Kelly Moore: Judicial Vs Non-Judicial Foreclosure

Utah foreclosures tend to be non-judicial, which means they happen outside of court. Judicial foreclosures, which go through the court system, are also possible. Because foreclosures in Utah are typically no- judicial. In most cases, under federal law, a servicer must wait until the borrower is over 120 days’ delinquent before officially starting the foreclosure process. To officially start the foreclosure, the trustee (the third party that administers non-judicial foreclosures) records a notice of default in the county recorder’s office at least three months before giving a notice of sale. The trustee mails a copy of the notice of default within ten days after the recording date to anyone who requested a copy. (Most deeds of trust in Utah include a request for notice, so borrowers typically get this notification. The bank or trustee mails a copy of the notice of sale to the borrower at least 20 days before the sale (if the deed of trust includes a request for notice).

Foreclosure means your creditor is trying to take your house and sell it to collect the money you owe. This happens when you get behind on your payments. Understanding the legal terms used with foreclosure can help you help yourself. Some definitions are:

• DEFAULT – A mortgage or contract is in default and foreclosure proceedings can begin as soon as you are late on one payment. Depending on the language in your loan documents, the lender may have to give notice before beginning a foreclosure.

• DELINQUENT PAYMENT – A mortgage payment is delinquent when it is not made on the day that it is due or within any “grace period” allowed by the lender.

• FORBEARANCE – An agreement where the lender agrees not to foreclose if you catch up your past due payments over a period of time. These payments will loan current.

• FORECLOSURE SALE – The forced sale by which your lender sells your property to pay your loan. A foreclosure sale has a bad affect your credit rating and future loans. The foreclosure sale takes place at the county courthouse.

• DEED IN LIEU OF FORECLOSURE – To avoid foreclosure when you know you will be unable to make your payments, you may consider handing over your deed to the lender. This is also called voluntary repossession. It means you are giving your house back to the lender. This may still affect your credit rating, but you may be able to avoid the cost of the foreclosure process.

• JUDGMENT – This is an order saying you owe money to the lender. The lender is then able to get the money through a foreclosure sale. In a non-judicial foreclosure your lender is not required to obtain a judgment before holding a foreclosure sale.

• DEFICIENCY JUDGMENT – A lender may be able to obtain additional money from you to recover their losses if the house sells for less than loan and cost to recover the money.

“Reinstating” is when the borrower catches up on the defaulted mortgage’s missed payments, plus fees and costs, to stop a foreclosure. Utah law provides the borrower with a three-month reinstatement period after the bank or trustee records the notice of default. Also, the loan contract might give you more time for completing a reinstatement. Check the paperwork you signed when you took out the loan to find out if you get more time to bring the loan current and if so, the deadline to reinstate. You can also call your loan servicer and ask if the bank will let you reinstate. In some states, you can redeem your home within a specific amount of time after the foreclosure. In Utah, though, foreclosed homeowners don’t get the right to redeem the home after a non-judicial foreclosure. When the total mortgage debt exceeds the foreclosure sale price, the difference is called a “deficiency.” Some states allow the foreclosing bank to seek a personal judgment, which is called a “deficiency judgment,” against the borrower for this amount. Other states prohibit deficiency judgments with what are called anti-deficiency laws. In Utah, the foreclosing bank may obtain a deficiency judgment following a non-judicial foreclosure by filing a lawsuit within three months after the foreclosure sale. A deficiency judgment is limited to the lesser of:

• The total debt (including interest, costs, and expenses of sale, including trustee’s and attorneys’ fees) minus the property’s fair market value, or

• The total debt minus the foreclosure sale price.

If you’re facing a foreclosure in Utah, it will likely be non-judicial in nature because most banks choose this cheaper, more efficient method. In this article, you’ll learn about non-judicial foreclosure procedures in Utah, as well as rights that might help you keep your home. (To learn about what to do, and what not to do, in a foreclosure, see Foreclosure Do’s and Don’ts.). Federal law usually prevents the servicer from initiating a foreclosure until the borrower is more than 120 days overdue on the loan. Servicers are also, under federal law, required to work with borrowers who are having trouble making monthly payments in a “loss mitigation” process. Residential foreclosures in Utah are typically non-judicial, which means the foreclosure happens outside of the state court system. The non-judicial foreclosure process formally begins when the trustee records a notice of default at the county recorder’s office. The notice of default gives the borrower three months to cure the default. At the foreclosure sale, the property will be sold to the highest bidder, which is usually the foreclosing bank. At the sale, the bank doesn’t have to bid cash. Instead, it makes a credit bid. If the credit bid is the highest bid at the sale, the property then becomes REO. In some states, you can redeem (repurchase) your home within a certain amount of time after the foreclosure sale. Under Utah law, however, foreclosed homeowners don’t get a right of redemption after a non-judicial foreclosure.

The foreclosing bank may obtain a deficiency judgment following a non-judicial foreclosure if it files a lawsuit within three months after the foreclosure sale. The deficiency amount is limited to the difference between the borrower’s total debt and the property’s fair market value. (Utah Code Ann. § 57-1-32). Utah primarily operates as a title theory state where the property title remains in trust until payment in full occurs for the underlying loan. Foreclosure is a non-judicial remedy under this theory. The document that secures the title is a deed of trust or trust deed. Utah law also permits mortgages to serve as liens upon real property and for judicial foreclosures to occur through the courts. Because the power of sale provisions in deeds of trust allow for a more expeditious process to effectuate foreclosure, this is the primary method used by lenders to foreclose. The documents are the trust deed, and in a commercial transaction, a security agreement. Sometimes the mortgage document is combined with the security agreement. Alternatively, a mortgage is filed to evidence the underlying debt and terms of repayment, as set forth in the note. Depending on the timing of the various required notices, it takes approximately 120 days to complete an uncontested non-judicial foreclosure. This process may be delayed if the borrower contests the action in court, seeks delays and postponements of sale, or files for bankruptcy. The documents are the trust deed, and in a commercial transaction, a security agreement. Sometimes the mortgage document is combined with the security agreement. Alternatively, a mortgage is filed to evidence the underlying debt and terms of repayment, as set forth in the note.

Depending on the timing of the various required notices, it takes approximately 120 days to complete an uncontested non-judicial foreclosure. This process may be delayed if the borrower contests the action in court, seeks delays and postponements of sale, or files for bankruptcy.
A trustee records a Notice of Default at the county recorder’s office. The Notice of Default includes the reason the trustee believes your loan is in default. A trustee must give written notice of the default to the borrower and anyone who has filed a Request for Notice. This is usually done by registered mail. Always arrange to get letters sent by registered mail. The notice is valid even if you fail to sign for it or pick it up from the post office. You will receive a copy of the Notice of Default. If you suspect you are in default, you should check with the county recorder to see if a notice of default has been filed. You may also file a request for notice with the county recorder’s office so you are notified of any default. A notice of default does not mean you have to move out, but you will have to move once the sale of the property is final. After the Notice of Default is filed, you must make a payment plan with your creditor. You will have to pay any past due payments, late fees, collection fees, and legal fees. This must be done within three months of the recording of the Notice of Default.

Otherwise, after three months the trustee can issue a Notice of Sale and you will have to pay the entire loan to avoid losing your property. If you do not cure the default, the trustee must give written notice of the time and place of the sale. Placing an ad in a newspaper once a week for three straight weeks. The last notice must occur more than 10 days but less than 30 days before the date of sale; and, Posting a Notice of Sale at least 20 days before the date of sale on the property and in at least three locations in the county where the property is located. If the house sold for less than what you owe the lender, they may, within three months after the sale, sue you for the rest of the debt owing and expenses. This is called a deficiency judgment. The deficiency judgment is limited to the amount the debt, interest, costs, and expenses of sale is more than the fair market value of the property at the date of the sale. The fair market value is the value of the property to the normal buyer on the date of sale. The fair market value is not always the amount the property sold for at the Trustee’s Sale.

What is a Mortgage Foreclosure?

When a trust deed or mortgage goes into default, the lender has the right to declare the entire balance of the loan due and file a lawsuit to collect the debt. To foreclose on the property in this manner, the mortgage holder must file a summons and complaint and serve them on you. You must file a response to these papers in court. It is not a defense that you cannot afford the payments. Once the mortgage holder has a judgment against you, a sheriff can serve an order called a writ of execution that allows your house to be sold to satisfy what you owe on the mortgage. Once the property sells, you have six months to redeem the property. To redeem the property, you must pay the amount the property was purchased for at the foreclosure sale plus any costs incurred by the mortgage holder, plus a 6% redemption fee. The judicial foreclosure process is one in which the lender must file a complaint against the borrower and obtain a decree of sale from a court having jurisdiction in the county where the property is located before foreclosure proceedings can begin. Generally, if the court finds the borrower in default, they will give them a set period of time to pay the delinquent amount, plus costs. If the borrower does not pay within the set period of time, the court will then order the property to be sold in the manner of normal execution sales. The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust.

A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the “Power of Sale Foreclosure Guidelines”. In a judicial foreclosure, the lender sues the defaulting borrower in state court in order to auction the property to recoup unpaid debts. In non-judicial foreclosures, the lender auctions the property without having to go to court. Rules regarding which types of foreclosures are allowed vary depending upon the state, with about half of the 50 states using a judicial foreclosure system. In judicial foreclosure, the lender must prove that the borrower has defaulted on their loan and pursue court action. If the borrower cannot pay the debt, the property is sold at auction by the county sheriff or another official. The winning bidder receives the deed to the property. The process usually takes between 6 months and 2 years. As the vast majority of foreclosures are uncontested, the U.S. financial industry has lobbied since the 19th century for non-judicial foreclosure – foreclosure that occurs out of the courts. Non-judicial foreclosure occurs when a mortgage contains a power of sale clause, allowing the lender to initiate a foreclosure sale without going through the courts.

The lender issues a notice of default and notifies the borrower of this fact, before conducting an auction of the home. The lender itself can bid in the auction, and the winner receives the deed to the home, although they then might be forced to sue for the eviction of the current residents. The process usually takes between 1 month and 1 year. The Mortgage Bankers Association (MBA) and other lending industry organizations tend not to like the judicial foreclosure system because it adds to their costs. Often, lenders and mortgage servicers themselves were overwhelmed with the volume of foreclosures and were unable to gather all the necessary documentation for the courts in time. As of the end of September 2012, according to the MBA, 6.6% of all loans were in foreclosure in judicial states, compared with 2.4% in non-judicial states. The MBA has blamed this on a “sluggish” process in judicial foreclosure states for a backlog in foreclosures. If a lender proceeds with a foreclosure on your home, it may be able to choose between a judicial foreclosure and a non-judicial foreclosure. Essentially, a judicial foreclosure means that the lender goes to court to get a judgment to foreclose on your home, while a non-judicial foreclosure means that the lender does not need to go to court. Every state allows a lender to get a judicial foreclosure, but not every state provides procedures for a non-judicial foreclosure. The difference between these processes can have an impact on how a homeowner makes a defense to a foreclosure, if any applies.

It also can affect the timeline of the process and how swiftly you need to move if you cannot prevent the foreclosure. The lender will bring a lawsuit in court, and a judge will review the evidence submitted by both sides. They may hold a hearing to decide whether the homeowner is in default on the loan. The homeowner can try to reach a settlement with the lender before the hearing to prevent the foreclosure. If the parties cannot reach a settlement, and the court finds in favor of the lender, the court will enter a judgment of foreclosure. This will trigger a foreclosure sale and may expose the homeowner to a deficiency judgment for any remaining balance of the loan not covered by the sale. Sometimes the lender or the trustee will give the homeowner time to catch up with the missed payments on the loan, or negotiate with the lender, before proceeding with a foreclosure. In this situation, they will send a notice of default. However, in other states, a lender might send a notice of default together with a notice of sale, or it might send only a notice of sale. Sometimes a lender only needs to publish notice in the newspaper and post it on the property. If you have a defense to a non-judicial foreclosure, you will need to file a lawsuit in court to raise the defense. By contrast, you would respond to the pre-existing lawsuit if you have a defense to a judicial foreclosure.