Mortgages. ORS 86.010 to 86.275 generally address the rights and duties of lenders and borrowers owning land secured by a mortgage. The process of foreclosing a mortgage is set forth in ORS Chapter 88. The process of executing on a residential property is controlled by ORS 18.901 – 18.982. Under these statutes, the main features of a residential mortgage and a residential mortgage foreclosure are the following:
- Parties – There are two parties to a mortgage:
- Mortgagee, who is the lender;
- Mortgagor, who is the borrower.
- Mortgagor’s right to cure – Upon acceleration of the remaining indebtedness under a promissory note, it becomes immediately due and owing. There is no statutory right to cure by tendering the amount then in default.
- Right of redemption – Following the sheriff’s sale, there is a statutory 180-day period within which the mortgagor has a right to redeem the property by paying the amount paid at the sale, plus interest, taxes and certain other costs.
- Timing of judicial foreclosure – The recording on the public record of a Lis Pendens under ORS 93.740 and filing and service of the summons and complaint, commence the mortgage foreclosure process. Since timing is controlled by the speed and efficiency of the attorney handling the foreclosure suit and the court processing it, the procedure can be very slow – much slower than the non-judicial foreclosure of a trust deed discussed below.
- Deficiency liability – Subject to the following exception, upon completion of the judicial foreclosure of real property, there is a right to pursue the mortgagor for a deficiency. The foreclosure process is entirely judicial, and is conducted in much the same manner as a suit for collection of any other debt. The mortgagee has no claim against the mortgagor for any remaining deficiency under the promissory note if the property foreclosed is a primary residence. [See, ORS 86.770(2)]
Trust Deeds. Virtually all voluntary liens secured by Oregon real estate are trust deeds and are therefore governed by the Oregon Trust Deed Act, ORS 86.705 – 86.795, which has been in existence since 1959. The main features of the Act are the following:
- Parties – There are three parties to a trust deed:
- Beneficiary, who is the lender;
- Trustor or Grantor, who is the borrower;
- Trustee, who has two primary functions:
- Upon payment in full of the promissory note, the Trustee, at the Beneficiary’s instruction, issues a Deed of Reconveyance for recording, thus removing the trust deed as a lien on the real property; or
- Upon notification by the Beneficiary that the Grantor is in breach of the note or trust deed, the Trustee is authorized to commence a non-judicial foreclosure and sell the property at a public sale.
- Grantor’s right to cure – Notwithstanding that the promissory note contains an acceleration clause, the Act permits the Grantor to cure the existing default up to five days before the scheduled sale date. The right to cure also includes the payment of statutory costs and fees.
- Right of redemption – Following the Trustee’s sale, there is no right of redemption to the Grantor.
- Timing and non–judicial nature of foreclosure – The recording of a Notice of Default triggers the trust deed foreclosure process; a Notice of Sale is sent to the Grantor. Both documents contain the sale date, which can be no sooner than 120 days before the Notice of Sale. At the time of default, the Beneficiary usually substitutes the current Trustee, who is normally a title insurance company, transferring the foreclosure process to a trustee foreclosure service qualified under ORS 86.790.
- Deficiency liability – Following the completion of the non-judicial foreclosure of a property, the Beneficiary has no claim against the Grantor for any remaining deficiency under the promissory note. However, the completion of a non-judicial sale does not extinguish the liability of any guarantor of the debt. [See, ORS 86.770(2)]
Beneficiaries may elect to foreclose a trust deed judicially, as if it were a mortgage. In doing so, the mortgage foreclosure process must be followed, which means the process occurs in court and there is a 180-day right of redemption. However, there is no right to obtain a deficiency against the borrower if the property was a residential trust deed, as defined by ORS 86.705(5).
Practice Tip: Practitioners should be aware of ORS 86.157, which provides that following a short sale, if the “…lender reports to the Internal Revenue Service that as a consequence of or in conjunction with a short sale of residential property the lender has canceled all or a portion of a borrower’s debt under a real estate loan agreement and the lender provides to the borrower written evidence of the lender’s report to the Internal Revenue Service, the lender or an assignee of the lender may not bring an action or otherwise seek payment for the residual debt following the short sale.” Of course, it is always best to obtain written confirmation from the lender at the time of the short sale closing that it will waive, forgive or cancel the deficiency.
Land Sale Contracts. With only a few exceptions, land sale contracts are not governed by Oregon statutory law. The major exceptions are as follows:
- In addition to the seller’s judicial and non-judicial remedies described in the contract, ORS 93.905 – 93.940 provides a means of statutorily declaring a “forfeiture” through a non-judicial foreclosure process. However, the statutory process should be expressly described in the contract as one of the seller’s available remedies.
- The rules of execution on a judgment of foreclosure of residential property set forth in ORS 18.901 – 18.999 apply to land sale contracts, including the right of redemption.
A land sale contract presupposes that the title is retained by the seller pending full payment. Upon that event, the seller will convey a “Fulfillment Deed” to the buyer, which then is recorded and removes the lien of the land sale contract from the property.
