When must Utah courts defer to federal agency interpretations in foreclosure cases? Bank of America v. Sundquist Explained

The Utah Supreme Court’s decision in Bank of America v. Sundquist demonstrates the complex interplay between federal banking law and state foreclosure procedures, ultimately requiring deference to federal agency interpretations of ambiguous statutory language.

Background and Facts

Loraine Sundquist fell behind on mortgage payments for her Utah home. ReconTrust Company, N.A., a national bank located in Texas, served as trustee and conducted a foreclosure sale. Sundquist challenged the sale’s validity, arguing that Utah law prohibits banks from acting as trustees on trust deeds. Under Utah Code sections 57-1-21 and 57-1-23, only specific entities—such as active attorneys and title insurance companies—may serve as trustees, excluding banks like ReconTrust.

Key Legal Issues

The central question involved interpreting the term “located” in the National Bank Act, 12 U.S.C. § 92a(a), which permits national banks to act as trustees “under the laws of the State in which the national bank is located.” The Court had previously ruled in Sundquist I that this term was unambiguous and that Utah law applied. However, with more focused briefing, the Court reconsidered whether the statute was truly clear.

Court’s Analysis and Holding

The Court applied the Chevron analysis framework, finding that the term “located” was ambiguous and could reasonably support multiple interpretations. The Comptroller of the Currency’s regulation, 12 C.F.R. § 9.7(d), defines where a bank “acts in a fiduciary capacity” based on where it “accepts the fiduciary appointment, executes the documents that create the fiduciary relationship, and makes discretionary decisions regarding the investment or distribution of fiduciary assets.” The Court determined this interpretation was reasonable and entitled to deference, even though it potentially displaced traditional state law governing foreclosures.

Practice Implications

This decision significantly impacts Utah foreclosure practice by confirming that federal banking law can override state trustee requirements when national banks are involved. Practitioners challenging foreclosure sales must carefully analyze the factual record to determine where the bank performed the key fiduciary activities identified in the Comptroller’s regulation. The Court’s reversal of its prior precedent also demonstrates the importance of thorough briefing on complex federal preemption issues.