Divorce Lawyer Riverton Utah: Utah Foreclosure Process Explained

As a real estate attorney, we are often asked about how foreclosures work in Utah and how to stop them or do them. Utah foreclosure laws are among the nation’s most complex but are also fairly consumer friendly. In this post, we will attempt to provide good answers to the most common questions Utah residents have about the foreclosure process, both before and after a sale.

A Brief Introduction to Mortgages

In order to fully grasp the information in this post, it’s important to understand the basics of a mortgage. Most people say “I’m paying my mortgage.” What they actually mean is that they’re paying their note. The mortgage is the legal instrument that gives your lender the right to foreclose when you don’t pay the note, which is the instrument that evidences the debt. Mortgage and note are two separate things. This is an important distinction because in many jurisdictions, lenders have two ways of getting their money back from a homeowner who has fallen behind: they can either foreclose and sell the property OR try to enforce the note by suing the borrower personally. Sometimes they’ll try do both at the same time, but not in Utah thanks to the one action rule.

Utah’s One Action Rule: Your Lender Must Foreclose First

There can be but one form of action for the recovery of any debt or the enforcement of any right secured by a mortgage upon real property.”

What does this mean? In Utah, lenders are prohibited from simultaneously suing for the outstanding mortgage balance and foreclosing at the same time. A judicial foreclosure must take place in the same action as the pursuit of a deficiency judgment. Only after the proceeds from the foreclosure sale have been applied to what is owed can a lender seek a judgment on the remaining debt. To put it in plain English, when you get behind on your mortgage, your lender must foreclose first, they cannot sue you personally or attach money in your bank accounts before they have foreclosed on your home. Known as the “security first” rule, the law is intended to shield Utahns from multiple harassing lawsuits by lenders. Be aware that the one action rule does not apply in cases where a second mortgage lender’s security interest has been wiped out due to the first mortgage lender foreclosing.

OK, That’s Great My Lender Has to Foreclose First, But Can They Come After Me For a Deficiency Judgment? Doesn’t Utah Have an Anti-Deficiency Law?

Yes, there is an anti-deficiency statute. In Utah, your lender cannot pursue you for a deficiency judgment if the following conditions are met (which can be changed by the legislature at any given time):

You were living in the home (that contains no more than 4 units if a multi-family property) when you were foreclosed on;
The mortgage was made to finance the purchase of your home
Your home was foreclosed on by non-judicial foreclosure (power of sale)

The first requirement, that you live in your home, is easy to understand and satisfy. The Utah anti-deficiency law is meant to shield homeowners from deficiency judgments, not investors. If you are the owner of a 100 unit apartment building and live in one of the units, your lender will still be able to seek a deficiency after foreclosure. In this example, you’re obviously a real estate investor. If, on the other hand, you live in your home and rent out an apartment upstairs, your lender cannot seek a deficiency because your home only constitutes two units.

The next requirement, that your mortgage was a purchase money mortgage, means that if your mortgage loan was taken out to purchase your home, you are shielded from a deficiency action. If you took out a second mortgage to tap into home equity, your lender can still sue for a deficiency.

The last requirement, that your home was foreclosed on by power of sale, means your home was sold pursuant to a deed of trust without any court oversight. The vast majority of Utah foreclosures are performed in this manner. Lenders prefer power of sale foreclosure because they are much less expensive, faster, and do not require a judge’s approval. If your lender wishes to pursue a deficiency judgment, they must do so through judicial foreclosure.