utah.bank 36 It should be noted that at roughly the same time the homeowners filed their lawsuit, the Utah legislature was working on a series of changes to Utah’s nonjudicial foreclosure law, including to Utah Code Ann. § 57-1-34, that establishes the actions a lender collecting a debt secured by real property must take before the statute of limitation expires. That change in the law became effective on May 10, 2016, the month after the borrowers filed their lawsuit and about three months after the statute of limitation had already expired under the old law. Prior to May 2016, Utah law required a lender to either: 1) complete a nonjudicial “trustee’s sale of property under a trust deed” or 2) file “an action to foreclose a trust deed.” But after May 10, 2016, a lender need only file a lawsuit commencing a judicial foreclosure or “file for record a notice of default.” In other words, before May 10, 2016, a nonjudicial trustee’s sale had to be completed during the limitations period. Under the new statute, a lender need only record a notice of default in the county recorder’s office prior to the running of the limitations period. That change in law, had it been in effect sooner, may have saved the bank’s lien in the Daniels case. The bank had, in fact, recorded a notice of default before the limitations period expired, but it had not completed its trustee’s sale. Thus, the bank had complied with the new law (that had not then been enacted) but not the old law, which was in place when the statute of limitation lapsed. Although the bank was not able to take advantage of the new law, it still had other arguments to present. For example, what about all those post-bankruptcy letters the bank received from the borrowers asking the bank to modify their loan? The bank argued that those communications must certainly constitute a written acknowledgment or promise to pay the debt, which should have restarted the limitations period. The Court of Appeals agreed that a written acknowledgment of a debt restarts a statute of limitations. However, the court explained, the borrower’s acknowledgment of debt must be “clear, distinct, direct, unqualified, and intentional” and “must be more than a hint, a reference, or a discussion of an old debt; it must amount to a clear recognition of the claim and liability as presently existing.” The Court of Appeals ruled that the communications between the homeowners and the bank did not meet this standard, in large part because the homeowners reiterated during those conversations that their personal liability had been discharged in bankruptcy. The Court of Appeals determined that these “communications were a ‘reference’ to ‘or a discussion of an old debt’ not a clear recognition of . . . [a] liability as presently existing.” Therefore, the limitations period was not tolled by those letters. In short, the Court of Appeals affirmed the remedy granted by the trial court of quieting title in favor of the homeowners, free of the bank’s lien, because “the Trust Deed was no longer enforceable as security . . . after the limitations period expired.” And as mentioned earlier, the court also affirmed the trial court’s award of attorney’s fees to the borrowers. The main takeaway of the Daniels decision is probably just a reminder that there is a clock ticking that limits the time a lender has to work out a problem loan. For purposes of restarting that clock, “money talks.” Promises and ambiguous requests for loan modifications, very well, may not. So, even though it may be beneficial for a lender to attempt to work out a problem loan without resorting to judicial or nonjudicial foreclosure, the prudent course is to calculate the statute of limitations based on the date the last payment was made, and not by a debtor’s acknowledgment or promise to pay the debt. Better yet, lenders may decide to simply record their notice of default early in the workout process, even if negotiations with the borrower are ongoing. Ray Quinney & Nebeker P.C.’s banking and creditors’ rights lawyers Stephen C. Tingey, Michael D. Mayfield, and Richard H. Madsen II contributed to this article. The main takeaway of the Daniels decision is probably just a reminder that there is a clock ticking that limits the time a lender has to work out a problem loan. For purposes of restarting that clock, “money talks.” Promises and ambiguous requests for loan modifications, very well, may not.
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