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H.B. 407

             1     

OBLIGATIONS SECURED BY TRUST DEEDS

             2     
2010 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Chief Sponsor: Gregory H. Hughes

             5     
Senate Sponsor: ____________

             6     
             7      LONG TITLE
             8      General Description:
             9          This bill modifies provisions relating to trust deeds.
             10      Highlighted Provisions:
             11          This bill:
             12          .    modifies the calculation of fair market value for purposes of some trust property
             13      involved in a trustee's sale;
             14          .    enacts provisions relating to certain loans by member-based lenders, as defined,
             15      including:
             16              .    provisions relating to borrowers, guarantors, and sureties on those loans;
             17              .    quitclaiming in lieu of a foreclosure sale; and
             18              .    mediation; and
             19          .    makes technical changes.
             20      Monies Appropriated in this Bill:
             21          None
             22      Other Special Clauses:
             23          None
             24      Utah Code Sections Affected:
             25      AMENDS:
             26          57-1-32, as last amended by Laws of Utah 2001, Chapter 236
             27      ENACTS:


             28          57-1-32.5, Utah Code Annotated 1953
             29     
             30      Be it enacted by the Legislature of the state of Utah:
             31          Section 1. Section 57-1-32 is amended to read:
             32           57-1-32. Sale of trust property by trustee -- Action to recover balance due upon
             33      obligation for which trust deed was given as security -- Collection of costs and attorney
             34      fees.
             35          (1) At any time within three months after any sale of property under a trust deed as
             36      provided in Sections 57-1-23 , 57-1-24 , and 57-1-27 and subject to Section 57-1-32.5 , an action
             37      may be commenced to recover the balance due upon the obligation for which the trust deed was
             38      given as security, and in that action the complaint shall set forth the entire amount of the
             39      indebtedness that was secured by the trust deed, the amount for which the property was sold,
             40      and the fair market value of the property at the date of sale.
             41          (2) (a) Before rendering judgment, the court shall find the fair market value of the
             42      property at the date of sale[.], subject to Subsection (2)(b).
             43          (b) The fair market value of property securing a large member loan, as defined in
             44      Section 57-1-32.5 , is the greater of:
             45          (i) the property's fair market value on the date of the sale of the property at a trustee's
             46      sale under Section 57-1-28 ; and
             47          (ii) the fair market value of the property on the date of the earliest default under the
             48      large member loan.
             49          (3) The court may not render judgment for more than the amount by which the amount
             50      of the indebtedness with interest, costs, and expenses of sale, including [trustee's] trustee and
             51      [attorney's] attorney fees, exceeds the fair market value of the property as of the date of the
             52      sale.
             53          (4) In any action brought under this section, the prevailing party shall be entitled to
             54      collect its costs and reasonable attorney fees incurred.
             55          Section 2. Section 57-1-32.5 is enacted to read:
             56          57-1-32.5. Large member loans.
             57          (1) As used in this section:
             58          (a) "Foreclosure sale" means:


             59          (i) a trustee's sale under Section 57-1-28 ; or
             60          (ii) a sheriff's sale pursuant to a mortgage foreclosure action, if the beneficiary chooses
             61      under Section 57-1-23 to foreclose the trust deed in the manner provided by law for the
             62      foreclosure of a mortgage.
             63          (b) "Large member loan" means a debt:
             64          (i) owing to a member-based lender;
             65          (ii) secured by one or more trust deeds;
             66          (iii) consisting of at least $8,000,000 in principal, interest, costs, fees, and penalties;
             67      and
             68          (iv) partly or entirely owed or guaranteed by one or more members of the
             69      member-based lender, regardless of whether any of those members ceased to be a member
             70      during or after the term of the debt.
             71          (c) "Member-based lender":
             72          (i) means an institution organized in whole or in part for the benefit of its members,
             73      including:
             74          (A) a credit union subject to Title 7, Chapter 9, Utah Credit Union Act;
             75          (B) a federally chartered credit union; and
             76          (C) a cooperative or other association organized for the purpose of promoting thrift
             77      among its members; and
             78          (ii) does not include:
             79          (A) a bank, as defined in Section 7-1-103 ;
             80          (B) a federal savings bank;
             81          (C) a savings bank or savings and loan association that is subject to Title 7, Chapter 7,
             82      Savings and Loan Associations Act;
             83          (D) an industrial bank that is subject to Title 7, Chapter 8, Industrial Banks; or
             84          (E) a federal savings and loan association.
             85          (2) (a) Before a member-based lender may commence, join, or facilitate an action
             86      against a borrower, guarantor, or surety under a large member loan for amounts owing on the
             87      loan, the member-based lender shall first pursue all remedies under this chapter with respect to:
             88          (i) the foreclosure sale of the trust property; and
             89          (ii) all other security for the loan.


             90          (b) A court may not enter an order or judgment against a borrower, guarantor, or surety
             91      of a large member loan before:
             92          (i) the foreclosure sale of the trust property; and
             93          (ii) all other security for the loan is exhausted.
             94          (c) (i) The provisions of Subsections (2)(a) and (b) may not be modified or waived by a
             95      member-based lender or a trustor, borrower, guarantor, or surety under a large member loan.
             96          (ii) A court may not enforce a modification or waiver of any of the provisions of
             97      Subsection (2)(a) or (b).
             98          (3) (a) At any time after the recording of a notice of default under Section 57-1-24 , an
             99      owner of trust property described in a trust deed granted or assigned to a member-based lender
             100      to secure some or all of a large member loan may, in lieu of a foreclosure sale of the property,
             101      record a quitclaim deed granting to the member-based lender all of the owner's right, title, and
             102      interest in the trust property.
             103          (b) A quitclaim deed under Subsection (3)(a) constitutes satisfaction and full discharge
             104      of the obligations of each borrower, guarantor, and surety under the large member loan secured
             105      by the trust deed if the fair market value of the trust property quitclaimed to the member-based
             106      lender exceeds the principal amount of the obligation secured by the trust deed, including
             107      interest.
             108          (c) (i) If there is a dispute as to whether the fair market value of the trust property
             109      exceeds the principal and interest of the obligation, the member-based lender may, within 60
             110      days after the quitclaim deed is recorded, bring an action against the trust property to determine
             111      its fair market value.
             112          (ii) In an action under Subsection (3)(c)(i), the court shall determine the fair market
             113      value of the trust property, after giving effect to all admissible evidence, including all valid
             114      liens of record subject to which the trust property was quitclaimed.
             115          (4) Before a member-based lender may sue for or obtain a judgment on an obligation
             116      created by a large member loan, the member-based lender shall:
             117          (a) submit the claim to mediation under Title 78B, Chapter 10, Utah Uniform
             118      Mediation Act, or as ordered by the court; and
             119          (b) participate in good faith in the mediation with each opposing party.





Legislative Review Note
    as of 2-25-10 9:17 AM


Office of Legislative Research and General Counsel


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