Ben Knaupp & Associates

Question from a reader on foreclosure, junior lien holders

2010-08-27T16:33:00.000-07:00

(c) 2010 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

Finally, I answer this question from a reader:

Mr. Knaupp,

Great foreclosure information. You cleared up a lot of gray areas for me in the foreclosure process. I have a question that I can not seem to find a clear answer for;

I understand that if a 1st (first) position lien holder forecloses it wipes out all other subordinate liens but, what happens if a 2nd (second) position mortgage foreclose? How are the proceeds of the sale handled? Who gets paid in what order? And, if no body bids at the auction does the 2nd position lien holder take the property and assume the first position debt?

ORS 86.765 is the closest statute I could find that addresses this question but, it does not specify which trust deed position should be paid first only that the, (2) "obligation secured by the trust deed" is to be paid, I'm assuming this refers to the forclosing lien holder, and then, (3) "all persons having recorded liens subsequent to the interest of the trustee in the trust deed as their interests may appear in the order of their priority." This sounds like the 2nd would get paid then the 3rd, 4th and so on because they are subsequent to the 2nd. Then the 1st must stay with the property?

Confused,

ANSWER: Here are some answers to these questions:
1. A 2nd position lien holder also has a right to foreclose. However, there is a reason its best to be #1. A 2nd who forecloses eliminates any junior liens to his lien (such as a 3rd, etc.) but has no effect on the 1st. Therefore, a 2nd position lien holder gets nothing from a foreclosure sale unless there is sufficient equity existing in the property to draw bidders at sale, or if the 2nd lien holder wants to take over the borrower's legal title to the property and then pay off the 1st. In my experience with 2nds, this almost never happens because there isn't enough equity in most properties to make it worthwhile for the 2nd to foreclose on its lien.

2. If a foreclosure sale by a 2nd lien holder draws a third party purchaser at the sale, the cash generated by the sale goes first to the 2nd lien holder, and then to any other junior lien holders, and any excess goes to the borrower. Of course, this all has no effect on the 1st position lien holder, who still has a lien on the property which was not affected by the foreclosure sale by the 2nd. So the 2nd would have to come up with the total debt still owing to the 1st lien holder if the 2nd wants to keep the property.

I hope this clears up your questions.

10 ways that an hour with me can save you thousands

2010-08-27T16:21:00.000-07:00

(c) 2010 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

Since I developed my special 1 hour consultation for people in a debt crisis, I have completed over 70 consultations. Consider these 10 ways that spending an hour with me could save you thousands. Then ask yourself if you can afford NOT to pass up this offer at only $149.

1. Should you pay money to a law firm or other company for assistance with a home loan modification? I can tell you whether you’re likely to succeed and whether its worth the cost and risk. Sometimes over a thousand dollars in fees.

2. Some lawyers advertise bankruptcy as the solution to foreclosure. Often a bankruptcy is not needed, saving your future credit and at least $1,500 in legal fees.

3. Should you pay your property taxes or not? The answer depends on several factors. The right answer could save you thousands.

4. Lenders, salesmen, your bank, and even many realtors will tell you a “short
sale” will solve your debt problems, and help you avoid foreclosure. However, many lenders are not willing to release you from the full debt. This means that after a short sale, you could still face a collections lawsuit for the unpaid debt – potentially tens of thousands of dollars.

5. How long can you stay in your property when a foreclosure is in process? Is it better to “walk away” from the home or stay in the home? The answer could save you months in rent.

6. Some banks are offering “trial modifications” which require that you make payments during a trial period in the hope that a permanent modification will be granted. Will your hopes be rewarded, or dashed? The answer may surprise you, and could save thousands in payments.

7. Because a foreclosure sale is a public notice, you will receive dozens of solicitations from a variety of people offering solutions. Can they be trusted? With my advice you can avoid scams and better understand your options.

8. When a foreclosure is imminent, should you continue to pay HOA dues or not? The answer could save you hundreds.

9. If you are recently divorced, nearing divorce, or in a non-traditional relationship, how will questions of liability for the debts be resolved? Many clients find they got a raw deal only too late. With my advice you can protect yourself.

10. If you have other properties or assets at risk, can your lender sue for a judgment? How can you protect your assets from creditors?

For answers to these and other questions, contact me via my website to schedule a consultation. If you live in Beaverton, Hillsboro, or Portland I am conveniently located near the Tanasbourne shopping area.

New foreclosure notice law for Oregon

2010-06-10T11:00:00.000-07:00

(c) 2010 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

On March 3rd of this year, Governor Ted Kulongoski signed into law a bill that will affect foreclosing lenders in Oregon.

The law is House Bill 3610, which adds several new requirements to the foreclosure process when a homeowner has requested a home loan modification from their lender. The law amends ORS 86.737 by requiring lenders to provide homeowners with an explanation of how the lender determined that the homeowner was not eligible for a home loan modification. It also requires an affidavit of compliance from the trustee conducting the sale.

Most of the changes to the legal requirements for foreclosures which were first enacted in 2009 were not slated to take effect until January 2, 2012. However this new law moves up the effective date to May 27th, 2010.

These new requirements will cause a lot of an worry and extra work for lenders conducting foreclosures, and there are bound to be some lenders that do not comply with all the new requirements. The legal effect of failure to comply with the new requirements is not specified in the laws. A trustee who fails to follow the procedures would certainly be exposed to a lawsuit for breach of its duties to the
lender, and possibly even to a homeowner who was damaged by the foreclosure.

I plan on exploring litigation strategies relating to the new laws for homeowners who have been damaged in a foreclosure action. The new requirements also will provide an opportunity to prevent a foreclosure sale from going forward by filing a legal action for an emergency injunction through the courts.

For further information please contact me. 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.

Homeowners frustrated with home loan modification process

2010-01-26T21:31:00.000-08:00

(c) 2010 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

In the past 9 months, I have met with at least two dozen Oregon homeowners who are very frustrated with the home loan modification process. There is a story I am hearing over and over again that goes something like this:

"I called my loan servicer and asked for a modification of my home loan. I was told I was not eligible for a modification because I was not behind on any payments. So naturally, I withheld my next payment and then called back to re-apply. I was told to submit a financial profile, paystubs, and an explanation of my hardship. I was told that a decision would take some time, so I waited and called in frequently, and was told a decision was pending. After several months, I received a notice of default and election to sell by mail from my loan servicer. The notice said my home would be sold at public auction if I did not cure the default on my loan! I called my loan servicer and asked why I was scheduled for foreclosure when I had applied for a loan modification. I was told this was part of the normal process, but didn't necessarily mean my home would be foreclosed if I was approved for a modification prior to the sale date. A month later, and only 3 weeks before the date set for the foreclosure sale, I got a letter from my lender saying that the owner of my mortgage was not going to grant any modifications. Now I'm 5 months behind on my payments, and unless I make all payments, plus $3,800 in late fees and legal fees and costs, I'm going to lose my home!! What should I do? I feel cheated and misled by my loan servicer! Is it legal for them to do this to me?"

Unfortunately, current law does not require a lender to modify anyone's loan (except for a few lenders who have entered into settlements with the attorney general in your state). The federal government--through HUD and the FDIC--are offering incentives and putting pressure on almost all the big lenders to participate in the Making Home Affordable Program (HAMP). According to HUD, participation in the HAMP program is mandatory for servicers of any loan backed or owned by Fannie Mae or Freddie Mac. This means almost all the major commercial lenders are going through the motions of participating in the program. As a result, a lot of lip service is being given by customer service representatives, who often are very helpful and willing to collect your application for the program.

The facts show, however, that at least in Oregon, there appears to be minimal real participation in HAMP so far. Consider these numbers, taken from the HUD report on the HAMP program (as of December 2009):
Active trial modifications in Oregon . . . 8,888
Permanent modifications in Oregon . . . 875.

You can read the full report at the HAMP website here.

Despite the incentives available to lenders, many are still choosing to foreclose on homes rather than modify loans--especially when a homeowner can't afford to make payments at current market rates due to job loss or reduced income. Until larger incentives are offered, or legislation requires lenders to modify loans, I expect to continue to see only minor modifications given.

If you think you should qualify for a loan modification but are not having success, contact me for a consultation by visiting my website. We may be able to motivate your lender to be more responsible if you meet their standards.

Dealing with Foreclosure in Oregon, Part 8

2009-10-16T13:13:00.000-07:00

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

2009-10-12T15:31:00.000-07:00

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

2009-10-07T17:44:00.000-07:00

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

2009-10-05T16:31:00.000-07:00

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

2009-09-30T15:30:00.000-07:00

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

2009-09-28T12:52:00.000-07:00

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

2009-09-25T10:36:00.000-07:00

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

2009-09-23T13:16:00.000-07:00

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.