Oregon's Legislature was quite busy this legislative session, and nowhere was that more evident than in the area of trust deed foreclosures and post-foreclosure possession. This article outlines and highlights the changes and suggests, where appropriate, what loan servicers will need to do to comply with these new laws.
In last year's special session, the Legislature passed a bill that added a new notice to the foreclosure process – the ‘notice of foreclosure.’ Cleaning up that new law, the Legislature passed S.B.239 to effect two changes. The first change requires trustees to record an affidavit of mailing of the notice of foreclosure before conducting the foreclosure sale. The statute already required recordation of an affidavit proving mailing of all other mandatory notices.
The second change limits the post-foreclosure rights of a borrower to whom the notice of foreclosure was not mailed in a timely manner. A borrower must now raise the defective notice issue no later than 60 days after the trustee's sale. Both changes went into effect June 4.
A second piece of legislation, S.B.628, went into effect July 30 and amends the form of the notice of foreclosure to include a statement about the borrower's right to ask for a loan modification. Section 1 of the legislation also requires the trustee to enclose a Modification Request Form with the notice of foreclosure. The Modification Request Form must be returned to the address stated in the form within 30 days after the trustee issues the notice of foreclosure.
Section 3 requires the beneficiary or its agent to review a timely submitted Modification Request Form and notify the borrower within 45 days whether the beneficiary approves or denies the request or requires additional information. A trustee's sale may not occur until the lender has responded to the request in a timely manner. If the borrower requests a meeting, the lender must meet with the borrower in person or by telephone before the lender responds to the borrower's request to modify. The beneficiary or its agent must schedule the meeting with the borrower.
The beneficiary or beneficiary's agent with personal knowledge must provide the trustee with an affidavit of compliance with the requirement timely to respond and, if applicable, meet. The trustee must record the affidavit before going to trustee's sale. The lender may deny the request to modify only after ‘good faith consideration’ of the request.
Most of this bill is scheduled to be rolled back on Jan. 2, 2012.
This introduces several questions for lenders. For example, to what address should the borrower be directed to send the modification request form – the trustee's address or the servicer's? Who will attend any required meetings? Who will schedule them?
Additionally, the servicer will need to prepare the affidavit of compliance or at least provide the trustee sufficient information to piece together a form of affidavit for the servicer to sign.
The affidavit will need to state whether the borrower was timely in submitting the request to modify, whether the borrower requested a meeting, whether the lender or its agent attempted to contact the borrower to schedule a meeting, whether the meeting occurred and on what date the lender or its agent communicated a response to the borrower concerning the request to modify.
It should be noted that S.B.628 does not apply to notices of sale issued before Sept. 26 of this year.
In June, Oregon's Legislature passed H.B.2759. This bill, which takes effect Jan. 1, 2010, will require county recorders to accept for recordation documents signed unilaterally by the lender to rescind an erroneously recorded trustee's deed or rescind an erroneously recorded reconveyance of a trust deed. The bill even provides a check-the-box form approved for accomplishing these purposes. This is a very useful new law that is, unfortunately, several months away from taking effect.
Yet another new piece of legislation came in the form of H.B.3004. Already in effect, this law requires foreclosure trustees to provide an amended notice of sale after bankruptcy relief is obtained to an expanded list of persons, including licensed attorneys inquiring in writing on behalf of third-party investors. Section 1 of the legislation does not require giving notice to the additional persons if the trustee provides a link to a true copy of the amended notice on its Web site.
Section 1(a) replaces and supersedes Section 1 of S.B.952. This section establishes a tedious and involved process for terminating the possessory rights of borrowers and tenants. Doing so for borrowers is less tedious and involved than doing so for tenants, as the latter action can span the range of tedium and involvement, depending upon whether the tenant has provided proof of a rental agreement at least 30 days before the date the trustee's sale was first scheduled.
Section 1(a) also provides a foreclosure purchaser insulation from being characterized as a landlord if the purchaser does not accept rent from the tenant, does not enter into a new rental agreement with the tenant and is timely in mailing a tenancy termination letter to the tenant (i.e., within 30 days after the foreclosure sale).
Section 2 of H.B.3004 arguably creates a trap for lenders holding both first- and second-lien positions on the same property where the two trust deeds were given simultaneously in a ‘piggyback loan’ situation. Section 2 essentially can be read to provide that the foreclosure of the first- or the second-lien position in this situation deprives the lender of any rights to pursue recovery under the other loan.
Put another way, foreclosure of the first lien will extinguish not only the second trust deed, but also all rights to pursue the borrower personally on the note. More frighteningly, foreclosure of the second lien may prohibit the lender from foreclosing the first trust deed and pursuing the borrower personally on the note. The orthodox approach in foreclosing the second lien first may no longer be prudent in Oregon. Imagine a third-party purchaser purchasing at the second trust deed foreclosure sale free and clear of the first-lien trust deed simply because the same lender held both lien positions.
As in other states, consumer advocates and neighborhood associations introduced aggressive foreclosure-impeding bills to the Oregon Legislature last winter. The mortgage industry, trustee associations and mortgage default law firms worked tirelessly to de-fang some of the offerings that would have turned the Oregon foreclosure process on its ear and made mortgage lending in that state a much more expensive proposition.
For instance, the first and second drafts of S.B.628 were more mediation-intensive than Nevada's new law and could very well have made judicial foreclosures a more attractive remedy than the nonjudicial foreclosure process. Thanks to a concerted industry effort, nonjudicial foreclosure is still a viable – albeit more labor-intensive – remedy in Oregon.
David Fennell is senior counsel in the Bellevue, Wash., offices of Routh Crabtree Olsen PS, a mortgage banking law firm. He is a member of the Oregon and Washington State Bar Associations and advises mortgage investors and servicers, as well as foreclosure trustees, in both states. He can be contacted at email@example.com.