Friday, August 27, 2010

Question from a reader on foreclosure, junior lien holders

(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?


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

(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.

Thursday, June 10, 2010

New foreclosure notice law for Oregon

(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.

Tuesday, January 26, 2010

Homeowners frustrated with home loan modification process

(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.