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

Federal Foreclosure Settlement Payments Now Available

The Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board (the Fed) reached a new agreement this year with several lenders that provides for aid to flow directly to homeowners. Mortgage loans that were serviced by Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, MetLife Bank, Morgan Stanley, PNC, Sovereign, SunTrust, US Bank, Wells Fargo, or any of the affiliates or subsidiaries of theses lenders are eligible for payments if a foreclosure was in process during 2009 or 2010.

How much are the payments? Payments between $300 and $125,000 have been authorized under the agreement. Many homeowners have already been contacted by RUST Consulting, the company responsible for distributing payments, informing them that they are eligible. Payment amounts are determined by a formula that takes into account the various types of improper foreclosure tactics borrowers may have been subjected to.

Homeowners that we represent have already begun receiving checks from the Independent Foreclosure Review Payment Agreement. Checks our clients have received have ranged in amount from $300 to $6,000.

What if my loan was serviced by someone else? EverBank/EverHome Mortgage Company, Financial Freedom (One West), GMAC Mortgage, and IndyMac Mortgage Services (One West) are still being reviewed. They are expected to begin making similar restitution distributions in the near future.  If your loan was not serviced by any of the above listed servicers, the federal settlement does not apply to your servicer, and your only recourse is to bring a private legal action, or file a complaint with regulatory agencies.

What do I need to know? RUST Consulting and the checks they are distribute are NOT a scam. You are entitled to the payments they send you and can cash the check. Also, you should be aware that by cashing a check from RUST Consulting you are NOT giving up your right to sue you lender for the damages they caused you during the foreclosure process. If you believe you have been subject to an illegal foreclosure or unfair trade practices you should contact us to discuss whether we can help you.

For further information please contact me or visit my website. 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.

Tax Masters Fined $195 Million for Defrauding Clients

(c) 2012 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

Finally, justice is served on Tax Masters! In an article today on Fox News, it was reported that Tax Masters, a well-known firm claiming to fix people's tax debts for pennies on the dollar, has been ordered to pay more than $195 million in penalties for defrauding its clients. The firm was shown to have lied to clients, misleading them as to work performed on their cases and had committed over 110,000 violations of Texas’ Deceptive Trade Practices Act.

As a tax attorney, I’ve spoken with several taxpayers who have paid good money to firms like Tax Masters for help with their tax problems, and had terrible experiences. While there may be some decent firms out there, taxpayers get much better service hiring a local tax attorney who is licensed right here in Oregon. I represent taxpayers in IRS audits, appeals of audits, and tax court cases.

I also represent taxpayers who have tax debts, and for most taxpayers with tax debts, there is no “silver bullet” that will allow me to reduce their tax debts. The opportunity to settle with the IRS for “pennies on the dollar” is very rare. Firms like Tax Masters have been misleading taxpayers with these promises for years, and its about time they be held accountable.

For further information please contact me or visit my website. You can also check out my article Why You Need A Licensed Tax Attorney to represent you. 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.

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?

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

(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.