Foreclosure today is not what it used to be. In the past, banks and borrowers tried to avoid foreclosure, since it was a lose-lose proposition for both sides. Today, that is not the case. With the advent of securitization, Big Banks discovered several things: (1) That they could make loans for which they were promptly repaid in the GSE secondary market or the private label secondary market; (2) That underwriting guidelines were unimportant if Big Banks no longer kept these loans on their own books; (3) That they could make even more money servicing the loans they had already sold into the secondary market; (4) That servicing sketchy and poorly underwritten non-performing loans was far more profitable than servicing performing loans, since they could charge higher fees, pile on Draconian charges, split fees on force-placed casualty insurance, upcharge investors for the vendor costs they had advanced; (5) That through affiliated subsidiaries, they could actually create foreclosure companies to act as “successor trustees” in non-judicial foreclosure states; (6) And most significantly, Big Banks discovered that any damages resulting from their bad loans and exorbitant servicing charges, would ultimately be borne by others – either the investors who bought the private label junk they sold, or the American Taxpayer who picked up Fannie’s, Freddie’s, and FHA’s losses. So today, there is a need to level the playing field. Mandatory mediation may not be a “Silver Bullet” but it will hopefully serve as a tool to help level the playing field as homeowners try to extricate themselves from the mess the Big Banks created. Oregon’s Senate Bill 1552 is one such effort. For a more detailed discussion of SB 1552’s terminology and forms, go to my earlier blog post here. – PCQ
Introduction. In Oregon, a non-judicial foreclosure is formally commenced after: (a) The Beneficiary (i.e. the owner of the loan or its servicer) files a Notice of Default in the public records of the county in which the property is located, and (b) The Beneficiary serves and/or mails (certified and regular) the Notice of Sale to the Borrower. The Notice of Default and the Notice of Sale contain essentially the same information, and historically – at least when MERS was involved – were recorded and served both on the same day. That will likely change under SB 1552, as discussed below.
Foreclosure Avoidance Measures. The entire mediation process contemplated by SB 1552 is based upon the idea that before a non-judicial foreclosure is commended, Borrowers should be given notice and an opportunity to try to reach an agreement with the Beneficiary (i.e. the owner of the loan or its servicer or agent) to avoid the foreclosure. SB 1552 lists the following pre-foreclosure events as “Foreclosure Avoidance Measures.”
- The bank defers or forbears from collecting one or more payments due on the obligation.
- The bank modifies, temporarily or permanently, the payment terms or other terms of the obligation.
- The bank accepts a deed in lieu of foreclosure from the borrower.
- The borrower conducts a short sale.
- The bank provides the Borrower with other assistance that enables the Borrower to avoid a foreclosure.
Events and Timing. What follows is a chronological summary of the major events that must take place under SB 1552, and the timing involved.
1. Notice of Mediation – At least 60 days before mailing or serving the Notice of Sale, the Beneficiary must mail to, or serve, a Notice of Mediation on the Mediation Service Provider.
2. Mediation Scheduling Notice – Within 30 days after the mailing/service of the Notice of Mediation, the Mediation Service Provider must send the Borrower and the Beneficiary a Mediation Scheduling Notice identifying the Date of Mediation.
- The Date of Mediation must be between 45 and 90 days after the Notice of Mediation was mailed/ served.
- The Mediation Scheduling Notice must specify a Deadline for the Borrower to confirm that he/she will agree to mediate.
- The Deadline must be at least 30 days before the Date of Mediation.
- If, prior to the Deadline, the Borrower fails to timely confirm with the Mediation Service Provider his/her agreement to mediate, the Beneficiary is exempted from the duty to mediate.
- In such case, the Mediation Service Provider must provide the Beneficiary with a Certificate of Compliance, and provide copies to the Borrower and the Oregon Attorney General.
3. Notice of Ineligibility – Nicknamed the “Dual Track Notice,” it is intended to notify a borrower in mediation that the bank’s foreclosure is resuming. SB 1552 did not actually abolish “dual tracking” [i.e. the bank practice of engaging in discussions with a borrower seeking to avoid foreclosure while at the same time instituting a foreclosure action against that borrower. – PCQ] If, during the mediation, the bank determines that a borrower is (a) ineligible for a Foreclosure Avoidance Measure, or (b) failed to comply with an agreed-upon Foreclosure Avoidance Measure, it must first:
- Provide the Borrower with a Notice of Ineligibility [containing a Plain English explanation as to why] at least 30 days before the Date of Foreclosure identified in the Notice of Sale (or the Notice of Postponement, if the foreclosure sale has been postponed) and;
- Record an Affidavit of Ineligibility in the public records where the property is located at least 20 days before the Date of Foreclosure identified in the Notice of Sale (or the Notice of Postponement, if the foreclosure sale has been postponed).
PCQ Note: The term “ineligibility” only refers to a borrower’s ineligibility for any Foreclosure Avoidance Measure – not “ineligibility” to participate in mediation. The borrower’s right to participate in mediation is absolute and is triggered once the Notice of Default is filed by the lender and the Notice of Mediation is sent to the Mediation Service Provider. The timing of the Dual Track Notice is not tied to the mediation.
4. Consultation with HUD Approved Counselor. Before the scheduled Date of Mediation, the borrower must consult with a HUD approved housing counselor.
- The Borrower may obtain and exemption from the Mediation Service Provider to the consultation requirement, if they were unable to obtain an appointment with a counselor within 30 days of receiving the Mediation Scheduling Notice.
- The Borrower must sign Affidavit of Exemption.
- If, after the consultation, the Borrower decides to decline mediation, he/she must notify the Mediation Service Provider of their decision, in which case the Mediation Service Provider will provide the Beneficiary with a Certificate of Compliance. (See, Section 7, below.)
5. Documentation for Parties to Bring to Mediation – The Beneficiary and Borrower must bring to the mediation certain documentation prescribed by SB 1552 and the administrative rules. They are addressed in my earlier post here, in the Section entitled Duties of Banks at the Mediation.
6. The Foreclosure Avoidance Measure – When the Mediation results in:
- A joint agreement upon a Foreclosure Avoidance Measure, it must be put in writing and the Beneficiary must provide a copy to Oregon Attorney General.
- A joint agreement, but the Borrower fails to comply with its terms, the Beneficiary must serve on the Borrower and record in the public records, a Notice/Affidavit of Non- Compliance. (Same as Notice of Ineligibility. See Sec. 3, above.)
- No agreement, in which case the Mediation Service Provider must notify the Oregon Attorney General (and the Beneficiary must serve on the Borrower the Notice of Ineligibility, and record in the public records, the Affidavit of Ineligibility. (See Sec. 3, above.)
7. The Certificate of Compliance – At the conclusion of the Mediation, if the Beneficiary has complied by bringing the documents required by law, and participated in the mediation, the Mediation Service Provider shall provide the Beneficiary with a Certificate of Compliance, confirming that the Beneficiary complied with the mediation. The Certificate of Compliance is also provided to the Borrower and the Oregon Attorney General. [Note: If the Borrower is ineligible to mediate per the Beneficiary’s Notice of Ineligibility (see Sec. 3, above); declines to mediate; fails to timely agree to mediate prior to the Deadline identified in the Mediation Scheduling Notice; or fails to comply with the terms of the agreed-upon Foreclosure Avoidance Measure, the Certificate of Compliance will also be issued by the Mediation Service Provider to the Beneficiary. – PCQ] The Certificate of Compliance must be recorded in the county where the property is located before the actual foreclosure sale.
8. Affidavit of Compliance. At least 20 days before the Foreclosure Sale Date specified in the Notice of Sale, the Beneficiary shall record the Affidavit of Compliance, stating that it sent to the Borrower the Notice of Ineligibility/Non-Compliance, with copies simultaneously sent to the Oregon Attorney General.
9. Danger Notice. On or before the Notice of Sale is sent to the Borrower, a notice must be sent to the Borrower notifying them that they are in danger of losing their home.
10. The Notice of Sale. It must be mailed to or served on all required parties at least 120 days before the Date of Foreclosure.
11. Publication of the Time and Place of Sale. Publication must occur in a newspaper of general circulation once a week for four consecutive weeks, with last publication occurring more than 20 days before the Date of Foreclosure.
12. Notice of Postponement. The Date of Foreclosure may be postponed one or more times, so long as number of postponed days do not exceed 180 days from the original Date of Foreclosure identified in the Notice of Sale. If the last postponed sale date is 181 or more days beyond the original Date of Foreclosure, the entire non-judicial sale process must be started all over again. Prior to SB 1552, postponement could occur simply by announcement of the new time and place, by the trustee handling the sale. Once SB 1558 becomes operative, written notice of the postponement must also be served on the Borrower and others required parties. The Notice of Postponement must be served at least 15 days prior to the rescheduled date. [Note: The foreclosure trustee may announce a single postponement of not more than two days without giving the written Notice of Postponement to all other parties. – PCQ]
13. Five-Day Right to Cure. The Borrower has the right to “cure” – i.e. prevent the foreclosure sale, but paying all defaults under the Trust Deed not less than five days prior to the Foreclosure Date.
14. The Foreclosure Sale. This terminates the Borrower’s rights in the property. [Note: The Certificate of Compliance issued by the Mediation Service Provider must have been recorded before the foreclosure sale. – PCQ]
It is important to note that many of the details of SB 1552 are still being worked out, such as the form and content of the notices, affidavits, and certificates; selection of the Mediation Service Providers and the Mediators; training of the Mediation Service Providers and Mediators; Identifying the HUD-approved housing counselors; documents that will be required to bring to the mediations; rules for conducting the mediations; time allowed for the mediations, etc., etc. Accordingly, although I am using many of the terms found in SB 1552, some are still in the process of being defined and clarified. We will certainly know much more in the coming weeks and months. – PCQ]
 This summary is for informational purposes and should not be relied upon in lieu of competent professional advice based upon your own specific situation.
 From time to time, I may refer to the “Beneficiary” generically, since SB 1552 permits it to be represented in the mediation by its “agent” e.g. a servicer, attorney, employee, or other person who has express authority to reach a binding agreement upon a Foreclosure Avoidance Measure. If I use the term “bank” I am still referring to the Beneficiary or its agent, unless the context indicates otherwise.