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House committee advances Uniform Mortgage Modification Act to clarify lien priority in loan changes
Summary
The House Business, Labor and Commerce Committee gave HB 440 a favorable recommendation after sponsors and the Uniform Law Commission described the bill's safe-harbor changes intended to reduce legal uncertainty and the need for attorney opinion letters when lenders modify mortgages.
The Utah House Business, Labor and Commerce Standing Committee voted unanimously to give a favorable recommendation to HB 440, the Uniform Mortgage Modification Act, after sponsors and outside counsel described the bill as a way to reduce legal uncertainty when lenders and borrowers agree to mortgage modifications.
Representative Zach Tesher, sponsor of HB 440, told the committee that the Uniform Law Commission convened a multi-year, bipartisan drafting process to address varying state treatments of mortgage modifications. "These bills have been very well scrutinized, and HB 440 is no different," Tesher said.
The bill, drafted from the Uniform Law Commission model, lists specific "safe-harbor" modifications that will not change the priority of a recorded mortgage, even if the modification is not recorded. Jane Sternicki, legislative counsel for the Uniform Law Commission, said HB 440 "creates safe harbors for specific common modifications" and noted that the act "clearly provides that the mortgage continues to secure the obligation is modified" for modifications within those enumerated categories.
Sponsor and counsel described the safe-harbor list to include common changes such as an extension of the maturity date, decreases in interest rate, capitalization of unpaid interest, forbearance or other reductions of principal or accrued interest, modifications to escrow or insurance requirements, changes to payment schedule resulting from a listed modification, and similar adjustments. Sternicki emphasized that the act explicitly excludes actions such as collateral releases, loan transfers, or changes to the borrower or guarantor, which may affect priorities.
Representative Sawyer asked who ultimately decides whether a junior lienholder has been "materially prejudiced." Tesher and Sternicki replied that the Act is intended to identify categories of modifications that typically do not prejudice junior lienholders so lenders can make reasonable modifications without needing costly attorney opinion letters; they said determinations about prejudice would still depend on the facts of any particular instance and, if contested, could be made by a court.
The committee heard no public comment on the bill. Representative Tesher moved the committee recommendation; the committee voice-voted in favor and the chair declared the bill passed out of committee with a favorable recommendation.
The bill's sponsors and the Uniform Law Commission argued HB 440 is intended to encourage mortgage modifications that can prevent avoidable foreclosures by reducing the cost and legal friction lenders now face when modifying loans.
The committee forwarded HB 440 with a favorable recommendation; committee members said they will monitor whether the state-specific implementation preserves the uniformity intended by the Uniform Law Commission.
