New Rights in Foreclosure: Oregon Law

The Oregon legislature passed a series of bills in 2009 designed to help the homeowner and tenant in foreclosure situations and to protect against questionable practices in the mortgage industry.  There are also a few bills about foreclosure pending in the 2010 special session.  If you think your situation may involve one of these issues, you should consider consulting a lawyer.

Part I:  Protections for the Owner

Modification Requests

If your home (or rental property) is funded by a trust deed and goes into foreclosure, you now have 30 days from the first notice to request a modification of the loan.  If you do make a request, the lender has 45 days to respond and the house cannot be sold until after the lender accepts or denies the request.  You are also entitled to request a meeting, either in person or by telephone (apparently the lender’s choice), with someone who can make decisions on your loan on the spot.  Be aware that if you request a meeting, you have only seven days after the lender contacts you to get back to them to schedule it.

If, however, the lender decides in advance that there is no way you will qualify for a modification, it can tell you that and go ahead with the foreclosure without meeting you or waiting for a modification request.

The lender is required to record an affidavit of compliance with this process on or before sale.  A bill pending in the 2010 special session would require the affidavit to be filed five days before sale.

Second Mortgages to the Foreclosing Lender

In recent years, it was common for lenders to structure loans in two mortgages, one for 80 percent of the price and one for 20 percent.  To protect owners, when a foreclosing lender holds two mortgages, the foreclosure now terminates the second mortgage as well.  In the 2010 special session, a bill is pending to prohibit the lender from suing on the second mortgage first, closing a potential loophole.

Expansion of Consumer Protection Laws

The primary Oregon consumer protection law generally does not apply to loans and credit and insurance.  A bill pending in the 2010 special session would close this loophole.

Anti-Deficiency Rule Expansion

It has long been the law in Oregon that when a lender forecloses a trust deed on residential property without going to court, the borrower doesn’t have to make up the difference if it sells short.  A bill in the 2010 special session would extend this protection to trust deeds on all property.  In return, the lender won’t have to prove that the borrowers and other people with interests in the property actually received notice of the sale, merely that it was sent according to the rules.

Part II:  Protections for Tenants

Tenants have always been the big losers in foreclosures.  Because a tenant’s rights are based on the owner’s rights, when the owner is foreclosed, the lease is typically cancelled, and the tenant is out of luck and out of a home.  This has been modified somewhat in trust deed foreclosures.  As a result, tenants get more time to look for a new home.

A federal law passed after the 2009 session, effective through 2012, has extended the protections passed in state law.

Under the federal law, tenants are allowed 90 days’ notice before a buyer can evict them, unless a fixed term lease expires first.

After 2012, state law would continue to apply:

Tenants are entitled to notice of foreclosures, which will allow them to protect themselves.  A tenant who either receives a notice or learns that the landlord is in foreclosure may direct the landlord (in writing) to apply security deposits and prepaid rent to whatever they owe the landlord, which allows the tenant to save up for a new security deposit.

If the lease is for a fixed term, and the tenant sends the trustee a copy of the lease at least 30 days before the schedule sale, the lender now has to give 60 days’ notice of intent to cancel the lease.  Even if the lender doesn’t give notice, a successful bidder who wants to live in the house may cancel the lease on 30 days’ notice, so the tenant still has to find out who buys the house.

If the lease is a month-to-month or week-to-week, and the tenant sends a copy of the lease to the trustee, the tenant is then entitled to 30 days’ notice of cancellation.

If the tenant doesn’t send a copy of the lease to the trustee, the tenant is still entitled to 30 days’ notice, but this may be sent up to 30 days before the sale.

Be aware that a notice of cancellation should be sent by regular mail.  The legislature wants it received promptly.  The 30 and 60 day counts start three days after mailing.  If it’s sent by other means, such as certified or registered mail, it doesn’t count.

These rights only apply to leases created in good faith.  Anything signed after the notice of foreclosure is not considered in good faith, for obvious reasons.

On the other hand, the Landlord-Tenant Act generally does not apply to buyers, unless they accept rent, agree to a new lease, or fail to start evicting the tenant within 30 days after notice expires.

A bill pending in the 2010 special session would modify the notice required to be given to tenants on a foreclosure to describe the tenants’ rights under both federal and state law in detail.

Part III:  Additional Consumer Protections to Prevent Unmanageable Loans

Less-Than-Interest Mortgages

The practice of arranging loans that require less than the interest be paid on a monthly basis has been tightly regulated.  Before offering such a loan, the lender must verify the borrower’s ability to pay.

Prepayment penalties may not be applied after the first 24 months on these loans, or on existing loans that are refinanced.

This law does not apply to 18 month bridge loans, loans of $50,000 or less if there is equity of at least the total debt load on the property, reverse mortgages, and home equity lines of credit.

Non-English speakers get special protections.  If a lender tries to get customers or negotiates with customers in languages other than English, the settlement disclosure and Truth in Lending disclosures must be bilingual.

Debt Management Services

Debt management services, generally, are the “we can help you settle your debt” businesses, with a series of exceptions.  The law regulating them has been revised to expand its scope from simply debt consolidators to the entire range of services.  This is similar to reforms passed in 2008 to regulate several other issues, such as “we can save you from foreclosure” businesses.

Debt management services are required to register with the state and post a bond to cover claims by clients.  The registry is not yet online, but the old registry for debt consolidators can be found at http://www4.cbs.state.or.us/ex/all/mylicsearch/index.cfm?fuseaction=main.show_main&group_id=20&profession_id=22&profession_sub_id=22001, and the new registry is likely to show up at a similar location.

Debt management services are required to give written contracts showing:

  • Their contact information;
  • Your total list of debts to be handled;
  • The amount you can reasonably expect to pay on these debts;
  • The services to be performed and itemized fees;
  • The approximate installments to be paid and percentage that will be applied to debts;
  • The expected duration of the contract;
  • A statement of your rights to examine your account in their office or ask for a written statement, and to receive a quarterly statement without asking;
  • A warning that the contract can be cancelled if you fail to make payments over a 60 day period; and
  • An authorization for the service to negotiate with your creditors.

At the time of the contract, the service also should give you a projected budget.

You may cancel within the first three days (effective immediately) and get back all fees paid or cancel later (effective on 10 days’ notice) and get back all funds not yet used.

Among the things a service may not do is:

  • Advise you to make a false statement;
  • Represent it can provide services it isn’t licensed for;
  • Charge to refer you to a lender, unless you’re getting a better than usual deal;
  • Perform services without a budget analysis;
  • Set up a plan it doesn’t think you can manage;
  • Leave blanks in its contracts to fill in later;
  • Take any security, wage assignments, confessions of judgment or powers of attorney to confess judgment for its fees;
  • Take releases of its duties to you;
  • Charge “at the end” fees or take a reserve for liquidated damages;
  • Commingle money it handles on your behalf with anyone else’s, including its own;
  • Cancel for any reason other than failure to make payments over a 60 day period, unless you agree.

Any money you give the service has to be handled through a trust account similar to a lawyer’s, and fees are regulated.  You can expect an initial fee of $50, a counseling fee of $50, monthly fees up to $130, and a final fee of 7½ percent of the total savings on your debt.  These fees may not be charged until you receive a statement of your rights.  One significant item this statement should include is a warning that the reduction of debt may be treated as income by the IRS; if you have a question, consult a tax lawyer or preparer.

Violations by a service are treated as consumer protection violations and you are entitled to sue.

Part IV.            Protection for the Neighborhood

Maintenance of Vacant Properties After Foreclosure

One of the unfortunate effects of the foreclosure crisis has been the appearance in some cities of large areas of vacant homes, generally left to themselves by the lenders and other buyers who take them over.  A bill pending in the 2010 special session would prohibit foreclosure buyers from neglecting the new property while it remains vacant, and give the city or county the power to order the buyer to clean up neglected properties or face civil penalties of up to $1,000 a day.

As currently written, the anti-neglect bill would expire after 2013.

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9 Responses to New Rights in Foreclosure: Oregon Law

  1. Based on recent news reports, the 2010 legislature has been holding hearings at which further reforms, including a requirement that denials of renegotiations be explained, may be added.

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  7. Brandon says:

    I have a second mortgage showing a balance as a charge off from a foreclosure on the 1st mortgage back in Nov 2009. This is still showing on my credit, how can I can get this resolved? It seems this change in law and those in HB3004 protect the consumer from liability on the second, if they were issued by the same company (which is my case). Chase is holding on to this and I am concerned this will be on my record for ever…

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