Utah foreclosures are either "judicial" or "nonjudicial." A judicial foreclosure is processed through the court system. A nonjudicial foreclosure, however, is an out-of-court process.
Utah allows deficiency judgments after either type of foreclosure.
What Is a Deficiency Judgment?
If a property sells at a foreclosure sale for less than the full outstanding mortgage debt, the difference is commonly called a "deficiency balance." Some states allow a foreclosing bank to get a deficiency judgment (a personal judgment) against the borrower for the amount of the deficiency balance.
Once a bank gets a deficiency judgment, it is entitled to use common collections methods to collect the deficiency from the borrower by, for example, garnishing wages or levying a bank account.
Are Deficiency Judgments After a Home Foreclosure Allowed in All the States?
Some states have anti-deficiency laws prohibiting deficiency judgments after foreclosure in certain circumstances.
Are Deficiency Judgments Allowed in Utah?
Yes. Utah doesn't have an anti-deficiency law, so deficiency judgments are allowed.
What Happens After a Foreclosure in Utah?
Again, foreclosures in Utah may be judicial or nonjudicial.
How Judicial Foreclosures Work in Utah
With a judicial foreclosure, the bank files a lawsuit against you in court.
How Nonjudicial Foreclosures Work in Utah
In Utah, most foreclosures are nonjudicial. Here's a brief description of how the process works.
After the foreclosing bank sends a preforeclosure notice to the borrowers, the trustee records a notice of default in the land records, which officially starts the foreclosure. The bank is usually required to send a copy to the borrower.
If the borrower doesn't get current on the loan (reinstate) or work out another way to avoid a foreclosure, like with a loan modification, three months later, the trustee records a notice of sale and mails it to the borrower at least 20 days before the foreclosure sale. Utah law also requires the trustee to publish the notice of sale in a newspaper and post it on the property.
For more details on Utah foreclosure procedures, see Guide to the Utah Foreclosure Process.
Foreclosure Sale
Both the judicial and nonjudicial foreclosure process ends with a foreclosure sale, which could result in a deficiency. You might have to pay a deficiency judgment after either type of foreclosure in Utah.
How to Calculate the Amount of a Foreclosure Deficiency in Utah
Suppose Tasha owes the bank $350,000 on her mortgage, but her home sells to a new owner at a foreclosure sale for $325,000. The deficiency is $25,000.
Do Foreclosures Always Result in a Deficiency?
If the sale price equals or exceeds the mortgage debt amount, there's no deficiency. In fact, if the sale results in surplus funds (more than what's needed to pay off any other liens, like a second mortgage or HELOC), you might be entitled to that extra money following the foreclosure sale.
How Utah Deficiency Judgments Work
In Utah, the bank may get a deficiency judgment against a foreclosed borrower.
Deficiency Judgments After Utah Nonjudicial Foreclosures
The bank may obtain a deficiency judgment following a nonjudicial foreclosure if it files a lawsuit within three months of the foreclosure sale. The amount of the deficiency judgment will be limited to the lesser of:
- the total debt minus the fair market value of the property, or
- the total debt minus the foreclosure sale price (Utah Code § 57-1-32).
Deficiency Judgments in Utah Judicial Foreclosures
In a judicial foreclosure, the deficiency judgment may be entered as part of that action. (Utah Code § 78B-6-902).
How Can I Avoid a Deficiency Judgment in Utah?
A few ways to potentially avoid a deficiency judgment are:
- Negotiating a settlement of a deficiency. If you lost your home to a foreclosure sale, which resulted in a deficiency, you might be able to work out a settlement with the bank to accept less than the full deficiency amount and forgive the rest. Generally, however, the IRS considers forgiven debt as taxable income, subject to some exceptions.
- Completing a short sale or deed in lieu of foreclosure (before the sale) in which the bank waives the deficiency. If you owe more than your home is worth, the bank might be willing to let you complete a short sale or deed in lieu of foreclosure. But it’s fairly common for banks to insist borrowers pay all or some of the deficiency after one of these transactions or for the bank to reserve the right to go after you for a deficiency judgment. If you're doing a short sale or deed in lieu for the sole purpose of avoiding a deficiency judgment, make sure that the bank agrees in writing to give up its right to the deficiency. Again, there could be tax consequences if the bank forgives the deficiency.
- Filing for bankruptcy. You might be able to eliminate or reduce your liability for a deficiency if you file for bankruptcy.
Consider Talking With an Attorney
If you’re facing a foreclosure in Utah and want to learn about potential defenses you may have to the foreclosure, if any, or about various ways to avoid a foreclosure, consider talking to a local foreclosure attorney. If you can’t afford to hire a lawyer, consider talking to a HUD-approved housing counselor.