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.