This article introduces the foreclosure process.
There are two types of foreclosures in the state of Utah. Foreclosure on a trust deed is typically conducted as a non-judicial foreclosure. Foreclosure on a mechanic's lien, judgment or most other obligations is generally conducted as judicial foreclosure. The foreclosure procedure depends upon whether a foreclosure is judicial or non-judicial.
Once a lender has determined to foreclose a trust deed, a suitable trustee must be identified. Lenders usually use attorneys to conduct foreclosures. Unless the lender named an attorney, instead of a title company, as the trustee in the trust deed, a substitution of trustee is usually filed. To avoid this step, many lenders name an attorney as the trustee regardless of the title company who performs the loan closing.
The lender's next step is to instruct the attorney to file a notice of default. The attorney prepares and files a notice of default. The attorney prepares a foreclosure report in order to identify all parties entitled to notice. Within ten days of filing the notice of default, the attorney must send a copy of the notice of default to each party entitled to notice.
Following the notice of default, the law requires a three month reinstatement period. At any time during the three month reinstatement period, the borrower can reinstate the loan by catching up on all late payments and paying all other costs and attorney's fees incurred.
After expiration of the reinstatement period, the attorney notices the foreclosure sale. In order to satisfy the notice requirements, the sale is typically held three to four weeks following the initial notice of sale. Occasionally, the sale will be postponed to a later date.
The sale is conducted largely in the discretion of the attorney. Unless the lender is interested in pursuing a deficiency judgment following the foreclosure sale, the attorney opens the bidding for the property by making a credit bid of the full amount of the loan being foreclosed.
The property goes to the highest bidder. The attorney may permit 24 hours to pay the entire amount bid. Occasionally, if the bidder has provided a $5,000.00 "down payment," the attorney may permit as much as one week for the bidder to make the full payment due. Payments should be made in certified funds.
If the high bidder fails to pay the full amount bid within the time required by the attorney, the attorney may either schedule another foreclosure sale or sell the property to the second highest bidder.
Upon payment, the attorney delivers a trustee's deed to the highest bidder. Upon recording of the trustee's deed, the sale is final and cannot be rescinded.
The proceeds of sale are used to pay the costs of sale, first, followed by the amounts due to the lender. Any excess is distributed to security holders of subsequent priority and then to the property owner. If there is excess money after payment to the lender, it is typical for the attorney to deposit the extra money with the court for disbursement to other lien holders and/or the property owner.
Judicial foreclosure may be initiated in a variety of circumstances. Judicial foreclosure requires filing a legal action in court. The plaintiff must obtain a writ of execution or other court order requiring sale of the property to pay a debt.
The county sheriff generally conducts all judicial foreclosure sales. The sheriff does not wait during a reinstatement period as with a non-judicial foreclosure. Instead, the sheriff immediately takes steps to schedule the foreclosure sale. In order to satisfy notice requirements, the sale is typically set four weeks or longer following the date of notice of sale.
At the foreclosure sale, the judgment creditor may credit bid up to the amount of the judgment. If other bidders are present, they may also participate in the bidding.
Upon payment to the sheriff, the sheriff delivers a sheriff's deed to the highest bidder. A final deed is not delivered until six months following the sale. In a judicial foreclosure, the property owner has a six month period in which to reclaim the property by payment to the purchaser of an amount equal to 106% of the price for which the property was sold.
In the state of Utah, any secured creditor may initiate the foreclosure process in the event of default in payment. If the lien holder in first position (typically the first mortgage) conducts the foreclosure, then all subsequent priority holders lose their security interest upon sale of the property. Foreclosure against the property by the first lien holder generally results in delivery of clear title to the purchaser, subject to taxes, assessments, easements and the like.
A lien holder in second position or other subsequent position may also initiate a foreclosure sale. However, upon sale of the property, the property remains subject to any interest holder with higher priority.
If a party has questions about priority, it is typical for the attorney involved with the foreclosure sale to provide the foreclosure report to interested persons. The purchaser may also arrange for title insurance upon purchase at the foreclosure sale.
The property owner may also claim a homestead exemption in the property. The homestead exemption generally has priority over non-consensual claims, such as judgments. However, consensual liens such as a first mortgage, have priority over the homestead exemption.
Stopping or Postponing a Sale.
The attorney or the sheriff has discretion with regard to conducting or continuing the sale. For a variety of reasons, the date of sale may be postponed to a later date. Although an interested person may contact the attorney or sheriff responsible for conducting the sale, it is not typical for a sale to be postponed.
In the state of Utah, a foreclosure sale is most frequently canceled as a result of bankruptcy. The property owner may file a voluntary petition for bankruptcy, or a certain number of creditors may force the property owner into an involuntary bankruptcy. Filing bankruptcy results in an automatic stay. Continuing a foreclosure sale after a bankruptcy filing violates the automatic stay and may result in penalties against the attorney or sheriff. Furthermore, a sale in violation of the automatic stay is void. If bankruptcy has been filed, the person who wishes to proceed with foreclosure must obtain an order from the bankruptcy court authorizing the foreclosure to proceed.
Profiting from Foreclosures.
People interested in purchasing foreclosure properties can take several approaches to profiting from foreclosure. The most profitable approach should be determined by the circumstances.
The first approach to profit from foreclosure is to purchase the property from the property owner, subject to all claims against the property. The purchaser would then be required to reinstate or payoff the liens in order to avoid foreclosure. Lower priority claims can also be cleared off as described below.
A second method to profiting from foreclosure is to purchase the interest being foreclosed. Either the property owner or a third party can negotiate with a security holder to buy the secured position.
The property owner or a person purchasing from the property owner can then subsequently complete the foreclosure sale in order to clear off other liens or claims with lower priority. The property owner may wish to employ a third party to purchase the secured position, in order to avoid merger of the property owner's interest and the security interest.
Foreclosure property can also be acquired at the foreclosure sale. At a typical foreclosure sale, the property is sold for the amount of the credit bid made by the secured party. Therefore, if significant equity remains in the property, a good price for the property can be obtained at the foreclosure sale. Title insurance is recommended for all purchases at the foreclosure sale.
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