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, Utah Commercial, a Ray Quinney and Nebeker publication