Foreclosure 101: What do you mean I don't have a mortgage?

Understanding the foreclosure process in Oregon begins with understanding one very basic fact.

A basic fact that a surprisingly high percentage of homeowners do not realize until faced with foreclosure.

That basic fact is this:

If you bought property here in the great State of Oregon, it is almost certainly the case that...

You do not have a mortgage.

Surprised?

Then you are not alone.

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When you close on a piece of residential property, there seem to be a staggering number of documents to sign. If you are reading this blog, you have probably been there, done that. You are directed to an enormous pile of official looking documents, handed a pen and asked to sign here, and here, and here, and here and here. This goes on for about an hour until you’re sitting there with writer’s cramp and a glazed look on your face completely befuddled about what you’re signing, why you’re signing it, and why it takes as stack of paper the size of a Volkswagen Beetle to buy something that doesn’t move.

We get it.  The process can be mind-numbing.

But at the end of day, all of these papers really boil down to two key documents.

A promissory note.

And a deed of trust.

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A promissory note, in the simplest terms, is a glorified IOU. You (the borrower) promise to pay Big Evil Bank (the lender) the sum of X at an interest rate of Y in monthly payments of Z. That’s it. Pretty straight-forward.

But what happens if you don’t pay?

That’s where the second document comes in....a security instrument. A security instrument, in the simplest terms, is a document that “secures” your payment obligation under a promissory note by doing one of two things: (1) actually transferring title to the property to someone else until the promissory note is paid-in-full (known in the law as the “title theory” because title actually changes hands until the underlying obligation is satisfied) or (2) by creating a “lien” or “security interest” in the property until the promissory note is paid-in-full (known in the law as the “lien theory” because the borrower actually keeps title to the property subject to the borrower’s lien). Oregon is what is referred to a “lien-theory” state.” So when you purchase a home here in Oregon, you receive title to the property but then you immediately transfer a “security interest” (a lien) in the property to another party until the promissory note has been paid.

Understood? Very good.

Now here are the two $24 million questions. First, who holds this “security interest” while you’re paying off your loan? Second, and most importantly, what does holding a “security interest” in a piece of property lawfully allow you to do? Let’s address the first question.

Traditionally, the person (or entity) holding the “security interest” was the lender and the typical security instrument was a mortgage. A mortgage involved two parties. The mortgagee (the lender) held a security interest (a lien) in the property until the loan was fully paid by the borrower (the mortgagor). Upon full payment of the obligation, the lien was released and the homeowner would own the property free and clear.

In 1959, the Oregon legislature passed the Oregon Trust Deed Act (OTDA). Unlike a mortgage, which involves a mortgagor (borrower) and a mortgagee (lender), a trust deed involves three parties: the “grantor” of the trust (the borrower), the “beneficiary” of the trust (the lender) and an independent trustee. When a borrower purchases a piece of property in Oregon using a trust deed as opposed to a mortgage, the borrower (1) receives title to the property but then concurrently executes a deed of trust which transfers a security interest to a trustee who then holds—”owns” if you will—this security interest for the benefit of the lender until the loan is fully paid or goes into default.

Since 1959, the security instrument of choice in Oregon has been the deed of trust, not a mortgage. Which brings us to the second question. What does holding a security interest in a piece of property lawfully allow the trustee of a trust deed to do in the event of a default?

The answer to this question lies in understanding the difference between a “judicial foreclosure” and a “non-judicial foreclosure” and how the OTDA dramatically changed the foreclosure process.

Next: The good, the bad and the ugly: Understanding foreclosures under the Oregon Trust Deed Act

Foreclosure 101: Inform yourself

Welcome to the Garland Griffiths Knaupp Foreclosure Defense 101 series.

Our series is designed to accomplish two important tasks.

Our first and most important goal is to provide timely and accurate information to homeowners facing foreclosure. Why is this so important? Because in the relatively new and constantly evolving field of “foreclosure defense” or “wrongful foreclosure” (phrases that were rarely if ever used in the law as recently as five years ago) information is key. Can there be anything more frightening than the specter of losing a home? Emotions run high; fueled typically (and understandably) by confusion, fear and uncertainty. Having a clear understanding of the foreclosure process—and of your rights and remedies under the law—is an important first step.

The second function of this series is to provide an easy-to-understand analysis of the law. Why is this necessary? Because what “the law” is in the area of foreclosure defense is constantly changing. Judges and lawyers alike throughout our state are grappling with the complex and varied legal issues presented by an unprecedented housing crisis. No one can predict with absolute certainty what to expect. In just the past month, several state and federal court decisions (all of which will be analyzed in upcoming blogs) have greatly impacted the rights and remedies available to homeowners facing foreclosure. Our job is to break these decisions down and explain in plain and simple  terms what these decisions mean for struggling homeowners. This area of law is simply too important for public confusion. We will take the complex and make it clear.

So what can you expect from this series?

In sum, information and analysis.

The twin poles—the yin and yang if you will—of an informed and empowered public.

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Foreclosure 101 is designed to be a resource. However, please do not confuse a resource with legal advice. If you are a homeowner facing foreclosure, time is of the essence. Far too many people facing foreclosure respond by doing nothing. Fear and despair lead to inertia and inaction because desperate homeowners feel there is nothing they can do. But that is absolutely not the case.

There is something you can do.

You can call a lawyer.

We offer a one-hour foreclosure defense consultation for only $169.00. Because every case is fact specific, this consultation provides an invaluable opportunity for homeowners facing foreclosure to discuss the specific circumstances of their case with an attorney skilled in the area of foreclosure defense and to review the available range of options.

This is, in sum, an opportunity to inform yourself.

Thank you for visiting our blog. We hope you find our Foreclosure 101 series helpful.

Know Your Rights: Oregon's New Foreclosure Mediation Program Goes Live

The new Oregon Foreclosure Avoidance Program (OFAP) officially launched on August 5, 2013. The OFAP is the creation of Senate Bill 558, which overhauled the existing Foreclosure Avoidance Mediation Program (FAMP) in effect since July of 2012. Prior to the enactment of Senate Bill 558, mediation was not required if a lender filed a judicial foreclosure, a gaping loophole that effectively rendered the program meaningless. Why? Because lenders simply stopped using nonjudicial foreclosures (the most common and preferred method of foreclosing on property in Oregon for the past 50+ years) and simply resorted to judicial foreclosures instead.  As a result, less than two dozen mediations convened in the past year; hardly the intent that the Oregon legislature intended. Senate Bill 558 changes all this by eliminating the judicial foreclosure loophole and greatly streamlining the mediation process.

Under the new mediation program, before a lender can foreclose on a home – whether through a judicial (circuit court action) or nonjudicial (trustee sale) process – it must first offer a face-to-face meeting (resolution conference) with the homeowner in an attempt to avoid foreclosure when the instrument securing the loan is a residential trust deed. Homeowners at risk of foreclosure may also request a meeting. Homeowners are at risk when they are more than 30 days in default on their loan payment or when a government-approved housing counselor believes the homeowners have a qualifying financial hardship.

This new program will give most homeowners an opportunity to meet face-to-face with an agent of the lender who will have complete authority to negotiate and commit to a foreclosure avoidance measure. (Lenders who filed less than 175 foreclosures in the past year are exempt from the program). To initiate the process, homeowners must first meet with an approved housing counselor. Housing counselors will not only help homeowners initiate the process, they will also help homeowners evaluate their options and put together the best possible proposal for a foreclosure avoidance measure. There is no charge to the homeowner for working with an approved housing counselor. The homeowners must then pay a $175.00 fee (a fee reduction waiver is available for households making 200% or less of the federal poverty level), submit the documents required by the lender and personally attend the resolution conference.

The resolution conference will be an informal meeting conducted by a mediator, who is a neutral person trained in basic foreclosure issues. The homeowner can bring an attorney, a housing counselor, or both to the meeting. The lender must send an agent in person. If that person does not have complete authority, the lender must have a person with authority available by telephone. If the parties reach an agreement, the agreement will be reduced to writing and signed by both parties before the conference concludes.

For more information about the new mediation program, visit the official program website at www.foreclosuremediationor.org or our dedicated foreclosure defense website at garlandgriffiths.com.

For a list of approved housing counselors, visit www.oregonhomeownersupport.gov