Utah Short Sales — Short Statute of Limitations

The 2012 Utah legislative session brought a statutory change that is intended to encourage short sales of real property in Utah. The term “short sale” is used to describe a circumstance where real property (most commonly, a home) is sold for a sales price that is less than the outstanding mortgage loan on the property. Underlying the sale is an agreement by the lender to release the trust deed (the mortgage) against the property in return for receipt of the purchase price, leaving an outstanding, unsecured balance on the loan.

S.B. 42, passed by the 2012 Utah State Legislature and signed by the Governor, imposes a 3-month statute of limitations within which the mortgage lender must file a lawsuit to collect a remaining balance after the closing of a short sale. The 3-month period begins with the recording date of the reconveyance (the release) of the lender’s trust deed. The objective of the bill is to encourage borrowers to engage in short sale negotiations with some comfort in knowing that the limited 3-month statute of limitation would apply to a lawsuit to collect the remaining balance rather than the 6-year statute of limitations applicable generally to all written contractual obligations. The legislation recognizes also that often a short sale agreement between a lender and a borrower will include a written payment plan for some or all of the remaining loan balance. The 3-month statute of limitation does not apply to such an agreement. Finally, the 3-month statute of limitation does not apply if the borrower engaged in fraud in connection with the short sale. The legislation will be found at Utah Code Section 78B-2-313.

Kevin Glade

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by Utah Commercial Law on April 13, 2012 • Permalink

Posted in Contract Law, Legislation, Trust Deed and Mortgage Issues

Posted by Utah Commercial Law on April 13, 2012

http://utahcommerciallaw.com/2012/04/13/utah-short-sales-short-statute-of-limitations/

Utah’s Reciprocal Attorney’s Fee Statute (“What’s Good for the Goose is Good for the Gander”)

Two recent Utah Supreme Court opinions have interpreted Utah’s reciprocal attorney’s fee statute. This statute, found at Utah Code Section 78B-5-826 (referred to as the “Reciprocity Statute”), provides the following:

“A court may award . . . attorney fees to either party that prevails in a civil action based upon any . . . written contract . . . when the provisions of the . . . contract . . . allow at least one party to recover attorney fees.”

The Reciprocity Statute has been commonly understood to mean that if a contract gives one party the right to recover attorney’s fees from the other party to the contract in a dispute regarding the contract, that contract provision becomes reciprocal. As a result of the statute, each party then has the right to recover attorney’s fees from the other party. So, as a possible example, if a provision in a loan agreement gives the lender the right to recover the lender’s attorney’s fees in a lawsuit to collect the loan, and the borrower is successful in defending against that collection lawsuit, the borrower will likely have the right, by benefit of the Reciprocity Statute, to recover the borrower’s attorney’s fees from the lender.

The Utah Supreme Court tested the scope of the Reciprocity Statute in the recent cases of Hooban v. Unicity International, Inc., 2012 UT 19 (March 27, 2012), and Bushnell v. Barker, 2012 UT 20 (March 27, 2012).

In Hooban, the Supreme Court looked at an attorney’s fee provision in a distributorship contract. Unicity, a multi-level marketing company, which marketed nutritional supplements and personal care products, entered into a distributorship contract with H&H Network Services, a new distributor (“H&H”). The distributorship agreement prevented H&H from selling its rights under the contract without first giving Unicity the right to buy back the distributorship contract.

The distributorship contract had a provision stating that “[i]n the event of a dispute, the prevailing party shall be reimbursed attorney’s fees . . . by the other party.”

The owners of H&H eventually filed for bankruptcy relief, and Roger Hooban purchased the stock in H&H at an auction sale conducted by the bankruptcy trustee. After learning of the purchase by Hooban of the stock in H&H, Unicity claimed that it had the right to purchase the distributorship held by H&H through Unicity’s right of first refusal and that Hooban had no right to operate under the distributorship contract.

Hooban sued Unicity claiming that Hooban had the right to enforce the distributorship contract and to collect amounts that he claimed were owed him by Unicity. The trial court dismissed Hooban’s lawsuit after concluding that Hooban was not a party to the distributorship contract and could not sue to enforce the contract. After prevailing, Unicity sought to collect its attorney’s fees from Hooban under the attorney’s fee provision in the contract and under the Reciprocity Statute.

In defense to Unicity’s attorney’s fee claim, Hooban argued that the Reciprocity Statute was only applicable if the attorney’s fee provision in the contract was “unilateral” (i.e., for the benefit of only one party) and that the statute did not apply in this instance in which the attorney’s fee provision was “bilateral” (i.e., benefitting both parties). The Supreme Court concluded that the terms of the Reciprocity Statute have no such limitation.

Hooban then argued that because the trial court determined that he was not a party to the distributorship contract, the attorney’s fee provision in the contract and the Reciprocity Statute had no application to him. The Supreme Court rejected this argument by concluding that if Hooban had prevailed in his claim to enforce the distributorship contract, Hooban would have been deemed a party to the contract and would then be able to enforce the attorney’s fee provision in the contract. This “hypothetical” outcome therefore gave Unicity the right to enforce the attorney’s fee provision against Hooban under the Reciprocity Statute.

In the other opinion, the Bushnell case, the Supreme Court saw an instance in which a party could not benefit from the Reciprocity Statute. Bushnell hired an accounting company to do accounting work for Bushnell. The contract provided that the “nondefaulting party shall be entitled to all costs and attorney’s fees incurred in enforcing this Agreement.” After a time, Bushnell terminated the contract with the accounting company. The accounting company sued Bushnell to collect unpaid fees for accounting work. In response, Bushnell filed a counterclaim against the accounting company for breach of contract and negligence and filed a separate claim against the owner of the accounting company, individually, claiming that he was an “alter ego” of his accounting company and responsible for the accounting company’s debts.

The trial court dismissed the claim brought by Bushnell against the owner on the alter ego theory. With that dismissal, the owner claimed that he was entitled to recover his attorney’s fees from Bushnell under the attorney’s fees provision in the contract. The Supreme Court held that the owner of the accounting company was not entitled to recover attorney’s fees because the claim against him, individually, was not based on any liability under the contract that was separate from the accounting company’s liability but on a legal theory that would have made the owner responsible for his company’s contractual debts.

The take-away point: Utah’s Reciprocity Statute regarding attorney’s fees is intended to achieve a public policy of fairness, but creates an added risk for any party who files a lawsuit to collect or enforce what that party believes is a contractual right in an instance in which the contract at issue has an attorney’s fee provision in favor of any party.

Kevin Glade

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by Utah Commercial Law on April 11, 2012 • Permalink

Posted in Contract Law, Statutes, Utah Case Law

Posted by Utah Commercial Law on April 11, 2012

http://utahcommerciallaw.com/2012/04/11/utahs-reciprocal-attorneys-fee-statute-whats-good-for-the-goose-is-good-for-the-gander/

A Copy of the Promissory Note? No Problem

A recent opinion from the Utah Court of Appeals affirmed the well-accepted rule that a lender need not produce an original promissory note in support of its claim that it is a holder of the note and entitled to enforce the note. In the case of Howard v. PNC Mortgage, 269 P.3d 995 (Utah App. 2012), the lender presented a copy of a promissory note in support of its claim that it was a holder of, and entitled to enforce, the note. The court of appeals stated that where there is no evidence that the photocopy of the note is not an exact reproduction of the original, the lender need not present the original note. In addition to supporting case law from other states, the court of appeals referred to a Utah rule of evidence that as a general matter permits the admission of photocopies as evidence.

In addition, the Howard opinion is a part of the growing group of Utah state and federal cases in which courts have held that the enforceability of a residential mortgage loan is not affected adversely by the securization of the loan after closing.

Kevin Glade

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by Utah Commercial Law on April 10, 2012 • Permalink

Posted in Trust Deed and Mortgage Issues, Uniform Commercial Code, Utah Case Law

Posted by Utah Commercial Law on April 10, 2012

http://utahcommerciallaw.com/2012/04/10/a-copy-of-the-promissory-note-no-problem/

Contract Interpretation Under Utah Law

A recent opinion from the Utah Court of Appeals in the case of McNeil Engineering and Land Surveying, LLC v. Bennett sets forth the basic rules for contract interpretation under Utah law. The opinion can be found at 2011 UT App 423. Those contract interpretation rules are:

1. A court looks to the language of the contract to determine its meaning and the intent of the contracting parties.

2. Each contract provision is considered in relation to all of the others with a view toward giving effect to all of the provisions and ignoring none.

3. If the language within the four corners of the contract is unambiguous, the parties’ intentions are determined from the plain meaning of the contractual language. A contract term is considered ambiguous if it is capable of more than one reasonable interpretation because of uncertain meanings of terms, missing terms, or other facial deficiencies.

4. In determining whether a contract is ambiguous, the court looks at any credible evidence but should not conclude that the contract is ambiguous unless both interpretations are reasonably supported by the language of the contract.

In the McNeil case, there was a dispute about the meaning of the word “employment” as used in a limited liability company operating agreement. Under the operating agreement, the meaning of that word determined whether the limited liability company had the right to buy out a member. One party argued a narrow definition of “employment.” The other argued a broader definition. The Court of Appeals concluded that the term as used in the operating agreement was “susceptible to each of the meanings advanced by the parties, and both of those meanings can be plausibly supported by the language of the [operating agreement].” The case was returned to the trial court for a complete factual analysis as to what the term “employment” meant and how the operating agreement should be applied once that determination was made.

Kevin Glade

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by Utah Commercial Law on March 17, 2012 • Permalink

Posted in Contract Law, Utah Case Law

Posted by Utah Commercial Law on March 17, 2012

http://utahcommerciallaw.com/2012/03/17/contract-interpretation-under-utah-law/

New Requirements for Proofs of Claim in Bankruptcy

Generally speaking, and with limited exceptions, a creditor wishing to receive a distribution in a bankruptcy case must timely file a proof of claim in that case. A proof of claim is a written statement that sets forth and documents the basis for and the amount of a creditor’s claim. A creditor’s proof of claim must conform substantially to Official Form B10 of the Federal Rules of Bankruptcy Procedure.

Recently, the Judicial Conference recommended changes to the Federal Rules of Bankruptcy Procedure pertaining to proofs of claims. The changes are designed, in part, to try and prevent creditors from filing undocumented, poorly documented, or inaccurate proofs of claim by requiring creditors to provide additional information with their proofs of claim. The proposed changes have been approved by the United States Supreme Court and became effective December 1, 2011.

Among those amendments, Federal Rule of Bankruptcy Procedure 3001, which has always required that a creditor produce a writing to support its claim, now requires that a claimant provide additional information regarding the make-up of its claim. FRBP 3001(c)(2)(A), for example, requires that, for cases involving individual debtors, an itemized statement showing applicable interest, fees, expenses, and/or other charges must be included with the proof of claim. FRBP 3001(c)(2)(B), in turn, requires an itemized statement detailing the amount needed to cure any arrearages or defaults that existed as of the petition date if the claimant’s claim is secured by a security interest in the debtor’s property. These changes, as well as others, are incorporated into the new Official Form B10.

In addition to proposing amendments to certain Federal Rules of Bankruptcy Procedure, the Judicial Conference also recommended the creation of new rules pertaining to proofs of claim. Newly adopted Federal Rule of Bankruptcy Procedure 3002.1 provides additional requirements for any claim filed in a Chapter 13 case where the claim is secured by the debtor’s primary residence. For example, FRBP 3002.1(b) requires that a claimant file and serve on the debtor, the debtor’s counsel, and the trustee a notice of any change to the debtor’s loan payment within 21 days of when the new payment is to be due. FRBP 3002.1(c) and (d) further require a claimant to file and serve on the debtor, the debtor’s counsel, and the trustee, a notice that itemizes the fees, expenses, and other charges that the claimant alleges were incurred on the claim after the petition date, and which the claimant alleges are recoverable against the debtor’s principal residence, within 180 days after the expenses are incurred.

Perhaps the most significant changes to the proof of claim rules, however, are the potential sanctions that may be imposed on a claimant under both FRBP 3001 and FRBP 3002.1 for noncompliance with these rules. Under FRBP 3001(c)(2)(D) and FRP 3002.1(i), the Court, after notice and a hearing, may impose one or both of the following as sanctions: (i) “preclude the holder from presenting the omitted information, in any form, as evidence in a contested matter or adversary proceeding in the case, unless the court determines that the failure was substantial justified or is harmless;” or (ii) award the debtor any other relief including reasonable expenses and attorneys’ fees caused by the failure.

David Leigh

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by Utah Commercial Law on February 29, 2012 • Permalink

Posted in Bankruptcy

Posted by Utah Commercial Law on February 29, 2012

http://utahcommerciallaw.com/2012/02/29/new-requirements-for-proofs-of-claim-in-bankruptcy/

Tenth Circuit Court of Appeals Upholds MERS and Securitized Mortgages

In a landmark decision, the Tenth Circuit Court of Appeals recently upheld a lender’s ability to foreclose residential mortgages in Utah that were securitized and then tracked by Mortgage Electronic Registration Systems (“MERS”). MERS is a private electronic database that tracks the transfer of the beneficial interest in the trust deed. In many trust deeds, MERS is designated as the beneficiary as nominee for the original lender and its successors.

Ray Quinney & Nebeker represented MERS and one of the lenders that prevailed in this appeal, which is believed to be the first such decision from the Tenth Circuit. The Tenth Circuit’s opinion turned on the central issue of whether securitization somehow deprives MERS of its authority to act on behalf of new owners of the note. The Tenth Circuit held that under the plain language in the trust deeds, MERS had the right to initiate foreclosures on behalf of the original lender and the original lender’s successors. The opinion can be found at Commonwealth Property Advocates, LLC v. Mortgage Electronic Registration Systems, Inc. The Tenth Circuit, moreover, agreed with the recent decision from the Utah Court of Appeals that a trust deed in favor of MERS does not prevent the foreclosure of that trust deed. Commonwealth Property Advocates v. Mortgage Electronic Registration Systems, Inc., 263 P.3d 397 (Utah Ct. App. 2011).

The opinions of the Tenth Circuit and the Utah Court of Appeals are critical victories for mortgage lenders in Utah and could influence courts in other jurisdictions nationwide. For nearly two years, Utah state and federal courts have considered numerous copycat lawsuits seeking to delay the foreclosure process. These recent appellate decisions may discourage defaulting borrowers from using the courts to delay foreclosures in the future.

Michael D. Mayfield

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by Utah Commercial Law on February 8, 2012 • Permalink

Posted in News Items, Real Property Law, Trust Deed and Mortgage Issues, Uncategorized, Utah Case Law

Posted by Utah Commercial Law on February 8, 2012

http://utahcommerciallaw.com/2012/02/08/tenth-circuit-court-of-appeals-upholds-mers-and-securitized-mortgages/

Utah Equitable Liens, After-Acquired Title, and Related Issues

A recent opinion from the Utah Court of Appeals in the case of Federal Deposit Insurance Corporation v. Taylor addressed interesting and unusual Utah trust deed priority issues. The opinion can be found at 2011 UT App 416 (December 8, 2011). The facts of the case can be summarized in broad terms as follows:

June 1, 2006: McDonald, in his individual capacity, signed in favor of Taylor a trust deed, but the property described in the trust deed was owned by Corporation. McDonald was the president of Corporation.

June 2, 2006: McDonald, in his individual capacity, signed in favor of Bank a trust deed (again, title to the real property described in the trust deed was held by Corporation). Bank’s trust deed was recorded that day.

June 5, 2006: Taylor’s trust deed was recorded.

September 6, 2006: Taylor realized the problem with his original trust deed and had a new trust deed signed by Corporation and had that new trust deed recorded.

December 22, 2006: Bank realized the problem with its trust deed and had a special warranty deed from Corporation to McDonald signed and recorded.

The Utah Court of Appeals held as follows:

1. The Utah “after-acquired title” statute was applicable when the special warranty deed was delivered and recorded in December 2006, but the after-acquired title in favor of McDonald was subject to the September 2006 trust deed properly signed by Corporation and recorded in favor of Taylor.

2. Despite the common defect with the June 2006 trust deeds (i.e., they were not signed by the property owner), the recording of those two June 2006 trust deeds gave constructive notice of the contents of those documents and so the properly signed and recorded September 2006 trust deed in favor of Taylor was subject to the June 2006 trust deed in favor of Bank (with the court noting also evidence of actual knowledge).

3. The court rejected an argument by Bank that the doctrine of “reformation” can be used to create, by judicial order, a deed from Corporation to McDonald in the June 2006 transaction. Bank made the reformation argument to support its position that its first recorded trust deed in June 2006 had priority, but the court held that such relief was beyond the scope of the reformation doctrine, because, rather than simply correcting an error in an existing document (which is the traditional use of the reformation doctrine), it would operate to create an entirely new document.

4. The June 2006 trust deeds signed by McDonald, not by Corporation which held title to the property, created nonetheless “equitable liens” in favor of Taylor and Bank, respectively, and the priority between those two liens is not governed by the Utah recording statute but by a common law principle of “earliest in time” – meaning, the first to fund for the benefit of the property. That factual issue was sent back to the trial court for a decision.

If these somewhat unusual issues are of interest, the opinion is worth reading.

Kevin Glade

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by Utah Commercial Law on December 24, 2011 • Permalink

Posted in Contract Law, Real Property Law, Trust Deed and Mortgage Issues, Uncategorized

Posted by Utah Commercial Law on December 24, 2011

http://utahcommerciallaw.com/2011/12/24/utah-equitable-liens-after-acquired-title-and-related-issues/

Utah Boundary by Acquiescence: “Don’t Fence Me In”

Sometimes an old fence is nothing more than an old fence. At other times, an old fence can be used to establish property rights. In a recent opinion, the Utah Supreme Court wrote of a barbed wire fence and Utah’s “boundary by acquiescence” doctrine. The opinion can be found at Essential Botanical Farms, LC v. Kay, 2011 UT 71 (November 15, 2011).

The doctrine of “boundary by acquiescence” can be stated simply. If two adjoining property owners treat a certain monument (such as a fence or a ditch) as the boundary line between the two parcels of property and that “acquiescence” continues for a long period of time, the law will recognize that monument as the boundary line.

Beginning in the mid 1950s, the Andrews family and the Fowkes family owned adjoining parcels or property in rural Juab County,Utah. The two parcels were separated by a “weathered” barbed wire fence that the Utah Supreme Court described as existing “from time immemorial.” Each family farmed the land up to each side of the fence and never claimed ownership of the property on the other side of the fence.

Over 40 years later, the Andrews family sold its parcel to Essential Botanical Farms, LC (“EBF”), and the Fowkes family sold its parcel to Mr. Kay. Mr. Kay soon discovered that the boundary line as shown on the county records extended beyond the fence and onto the land occupied by EBF. After this discovery, he removed a portion of the old fence and constructed a new fence on the boundary line shown in the county records. As a result, six acres occupied by EBF were now on Mr. Kay’s side of the new fence.

EBF filed a lawsuit against Mr. Kay claiming that the “boundary of acquiescence” doctrine established the old fence line as the boundary line between the two parcels of property and that EBF had title to the six acres in question.

The Utah Supreme Court agreed with EBF. The court listed the elements of a boundary by acquiescence claim: (1) occupation up to a visible line marked by monuments, fences, or buildings, (2) with mutual acquiescence in the line as a boundary, (3) for a long period of time, (4) by adjoining landowners. The court then summarized the consistent evidence that the previous owners had for decades treated the old fence as the property line and that there was no evidence of any dispute as to whether the fence served that purpose. The evidence included testimony that when livestock would stray from one side of the fence to the other, the owner having to deal with the uninvited strays would say to his neighbor, “Your cows are on my property.”

Added note: The Utah Supreme Court also clarified that given the possibility that a boundary by acquiescence claim may have the effect of depriving a party of its property, the claim has to be established by “clear and convincing evidence.” The court concluded the EBF had met that burden.

Kevin Glade

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by Utah Commercial Law on November 30, 2011 • Permalink

Posted in Real Property Law, Utah Case Law

Posted by Utah Commercial Law on November 30, 2011

http://utahcommerciallaw.com/2011/11/30/utah-boundary-by-acquiescence-dont-fence-me-in/

FDIC Reports: Improvement for Financial Institutions in Utah

The Federal Deposit Insurance Corporation (the FDIC) issued this week its Quarterly Bank Profile for the third quarter ending September 30, 2011. The report indicated financial improvement for FDIC insured institutions in Utah as of the end of the third quarter of 2011 when compared with the third quarter of 2010.

Basic yardstick measurements showing improvement for FDIC insured institutions in Utah include the following:

1. Return on assets (year to date): 2.29% for the third quarter of 2011 as compared with 1.49% for the third quarter of 2010.

2. Return on equity (year to date): 15.18% for the third quarter of 2011 as compared with 10.40% for the third quarter of 2010.

3. The ratio of non-current loans and leases to total loans and leases: 1.68% for the third quarter of 2011 as compared with 2.60% for the third quarter of 2010.

4. The ratio of nonperforming assets to total assets: 1.18 % for the third quarter of 2011 as compared with 1.72% for the third quarter of 2010.

5. Core capital (leverage) ratio: 14.86% for the third quarter of 2011 as compared with 14.44% for the third quarter of 2010.

The FDIC press release that accompanied the report included the following statement from FDIC Acting Chairman Martin J. Gruenberg regarding the national picture for banks: “U.S. banks have come a long way from the depths of the financial crisis. Bank balance sheets are stronger in a number of ways, and the industry is generally profitable, but the recovery is by no means complete.”

Kevin Glade

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by Utah Commercial Law on November 23, 2011 • Permalink

Posted in News Items

Posted by Utah Commercial Law on November 23, 2011

http://utahcommerciallaw.com/2011/11/23/fdic-reports-improvement-for-financial-institutions-in-utah/

Money Back Guaranteed

A guaranty is a separate agreement by which the guarantor agrees to pay the obligation of a borrower to a lender or other creditor. Utah courts have consistently enforced guaranties.

In the recent Utah Supreme Court case of Park v. Stanford, 258 P.3d 566 (Utah 2011), the guarantor had signed a guaranty in favor of a lender limiting the guarantor’s liability to $500,000, excluding interest and costs. Although not clearly stated in the opinion, I assume that the loan amount owed by the borrower to the lender was greater than $500,000. The issue was whether certain payments made to the lender had the effect of reducing the guarantor’s obligations under the guaranty.

The Utah Supreme Court wrote that this was a new issue under Utah guaranty law: “We have never squarely addressed under what circumstances a guarantor is entitled to credit payments towards a personal guaranty.” After looking at case law from other jurisdictions, the court stated, “After review of these materials, we hold that payments must be applied towards a personal guaranty if the [lender] has a reasonable basis to know the payments were submitted in satisfaction of the guaranty.”

The court clarified that “[n]othing in this opinion prevents a party from contracting for more certainty than the reasonable basis test provides.”

Take away point: To give certainty in a circumstance where a guaranty is limited to a particular dollar amount, it would be helpful to include a statement in the guaranty to the effect that sums paid will reduce the guarantor’s liability only if there is a written statement signed by the lender and expressly acknowledging the reduction in liability.

Kevin Glade

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by Utah Commercial Law on November 22, 2011 • Permalink

Posted in Guaranties, Loan Documentation, Utah Case Law

Posted by Utah Commercial Law on November 22, 2011

http://utahcommerciallaw.com/2011/11/22/money-back-guaranteed/