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 there losses if the house sells for less than loan and cost to recover the money.
How can I avoid foreclosure?
To avoid foreclosure, pay your monthly mortgage. The lender does not want to foreclose on your property because it takes time and money to go through the process. If you cannot make a payment, it is important to contact your mortgage company to agree to make payments. Be sure to get any payment plan in writing. Discuss with your lender how much you owe and how long it will take to catch up on any missed payments. Be prepared to answer
• why you fell behind on your payment,
• what your current financial resources are, and
• if you have a realistic plan for repaying the money you owe.
If you go to your lender with a good attitude and are honest, your problems will likely be easier to solve. You may also ask your lender about modifying the loan. That might reduce your monthly payments to an affordable level
Kinds of Foreclosure Procedures
In Utah, there are three different kinds of foreclosures. They are trust deed foreclosure, mortgage foreclosure, and uniform real estate foreclosure.
Trust Deed Foreclosure
To foreclose on a Trust deed, a creditor must follow these steps:
• 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. This is done by: 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.
• The sale can be postponed by the trustee. Once the Notice of Sale has been issued, you can only redeem the property if you pay the entire loan balance plate fees, collection fees, and legal fees.
• 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.
Deeds in Lieu of Foreclosure
Sometimes lenders will opt to obtain title by accepting a deed to your property instead of foreclosing on it. In this instance, the deficiency amount is the difference between the property’s fair market value and the total amount you owe. If the agreement does not state that accepting the need satisfies any debt, the lender can seek a deficiency judgment against you for the balance.
To deed in lieu of foreclosure is when a property owner surrenders the deed to the property to their lender in exchange for being relieved of the mortgage debt. A deed in lieu of foreclosure is a potential option taken by a mortgagor, usually as a means to avoid foreclosure. In this process, the mortgagor deeds the collateral property, which is typically the home, back to the lender that is serving as the mortgagee in exchange for the release of all obligations under the mortgage. Both sides must enter into the agreement voluntarily and in good faith. This is a drastic step, usually taken only as a last resort when the property owner has exhausted all other options and has accepted the fact that they will inevitably lose their home. Although the homeowner will have to relinquish their property and relocate, they will be relieved of the burden of owing the remainder of the loan. This process is also usually done with less public visibility than a foreclosure, so it may allow the property owner to minimize their embarrassment and keep their situation more private.
Advantages of a Deed in Lieu of Foreclosure
A deed in lieu of foreclosure has advantages for both a borrower and a lender. For both parties, the most attractive benefit is usually the ability to avoid a long, drawn-out period of time-consuming and costly foreclosure proceedings. In addition, the borrower can often avoid some public notoriety, depending on how this process is handled in their area. Since both sides reach a mutually agreeable understanding that includes specific terms as to when and how the property owner will vacate the property, the borrower also avoids the possibility of having officials show up at their door to evict them, as can happen with a foreclosure. In some cases, the property owner may even be able to reach an agreement with the lender that allows them to lease the property back from the lender for a certain period of time. The lender often saves quite a bit of money by avoiding the expenses they would incur in a situation involving extended foreclosure proceedings. In evaluating the potential benefits of agreeing to this arrangement, the lender needs to assess certain risks that may accompany this type of transaction. These potential risks include, among other things, the possibility that the property is not worth more than the remaining balance on the mortgage and that junior creditors might hold liens on the property.
How to Get Out From Under a Mortgage
Of all the complexities facing homeowners, knowing how to get out from under a mortgage legally without ruining credit may seem like one of the trickiest dilemmas imaginable. Few homeowners want to consider the idea of facing debt as a result of a mortgage loan. But circumstances change; whether it’s a result of losing a job, unforeseen medical bills or any other crisis many Americans face daily, you need to be prepared for very real consequences as a result of leaving your mortgage. A mortgage is, of course, a legally binding contract. Failing to pay it off can result in seizure and foreclosure as well as ruining your credit. The easiest option would be to sell your home short and pay off the difference, simply counting your losses. There are options available for homeowners to get out of a mortgage legally without necessarily breaking a contract. Here are two legit and legal ways to escape the burden of paying your mortgage:
• Strategic Defaults and Deeds In Lieu Of Foreclosure: A strategic default typically occurs when property is worth substantially less than the value of a mortgage. This negative equity is frequently referred to as having an “upside down mortgage.” Many homeowners simply choose to stop paying off their mortgage altogether. By negotiating with a lender, you can come to a flexible arrangement in terms of foreclosure. This will usually include additional time to vacate your property (some may actually pay your maintenance fees for upkeep) as well as coming to a mutual agreement on circumstances of negative equity which can alleviate some of the resulting strain on your credit. Many lenders, however, insist on a deed in lieu of foreclosure. A deed in lieu of foreclosure involves deeding property to a lender with an agreement of forgiving either the entire mortgage loan, or at least a substantial portion of it. One reason why this is more mutually beneficial is that lenders can typically recoup their unpaid mortgage by selling the property, and upside down homeowners are no longer legally bound by a contract.
• Home Buying Companies: You may have come across references to companies that buy houses for cash in Utah, both online and otherwise. And you may have even assumed they were a scam. But they’re not. There’s numerous houses buying companies & services out there which are legitimate, reputable and more importantly, willing to help you legally leave a mortgage contract without a short sale or potentially damaging or defaulting on your credit. A home buying company is exactly what it sounds like; a licensed company (as opposed to a homebuyer) which purchases homes from both distressed or simply eager sellers. They’ve become prevalent in recent years for various reasons; both to assist homeowners with mortgage obligations, but also with the intent of renovation and resale. And while you may receive less than the initial value of your home as a result, you don’t have to pay out of pocket or negotiate with a buyer, agency or lender. Most importantly, you avoid any negative credit impact as a result of foreclosure. The main benefit to using a home buying company isn’t just avoiding ruining your credit or defaulting on your mortgage, however. Because home buying companies typically pay full cash value for a home and frequently at a profit for sellers it’s an instant solution to mortgage lender obligations. The process of foreclosure can take weeks if not months to negotiate with a lender. And while that might seem like a minor inconvenience compared to going into debt, the impact it has on your credit rating can take years to resolve. The turnaround time in selling your Utah house for cash to a home buying company is typically a week; often sooner, since many legitimate home buying companies now offer online applications. This is probably the easiest and most convenient solution for homeowners who need to resolve their mortgage contracts or liquify assets quickly and legally; allowing them to start all over again with no negative impact.
Rejected Deed in Lieu of Foreclosure
A common misconception about deeds in lieu is that the property must be in foreclosure. The lender may or may not have filed a notice of default or started judicial proceedings to foreclose but may still be open to discussing a deed in lieu. However, banks are often reluctant to accept a deed in lieu of foreclosure if the homeowner is current, but being current doesn’t mean the bank will refuse. Banks are under no obligation to accept a deed in lieu of foreclosure. Here are a few reasons why a bank might refuse a deed in lieu:
• Such action is not profitable for the bank. If a bank believes it can make more money through foreclosure, because the property has equity or the federal government is providing financial incentives to the bank to foreclose, the bank might reject a homeowner’s offer to deliver the deed in lieu of foreclosure.
• Junior encumbrances, judgments, or tax liens. Any subsequent lien filed against the property will stay with the property and become the lender’s responsibility if not released prior to the agreement for a deed in lieu of foreclosure. Typically, a property with only one loan is the best candidate. Or, a second lender might accept a deed in lieu if the first loan is current and the property is worth more than the sum of its encumbrances.
• Servicing guidelines prohibit deeds in lieu. Many loans are serviced by PSAs, and the guidelines in those PSAs might prohibit a deed in lieu of foreclosure. PSAs are required to follow guidelines and those terms cannot be altered.
• Unacceptable terms. It is also possible that the PSA might ask the borrower to make a financial contribution in exchange for acceptance of the deed in lieu, and the borrower might refuse either due to principle or lack of principal.
Drawbacks to a Deed in Lieu of Foreclosure
Always seek legal advice before jumping at the bit to give the bank a deed in lieu of foreclosure. Remember, it is in the bank’s interest to obtain the deed from you. It might not be in your best interest to comply. In some ways, it can be argued that giving a bank a deed in lieu of foreclosure is just a step above walking away from your mortgage. Following are a few ways you could be affected with a deed in lieu of foreclosure:
• It will affect your credit: A deed in lieu will show up on your credit report. Some sources say the affect on credit is identical to that of a full-blown foreclosure. Each individual’s situation is different. When in doubt, call a credit bureau and ask.
• Ability to buy another home: There is no such thing as giving a deed in lieu and turning around to immediately buy another home.
• Compare the wait to buy after a foreclosure, which is seven years without extenuating circumstances, five with, and what you have picked up is essentially a three-year gain. Looking at it another way, a short sale may qualify you to buy a home within two years, in which case you may have lost two years if you are forced to wait four years after a deed in lieu.
• Release of liability: Make sure that the deed in lieu specifically releases you from liability to repay the loan. Moreover, there is little point in handing over title if you have a second lender that will pursue you for a deficiency.
• Potential Tax Effects: Be sure to ask your accountant whether the cancelled debt from your home loan could result in a tax liability. Temporarily, the 2007 Mortgage Forgiveness Debt Relief Act continues to offer protection due to an extension provided by the Bipartisan Budget Act of 2018, and that legislation gets renewed annually. Insolvency may be another exemption available.
Deed in Lieu of Foreclosure Documents
If approved for a deed in lieu of foreclosure, the bank will send you documents to sign. You will receive:
• a deed that transfers ownership of the property to the bank, and
• an estoppels affidavit. (Sometimes there might be a separate deed in lieu agreement.)
The estoppels affidavit sets out the terms of the agreement and will include a provision that you are acting freely and voluntarily. It might also include provisions addressing whether the transaction is in full satisfaction of the debt or whether the bank has the right to seek a deficiency judgment.
Deed In Lieu Of Foreclosure Attorney Free Consultation
When you need legal help with a deed in lieu of foreclosure in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506
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