Dealing with Foreclosure in Oregon, Part 8

Dealing with Foreclosure in Oregon
(c) 2009 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

#8. How do the debts of a spouse or ex-spouse affect me?
Many people do not understand how the law treats debts of a spouse. Usually, you are not liable for the debts of your spouse or partner, although some exceptions exist. There are also many questions about debts when a divorce or a separation has occurred or is pending. Often people involved in a divorce fail to get proper legal guidance and financial damage becomes permanent. There are also increasing numbers of persons cohabiting and sharing a residence as domestic partners. While a new law in Oregon governs registered same-sex domestic partnerships (basically giving them the same rights as a heterosexual married couple), the law concerning heterosexual domestic partners is based on a body of case law in Oregon that is complex and unknown even to most attorneys. According to the decisions in these cases, unless one partner successfully sues the other partner for a judicial determination of the assets and liabilities of the couple, only the person who signed the promissory note is liable for the debt on a home, even though both people in the relationship lived in the home.

Without the help of a knowledgeable attorney to understand the legal issues involved, you could be left holding property with no equity and all the debt, while your ex-spouse has all the assets. If you are heading toward foreclosure, and are divorced or in the process of getting a divorce, you need to get proper legal advice about you debts from a lawyer that is trained in bankruptcy, real estate finance, and debt matters.

This ends my series on the 8 important questions to know when you're facing foreclosure. Next, I will post regular updates on some of the legal issues I am seeing unfold in the Portland market in real cases (confidentiality protected of course). If you have a friend in danger of losing a home to foreclosure, direct them to watch my video explaining the 8 foreclosure questions in brief. If you live in Beaverton, Hillsboro, or Portland Oregon, give me a call with your questions or comments, or post a comment to this blog.

Dealing with Foreclosure in Oregon, Part 7

Dealing with Foreclosure in Oregon
(c) 2009 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

#7. Should I file for bankruptcy, and when?
Some attorneys are advertising bankruptcy as a way to “stop” foreclosure. There are two kinds of bankruptcy filings available to individuals for personal debts: Chapter 7 and Chapter 13, and they both produce very different outcomes. A Chapter 7 bankruptcy will delay–but not prevent a foreclosure sale. The delay may be only 3-6 months. A Chapter 13 bankruptcy allows the debtor to follow a plan to pay his creditors over a 3- to 5-year period. Because a bankruptcy filing will stain your credit report for up to 10 years, it is often better to avoid filing for bankruptcy, depending on your total asset and debt situation. I can help you understand the different bankruptcy options, and whether bankruptcy is right for you.

Next up is part 8: How do the debts of a spouse or ex-spouse affect me?
For all 8 questions stay tuned for updates to this blog or go to my legal website. You can also watch my video explaining the 8 foreclosure questions in brief. If you live in Beaverton, Hillsboro, or Portland Oregon, give me a call with your questions or comments, or post a comment to this blog.

Dealing with Foreclosure in Oregon, Part 6

Dealing with Foreclosure in Oregon
(c) 2009 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

#6. Will I owe tax on my debts after foreclosure?
The federal tax code provides that any time you are released from a debt, you must declare that debt as income on your personal tax return for that year. This is logical when you consider that when you received the money as a loan, you did not report it as income. However a new tax law provides two exceptions to the general rule for property owners who lose property through foreclosure. The Emergency Economic Stabilization Act of 2008 extended the exclusion from gross income for the discharge of qualified principal residence indebtedness by an additional 3 years. This exclusion now applies to debt discharged after 2006 and before 2013.

The two primary exclusions which allow you to avoid reporting the debt as income on your tax return: insolvency, and qualified residence indebtedness. The law has specific requirements and certain exceptions that can be complicated to understand. After reviewing your specific situation, we can determine whether you might qualify for tax relief under the new laws or not. The answer to this question could involve tens of thousands of dollars.

Next up is part 7: Should I file for bankruptcy, and when?
For all 8 questions stay tuned for updates to this blog or go to my legal website. You can also watch my video explaining the 8 foreclosure questions in brief. If you live in Beaverton, Hillsboro, or Portland Oregon, give me a call with your questions or comments, or post a comment to this blog.

Dealing with Foreclosure in Oregon, Part 5

Dealing with Foreclosure in Oregon
(c) 2009 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

#5. What happens to my property debts after foreclosure?
So lets say your home is worth $300,000 on the open market, and you owe $350,000. The foreclosure sale occurs, and the bank ends up with ownership of your home. Can the bank pursue collection of the other $50,000 you owe? What if you also have a second mortgage for $25,000? Will the second mortgage lender pursue collection of its debt against you? Under an Oregon law sometimes referred to as the "anti-deficiency statute," currently the first mortgage holder cannot pursue you for the unpaid debt; but a second mortgage holder is not barred from a personal lawsuit to collect its debt from you.
Homeowners with more than one mortgage typically face a foreclosure action from the lender in first position, which, if finalized, removes any junior mortgages as a lien against the property. However, this does not erase your debt to the lender, and they retain the right to sue you if you default on your promissory note. It is not common for a second position lender to pursue you for a deficiency after the foreclosure sale, unless they believe you have sufficient personal assets available to satisfy a judgment. Therefore in some circumstances, it might be advisable to continue paying the second mortgage, or negotiate a deal with the lender if you have other assets you want to protect from a lawsuit.
Another debt that is becoming more common is homeowners association dues and assessments. Increasing numbers of young, first-time homeowners in Oregon are buying town-homes and condominiums. Many of these homeowners don’t understand that when you hold title to property which is governed by a homeowners association, you are personally liable for the debts and assessments. Oregon law allows the homeowners association to file a lien against your property for unpaid dues and assessments; and also to bring a personal lawsuit against the owners if the money is not paid. Therefore, a foreclosure sale does not relieve the homeowners of personal liability for dues and assessments levied during the time they held title to the property.
Next up is part 6: Will I owe tax on my debts after foreclosure?
For all 8 questions stay tuned for updates to this blog or go to my legal website. You can also watch my video explaining the 8 foreclosure questions in brief. If you live in Beaverton, Hillsboro, or Portland Oregon, give me a call with your questions or comments, or post a comment to this blog.

Dealing with Foreclosure in Oregon, Part 4

Dealing with Foreclosure in Oregon
(c) 2009 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

#4. Do I have any legal defenses to a foreclosure?
A foreclosure proceeding must follow strict rules in order to be enforceable. Proper legal notice must be given to you and lien holders and the notice must contain a number of statutorily required details (see ORS 86.745). Most banks are using large bulk-volume foreclosure processing firms that use legal documents overseen by attorneys, and so generally most foreclosure sales are properly performed. If, however, your lender and the trustee conducting the sale don’t follow all the rules, you can file a legal challenge to the sale prior to the date of the sale, or within 48 hours of the sale to preserve your rights to the property.
There are other potential legal defenses to a foreclosure, including invalid legal documents, failure to provide certain federal notices required by law, etc., but these are very rare. A new law in Oregon (House Bill 3630, to be added to ORS 86.705 to 86.795) will provide that a certain form of notice must be provided to homeowners starting in 2009. If the notice is not given, the homeowner will have a right to an action against the trustee who conducted the sale.
Most importantly, once the foreclosure sale has taken place, and a proper public auction was held, the homeowner lose the right to possess the house, and can be evicted using the F.E.D. procedure, which takes about 2 weeks to complete. If the trustee did not follow procedures at the sale, the homeowner's only remedy is a legal action against the trustee for damages.

Next up is part 5: What happens to my property debts after foreclosure.
For all 8 questions stay tuned for updates to this blog or go to my legal website. You can also watch my video explaining the 8 foreclosure questions in brief. If you live in Beaverton, Hillsboro, or Portland Oregon, give me a call with your questions or comments, or post a comment to this blog.

Dealing with Foreclosure in Oregon, Part 3

Dealing with Foreclosure in Oregon
(c) 2009 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

#3. What is a deed in lieu of foreclosure?
If your lender won’t agree to modify your loan, and you can’t “short sell” your home, some lenders–typically small lenders like credit unions–may accept a deed in lieu of foreclosure. This could be a good option for a homeowner who needs to move out of the home and doesn’t need it as a residence.
A deed in lieu of foreclosure is a legal agreement between you and your lender whereby you transfer title to the property to the lender so that the foreclosure sale is not necessary. Lenders are more willing to agree to a deed in lieu of foreclosure if their loan is the only lien against the property, and if your loan is close to the fair market value of the home. A deed in lieu of foreclosure agreement should be in writing and should be carefully reviewed by your attorney to make sure it protects you and not just your lender. They key protection you need is protection against a deficiency action.
A second key protection you need is a promise by the lender to report your mortgage debt as “Paid - Settled” to the credit reporting agencies. The primary benefit of a deed in lieu of foreclosure is that if negotiated properly, a foreclosure sale is not recorded on your credit report, thus preserving your credit score. Some lenders are reporting a deed in lieu of foreclosure the same as a foreclosure sale, which would not benefit you.

Next up in part 4 is legal defenses to a foreclosure action. For all 8 questions stay tuned for updates to this blog or go to my legal website. You can also watch my video explaining the 8 foreclosure questions in brief. If you live in Beaverton, Hillsboro, or Portland Oregon, give me a call with your questions or comments, or post a comment to this blog.

Dealing with Foreclosure in Oregon, Part 2

This entry is a continuation from Part 1, posted earlier.

#2. How does a short sale work?
A short sale is when your bank agrees to release you from your mortgage debt when you sell your home for less than what you owe the bank. A lender’s agreement to accept a short sale deal is completely voluntary. Most short sale attempts ultimately fail because the lender is not willing to release you from your debt and take a loss on their loan unless they get most of their money back. If the short sale will net less than 80% of the loan amount, it’s a good bet that a lender will refuse to authorize the sale.
If your lender agrees to let you try a short sale, they will probably offer you an agreement with specific terms that generally favor them and protect them from unnecessary losses. Often a lender will send you a Notice of Default and Election to Sell your property while simultaneously telling you they will allow you to “short sell” your home. Don’t be fooled–they can and will still proceed with the foreclosure sale unless they receive an offer from a purchaser prior to the sale. Verbal representations from agents of the lender to postpone the foreclosure sale and give you more time to short sell the home are not binding on the lender unless they are in writing.
Currently, we are hearing from more realtors that short sales are picking up. We are working with local realtors to review short sale agreements and get the foreclosure sale postponed for a better chance to sell the home.
For all 8 questions stay tuned for updates to this blog or go to my legal website. You can also watch my video explaining the 8 foreclosure questions in brief. If you are in the Beaverton, Hillsboro, or Portland Oregon area, you can get my telephone number and call in your questions or comments, or just post a comment to this blog.

Dealing with Foreclosure in Oregon, Part I

Dealing with Foreclosure in Oregon
(c) 2009 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

If you are facing foreclosure of a home or a second residence, you are not alone. Record numbers of people just like you are struggling in this economy with unemployment and declining property values. When you can’t make your house payments, most homeowners will receive a Notice of Default and Election to Sell their home from their lender or servicing agent. When you get this notice, you are officially “in foreclosure” which is a legal process governed by Oregon statutes. When you get this notice, or even before you receive it, you need to know what your rights, obligations, and duties are under the law, and how your can best cope with the situation.

I have found that there are 8 important questions relating to the foreclosure process that Oregonians need to know and understand. Knowing the questions and the answers to them could be the difference between losing your home or saving it, and potentially thousands of dollars in expenses or opportunity costs. Here are the 8 questions in brief.

#1. How does a home loan modification work?
Home loan modification is an agreement between you and you lender whereby your lender agrees to modify some or all of the terms of your loan. Most successful home loan modification agreements involve a reduction in the interest rate or repayment term of the loan. There is currently a confusing mix of private and government programs available to the public. Most of the government programs are new, so few people have any real experience dealing with them. There are both paid and “free” services being marketed to homeowners but very little certainty about what you are getting for the money you might be paying.

Currently I am noting relatively few homeowners having success with home loan modifications. While there are government provided incentives to lenders if they modify certain loans, there are several requirements you must meet in order to be eligible for a modification, and then only if your lender consents to the modification. The important thing to realize is that there are currently no laws that force a lender to modify your home loan. After reviewing a homeowner’s financial situation and the terms of their loan, I can usually make an educated guess as to whether a home loan modification offer will be offered by your bank.

For all 8 questions stay tuned for updates to this blog or go to my legal website. You can also watch my video explaining the 8 foreclosure questions in brief. If you are local to Beaverton, Hillsboro, or Portland Oregon, you can get my telephone number and call in your questions or comments, or just post a comment to this blog.