long as the borrower is current in all of its payments and obligations, the fact that the trust deed exists is of no particular consequence. It is important to remember that the borrower is the owner of the real property and has all rights and obligations of ownership. By signing the trust deed, the borrower has simply placed some restrictions to its property rights in relation to the transfer of title. The lender does not retain any ownership rights in the property, but is limited to exercising only those rights allowed in the trust deed to the extent permitted by Utah law.

If the borrower is late in its payment or defaults on other obligations, the lender has the right to start the foreclosure process by “notice of default” with the county recorder and sending a copy to the borrower. This triggers a 90-day time period wherein, if the borrower can pay all of the arrears current, together with any costs and fees associated with the notice of default, the lender must be reinstate the borrower in the loan and void the notice of default. If within 90 days the borrower cannot bring the arrearage current, the lender has the right to have the trustee sell the property. If the trust deed covers more than one parcel of real property, the borrower can appear at the sale and demand that the parcels be sold separately and in a particular order. The trustee has a duty to follow the instruction of the borrower as to which parcel to sell first to satisfy the debt.

The borrower’s rights do not end when the 90 days has run. Prior to the sale date, the borrower still has the contractual right to pay off the promissory note in full, including and fees and penalties, which the lender must accept. The lender does not have the right to refuse the full payment in order to get a property that may now have a high equity value.

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

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.

An ALTA survey is one means of reducing risk in a real estate transaction. The process of preparing an ALTA survey may show that possession or use of the property does not conform to record information, with the result that the extent of title and rights do not always conform to the boundaries set forth in a deed. An ALTA survey provides detail, such as fences, trails, roads, utility lines and other features of the property, and may highlight the need for further investigation into the possibility of adverse rights. Also, an ALTA survey can establish that the legal description being relied upon in the purchase contract and deed can be used to actually locate the property on the ground.

If a buyer requires an extended coverage owner’s title policy, it must provide the title insurer with an ALTA survey so that the insurer can delete the standard exceptions for (i) easements, or claims of easements, not shown by the public record; and (ii) encroachments, overlaps, boundary line disputes, or other matters that would be disclosed by an accurate survey and inspection.

(A boundary survey shows the boundary lines between parcels of land, but not necessarily any improvements on the land. It does not conform to uniform requirements and does not typically show the level of detail that a buyer of commercial real estate needs to evaluate.)

A letter of intent (LOI) can range from being a preliminary, non-binding expression of the parties’ intentions to negotiate and complete a transaction, typically including only the essential terms, to a document that the parties intend to be fully binding, with detailed provisions that will be in the final agreement. This range in the binding nature of an LOI can cause frustration if the LOI is not skillfully drafted so that it is clear to all concerned whether it is meant to be non-binding, partially binding, or fully binding. (Often the parties mistakenly believe that entering into an LOI will shorten the timeframe or reduce the cost of the overall transaction. However, this is not necessarily true, nor is it the primary purpose of an LOI. While the LOI can be a helpful outline for reaching agreement on essential terms, the parties often become aware of items that have not yet been considered and that they wish to include in the final agreement. This may add to the upfront time and expense of the transaction, but will help avoid the need for amendments to a final agreement or costly litigation which can result from ambiguity in the agreement).

A non-binding LOI should include the basic elements of the deal, but will not afford remedies if one of the parties fails to go through with the deal. Its value is mostly psychological. A non-binding LOI must state clearly that it is merely an expression of the parties’ general understanding; it should not contain words that might lead to the inference that the parties intended to be bound, such as “offer” or “acceptance,” nor should it require the parties to use “best efforts” to negotiate a deal.  Also, in order to counter the argument that a party has a duty of good faith and fair dealing, an express provision should be included stating that the parties have no obligation to engage in good faith and fair dealing in negotiating a binding contract.  It would be wise to expressly state that (i) neither party is to rely on the non-binding LOI as creating any promises, and (ii) it should not be interpreted as justifying action or forbearance by either party.

On the other hand, the if the LOI is intended to be fully binding, it will require much more time and care in drafting, as it may address numerous details and provisions regarding contingencies, conditions, representations and warranties, due diligence period, assignment and assumption rights, remedies, survivability, confidentiality and nondisclosure obligations. The fully binding LOI should state very clearly that it is intended to be enforceable and that the parties are bound by the duty of good faith and fair dealing; it should also set out the remedies for a breach. (Not to be overlooked – a binding LOI must also be supported by consideration).

A common misconception is that a binding LOI can substitute for the final agreement because of its level of detail. If the parties have reached agreement to the extent that no additional terms remain to be worked out, the time and expense of preparing an LOI may be unnecessary, in which case the parties should move directly to documenting the full agreement.

• Stipulates that the $8,000 tax credit does not have to be repaid, unlike the tax credit passed last summer;
• Keeps the tax credit refundable, or claimable regardless of tax liability;
• Extends the sunset date from July 1, 2009 until Dec. 1, 2009 so that consumers can utilize it during the critical summer and fall buying months;
• Allows tax credit home buyers to participate in the mortgage revenue bond program; and
• Permits state housing finance agencies to help buyers at closing by advancing the credit amount as a loan using tax-exempt bond proceeds.

There are several other important components in the legislation that will help small businesses and bolster the housing market. H.R. 1, the American Recovery and Reinvestment Act of 2009, will:

• Help home borrowers in high-cost markets by extending the 2008 FHA, Fannie Mae and Freddie Mac loan limits of $729,750 through the end of this year;
• Temporarily allow exchange of Low-Income Housing Tax Credit allocating authority for tax-exempt grants and appropriates $2 billion in HOME funding for affordable housing projects;
• Provide up to a 10-year deferral of tax due to business debt restructuring;
• Expand the net operating loss carry back period from two years to five years for small businesses (businesses with average gross receipts of no more than $15 million over the prior 3 years) for losses arising in tax year 2008;
• Extend the 25C existing home remodeler credit through the end of 2010, increase the credit rate from 10 percent to 30 percent, raise the lifetime cap from $500 to $1,500, and expand the set of qualifying property;
• Provide an Alternative Minimum Tax patch for tax year 2009;
• Increase bonus depreciation and Section 179 small business expensing for business investment in 2009;
• Increase New Markets Tax Credit allocating authority for 2008 and 2009; and
• Delay for one year the start of the 3 percent government contractor withholding requirement (from 2011 to 2012).

(Information from National Association of Home Builders)