Oregon has long been a state that uses Trust Deeds for real estate transactions. With the ease and low cost of foreclosure for banks, it was the instrument of choice for many years here in Oregon…well as long as you follow the state laws. You’ve heard the terms, judicial foreclosure, non-judicial foreclosure, deficiency state, non-deficiency state. Like all things to do with law, nothing is black and white. There are some huge changes with serious implications headed the way of homeowners facing foreclosure.
I chatted about the MERS problem Oregon was having and the backlog of foreclosures this was going to cause. Not a good thing for anyone, in my opinion. In the Oregonian a couple of weeks ago, Brent Hunsberger wrote an article about the shift that banks were making, taking foreclosures to the courtroom. Left with little choice , due to legal issues, the lenders that can actually produce the original note are headed to chat with a judge about getting the property in a judicial foreclosure. I was curious to see if we would have any of these converted foreclosures head our way in Salem. Sure enough, I looked through the notices this week and there it was…a nice list of attorney names, including the firm mentioned in the Oregonian article, Kelly Sutherland. Salem homeowners that have been in limbo due to the MERS debacle are going to find their way into a courtroom and standing in front of a judge.
What this means is that the building shadow inventory will once again start working its way down the foreclosure pipeline as banks start to push their way through the system. There are so many implications with judicial foreclosures. A HUGE one for homeowners facing foreclosure is ORS 86.705(3). This statute can convert a residential trust deed to a non-residential one which allows for a deficiency judgment. This could be financially disastrous for many people out there who are facing foreclosure and end up in a judicial proceeding. I am personally appalled that banks could break Oregon laws by failing to record note transfers properly, then have an “out” for a judicial proceeding which may open up some families to deficiency judgments that they would have been protected from before. That just isn’t right.
If all banks decide to follow Wells Fargo’s plan for MERS held loans and go the judicial route, homeowners facing foreclosure MUST talk to an attorney before they move out of their home. It is imperative because the game just changed.
Tags: foreclosures, salem oregon
I had been looking for the same thing over here in Central Oregon this last couple weeks have been a whirlwind so I had not seen anything – but your words are wise, right on track and as always right!
Thesa I really hope that banks just go for the foreclosure and don’t start going after deficiencies. I’d like to think they wouldn’t but I have little respect for the banks these days.
[...] which means that we currently have 9.24 months of inventory in Salem. This steady drop is due to the lack of MERS foreclosures hitting our markets. 21% of MLS listings sold in August were distressed properties, and [...]
Hi — I have just been served papers for a judicial foreclosure with Wells Fargo, and found your article very helpful. In your article you state that:
“A HUGE one for homeowners facing foreclosure is ORS 86.705(3). This statute can convert a residential trust deed to a non-residential one which allows for a deficiency judgment. ”
How can they convert a residential trust deed to a non-residential one? I don’t understand. Please further explain and thank you for your article!
Very Concerned..
Jamel Badrieh
Jamel it has to do with the definition of a residential property. If you move out and have a new primary residence, it can be construed that your home is no longer a residential property and as such it has different consequences than a debtor’s primary residence.
[...] we will drop maybe another 5%. We could take another 10% hit if the lenders can get their MERS problem dealt with and dump their inventory on the market. That would really hurt so here’s hoping [...]
There are now several thousand judicial foreclosures filed in Oregon. I have reviewed hundreds of the case files. It is possible by monitoring the cases on OJIN to see how long the process is taking and what the major landmarks are although there is not a cut and dried statutory timeline as there was with nonjudicial. about 90% of them are getting default judgments but a very very small percentage have gotten all the way down the pipeline to a Sheriff sale. A lot of abandoned ones are taking somehwat longer because it is more difficult for the bank to get the homeowner’s served with the foreclosure complaint. Almost none of the cases have attorneys appearing for the borrower but Oregon attorney’s are still gearing up to help borrowers in judicial foreclosure. There are plenty of foreclosures that will be completed in the next 6-12 months. They only ones that have made it to sale so far are a few Wells Fargo and others that started back in November 2011. Some filed between about November and may have been completed. Those filed after that are still in the pipeline. Of course there was a huge increase of judicials being filed after July 2012. I have a clerk working on actually getting some stats together to share. The bottom line is it doesn’t matter how many foreclosures get done but how quickly the banks put those out on the market. I would be interested in analysis about the banks incentives and realities that would encourage them to either trickle the reo out or bring it out much faster.
As for the potential of a deficiency in a judicial foreclosure there are two dangers 1. it is not a residential trust deed. 2. It is a residential trust deed but there are 2 loans that are not a true 80/20 (i.e. one has been refinanced since origination, second not taken out at same time or same lender as first, etc.)
The definition of residential trust deed (ORS 86.705) was recently changed though so now as long as you are in your house at the time of “the first default that leads to foreclosure” you are safe as long as you don’t leave the home before you actually default (highly unlikely). You don’t have to be in the home all the way till foreclosure is initiated to qualify as a residential trust deed as was the case before.
Last thing. Big banks’ are much less likely to be interested in a deficiency than a smaller credit union. In a judicial you have the ability to waive your right to a 180 day redemption as a bit of a bargaining chip. If a homeowner wants to do anything other than just let it go (and is confident no deficiency is allowed under ORS 86.770) then he/she should get a consultation with a foreclosure defense attorney to map out a strategy.
Yes Michael a lot has happened in this arena since I wrote this post over a year ago. I am seeing a lot of lis pendens being filed since the requirements changed in July 2012 for the banks. It is good to know that the ones filed last year have been completed. Since our courts weren’t really designed for the volume of this process, I was worried it would take a couple of years to get through all of the backlog.