Under Senate Bill 1552, Oregon law relating to a lender’s right to bring a deficiency claim against the borrower changed effective July 11, 2012. If you’re a homeowner facing foreclosure it’s crucial that you understand how the new law affects you. I must give a huge THANK YOU to David Ambrose of Ambrose Law Group for this excellent explanation of the new law. Mr. Ambrose’s explanation of the law appears below in blue.
Under prior and existing Oregon law a lender has two ways to foreclose a trust deed – one is known as a nonjudicial foreclosure (also known as a foreclosure by advertisement and sale), which does not involve the courts, and the other is known as a judicial foreclosure, in which the lender actually files a lawsuit against the borrower and seeks to obtain a judgment of foreclosure, followed by a sheriff’s sale of the property. Under prior and existing law, if the lender elected the remedy of a nonjudicial foreclosure, and completed the sale, the lender could not preserve a deficiency claim against the borrower – essentially the lender was stuck with what it could get out of the property.
Under prior and existing law, however, if the lender elected the remedy of a judicial foreclosure, if the trust deed being foreclosed was not a “residential trust deed”, then the lender would have the right to obtain a judgment for the deficiency against the borrower and try to collect this deficiency judgment from other assets of the borrower.
So, the key is whether the trust deed is a “residential trust deed”, and this is where the new law comes into play. Previously, a “residential trust deed” was defined as a trust deed against a property which was occupied by the grantor (usually this is the borrower, and I will use the term borrower to mean grantor), or the borrower’s spouse or minor children, as the primary residence, at the time of the commencement of a foreclosure action. In other words, whether a trust deed was a “residential trust deed” was dependent upon whether it was occupied as the primary residence when a foreclosure process started – whether judicial or nonjudicial. It if was not, it was not a residential trust deed, and if the lender elected to foreclose judicially, it could obtain a deficiency judgment.
Under the new law (enacted through Senate Bill 1552), whether a trust deed is a ” residential trust deed” is not based upon whether the property was occupied as the primary residence at the time of the start of the foreclosure process, but whether the property was occupied as the primary residence at the time of the default under the loan leading to the foreclosure sale (my language – the exact wording of the statute is that a “residential trust deed” is one which is against a property which the borrower (or identified spouse and dependents): “…occupies as a principal residence at the time a default that results in an action to foreclose the obligation secured by the trust deed first occurs.”)
What is the practical effect of this change?
Once the borrower defaults under the loan, as long as the borrower (or the other identified parties), occupied the property as the primary residence as of that date of default, the borrower could move out of the property and still know that they had the certainty of not facing potential liability for a deficiency claim. This could be important, for example, if the borrower needed to
move because of a change of job.
To read Mr. Ambrose’s explanation of Senate Bill 1552 in it’s entirety, CLICK HERE.
As you can see, foreclosure law is constantly changing and it can be difficult to understand how the law might affect you and your unique circumstances. Did you know that Total Property Resources has associated with Ambrose Law Group LLC, a law firm with a focus on the representation of parties involved in the real estate industry, to advise and inform its clients about the myriad legal issues surrounding their home and investment loans? Through the HALO Program (Homeowner Advocacy and Legal Options), clients of Total Property Resources receive legal guidance through the entire short sale process, at no out of pocket cost to them. If you’re facing foreclosure and are unsure of your options, please contact me. We look forwarding to helping you evaluate your options.