On March 5, 2012, the Oregon Legislature passed a sweeping series of changes to its trust deed foreclosure law, SB 1552. Once signed by the Governor it will become effective 91 days hence. What follows is a summary of (a) the new mandatory mediation law that, after the effective date, will apply to the non-judicial foreclosure of all residential trust deeds; and (b) some important changes to the existing laws governing judicial and non-judicial foreclosures. Between now and the effective date, the Oregon Attorney General’s office will promulgate rules to implement the mediation program. Until then, all we have for guidance is SB 1552 itself. This summary is for informational purposes only and should not be viewed as “legal advice”. Those interested in seeing if the new law may apply to their particular situation should consult with their own legal counsel. – PCQ
1. A New Term: “Foreclosure Avoidance Measures” The entire mediation process contemplated by SB 1552 is based upon the idea that prior to a non-judicial foreclosure, the borrower should have an opportunity to try to reach an agreement with the bank that avoids the foreclosure. To that end, SB 1552 lists the following 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.
Unless an exclusion applies under Sec. 4, below, a bank that seeks to non-judicially foreclose a residential trust deed must now offer to mediate with the borrower “…for the purpose of negotiating a foreclosure avoidance measure….”
2. Oregon Attorney General Involvement As noted above, the Oregon Attorney General will play a pivotal role in establishing the mediation program contemplated by this new law. This involvement includes:
- Appointing a mediation service provider (“MSP”) to coordinate the program.
- Entering into an agreement to pay the MSP from a Foreclosure Avoidance Mediation Fund described in Sec. 12, below.
- By administrative rule, prescribe qualifications, training and experience requirements for mediators.
- By administrative rule, set the schedule of fees for mediations.
- The bank and borrower must comply with the rules promulgated by the Attorney General.
3. Cost of Mediations The bank and borrower are to share the cost of the mediation, but the borrower’s share of the cost may not exceed $200. By administrative rule, the mediator will be allowed to waive the borrower’s portion of the fee based upon circumstance.
4. Exclusions. The bank shall not be required to enter into mediation with a borrower under the following circumstances:
- If they provide the Attorney General with a sworn affidavit stating that during the preceding calendar year they did not commence (or cause an affiliate or agent of the foreclosing entity to commence) more than a total of 250 non-judicial foreclosure actions on residential trust deeds or judicial foreclosures of a residential mortgage.
- If the borrower fails to confirm that he/she will enter into mediation by the date specified in the notice from the MSP discussed at Sec. 5, below.
5. The Mediation Service Provider (“MSP”) Notice to Bank and Borrower Within 30 days after the date on which the bank gives a notice of mediation to be served or mailed as provided in Notice of Sale under ORS 86.740, the MSP is to send a notice to the borrower and bank that:
- Schedules a date, time and location for the mediation. The date must be not be earlier than 45 days, nor later than 90 days, after the date on which the notice of mediation was served or mailed as provided in ORS 86.740.
- Identifies the MSP and provides contact information.
- Specifies a date at least 30 days before the scheduled date of the mediation by which the borrower must contact the MSP to confirm that he/she will enter into mediation. The notice must state that the MSP will deem the borrower to have declined to enter into mediation if he/she fails to confirm by the specified date.
- Lists the costs of the mediation and specifies the portion of the costs for which the borrower is responsible.
- Provides any other information that the Attorney General may require by rule.
6. Contents of MSP’s Notice of Mediation. The MSP’s notice of mediation must be in accordance with the rules established by the Attorney General, including the following:
- The name, address, telephone number and other contact information for the borrower or other person named in the trust deed.
- Specify the account number (or other means by which the obligation is identified).
- Provide the address, telephone number and other contact information for:
- The bank or an agent of the bank that has been authorized to negotiate on the bank’s behalf.
- The Oregon State Bar’s Lawyer Referral Service.
- Service agencies or other providers that offer free or low-cost legal services from a list of agencies or providers identified in the Attorney General rules.
- A list of not-for-profit housing counselors approved by HUD or an Oregon agency.
- State that the law requires the bank to enter into mediation with the borrower for the purpose of negotiating a foreclosure avoidance measure.
- List the documents the borrower must bring to the mediation (which will be identified by the Attorney General’s rule).
- State that the borrower may choose to have an attorney or approved housing counselor represent them at the mediation.
- State the costs of the mediation and specify the $200 maximum cost for which the grantor will be responsible.
- State that the mediation and mediation communications (as defined in ORS 36.110) are confidential in accordance with and to the extent provided in ORS 36.220 to 36.238.
- State that within 30 days after the date of the notice, the MSP will send another notice to the borrower with a date, time and location for the mediation, and the duty to consult with a housing counselor.
7. Duties of Banks at the Mediation If the borrower has timely confirmed his/her willingness to mediate, the bank or their agent is required to appear at the time and the location identified in the MSP written notice (described above) with certain documentation (described below). The bank or their agent must appear in person at the specified location unless the mediator permits them to appear in another manner “for good cause shown.” The fact that the bank or its agent is located outside of Oregon does not by itself constitute “good cause.” The bank or its agent must provide the following documentation at the time of the mediation:
- The borrower’s complete payment history for the debt upon which it is seeking to foreclose.
- Evidence that the bank is the real party in interest with respect to this indebtedness, including but not limited to:
- A true copy of the promissory note upon which the non-judicial foreclosure is based; and
- Documents showing “the chain of title” for the property ‘…from the date of the original loan *** to the date of the Notice of Sale given under ORS 86.740’” (This chain of title is to include “…conveyances, endorsements and assignments of the residential trust deed, the note and the security instrument, whether recorded or unrecorded.”).
- A copy of the authorization from the bank, if its agent appears at the mediation.
- A copy of any of the following documents that apply to the promissory note (or other obligation) secured by the trust deed:
- If the bank owning the loan has a third party servicer, a copy of the servicing agreement is to be provided;
- Any agreements in which the bank owning the loan pledged the promissory note (or other obligation) as collateral for a security issued by the bank or sold all or a portion of the ownership interest in the note (or other obligation); and
- Other documentation the Attorney General specifies by rule.
- The bank or their agent that enter into mediation with the borrower must have, or be able to obtain before the initial mediation session concludes:
- Authority to accept or reject a proposal for a foreclosure avoidance measure; and
- Authority to enter into a foreclosure avoidance agreement with the borrower.
PCQ Comment: Several quick observations: (a) There is no discussion about the role of the holder of a subordinate note and trust deed. Perhaps as many as half of all such foreclosures involve junior lienholders. In some cases, the role of the junior lienholder is pivotal if there is to be a successful foreclosure avoidance measure. At least they should be invited to attend. (b) Similarly, there is no discussion about the role of mortgage insurers, who have been known to withhold their consent to pre-foreclosure solutions unless the borrower signs a promissory note for thousands of dollars. Most banks will defer to the mortgage insurers’ demands. Thus, if the mortgage insurer cannot reach agreement with the borrower, there can be no bank agreement to a foreclosure avoidance measure.
8. The Mediation. At the conclusion of the process, the following may occur:
- If the bank or its agent agrees with the borrower on a foreclosure avoidance measure, they shall set forth the terms in a written agreement, a copy of which the bank or its agent shall provide to the Attorney General.
- The bank may elect to pay the borrower’s portion of the cost of the mediation or they may agree to include the cost of the mediation as part of any payment plan that is part of the foreclosure avoidance measure.
- If the bank or its agent and the borrower do not agree on a foreclosure avoidance measure, the MSP shall so notify the Attorney General.
9. The Certificate of Compliance. At the conclusion of the mediation, the following shall occur:
- If the bank has complied with the participation and documentation requirements of the law, including the Attorney General’s administrative rules, the MSP shall provide the bank or its agent with a certificate of compliance as described by administrative rule expressly stating that the bank complied with the requirements of this law.
- If the borrower failed to confirm to the MSP by the date identified in its notice that he/she would enter into mediation, the MSP is to provide the bank or its agent with the certificate of compliance stating that the borrower declined to enter into mediation.
- The MSP is to provide a copy of the certificate of compliance to the borrower and the Attorney General.
PCQ Comment: What if the bank does not bring all of the required documents? What if they say, “We looked and can’t find them?” What if they provide no proof of a good faith search for the documents? Who is to determine if the bank is actually entitled to a certificate of compliance? Does the borrower have a right to object to the issuance of a certificate of compliance? Perhaps the administrative rules will clarify.
10. Borrowers “At Risk of Default” If a borrower is at risk of default before the Notice of Default has been filed pursuant to ORS 86.735, he/she may notify the bank (or the trustee identified in the trust deed, or the bank’s or trustee’s agent) that he/she wants to enter into mediation. The following shall occur:
- Within 15 days after receiving the request, the bank (or trustee, or the bank’s or trustee’s agent) shall respond to the borrower’s request and shall notify the Attorney General and the MSP.
- The bank’s response to the borrower must include contact information for the Attorney General and the MSP.
- A borrower who requests mediation may also notify the Attorney General and the MSP of his/her request.
- The Attorney General shall post on its website contact information for the MSP and an address or method by which a borrower may notify the Attorney General.
- Within 10 days after receiving notice of the borrower’s pre-foreclosure request to mediate, the MSP shall send a notice to the borrower and the bank that (except with respect to the date by which the MSP must send the notice) is otherwise in accordance with the provisions described at Sec. 6, above.
PCQ Comment: Can the bank say, “We are going to judicially foreclose” and thus avoid the borrower’s effort to mediate ahead of time? Perhaps the administrative rules will clarify.
11. HUD Approved Housing Counselor Consultation A borrower that confirms that he/she will enter into mediation must consult a HUD approved housing counselor before the scheduled date of the mediation. The following details apply:
- If, after consulting with the counselor, the borrower decides not to mediate, he/she shall notify the MSP that sent him/her the written notice (described above) that he/she does not intend to mediate. (The counselor is to inform the borrower of this requirement to notify the MSP.)
- The MSP shall notify the bank or its agent of the borrower’s decision.
- The MSP’s notice of mediation sent to the borrower must include a statement that informs them of their obligation to consult a housing counselor.
- The requirement to consult a housing counselor does not apply to a borrower that could not obtain an appointment for consultation within 30 days after receiving the notice from the MSP. (The MSP’s statement must notify the borrower of this exception.)
- A borrower that intends to claim an exemption from the duty to consult the housing counselor must obtain an affidavit from the MSP and sign it attesting to the fact that he/she could not obtain a consultation appointment within the 30-day period. (The Attorney General shall by rule prescribe the form and contents of the affidavit.)
12. The Foreclosure Avoidance Mitigation Fund The Foreclosure Avoidance Mediation Fund is established in the State Treasury, separate from the General Fund. It consists of moneys the Attorney General collects or receives for the purpose of paying the costs of coordinating this mediation program and its related expenses. The moneys in the fund are to be “continuously appropriated” to the Attorney General for these purposes. Additional provisions:
- The Attorney General may receive moneys from any public or private source.
- A trustee or bank that files a Notice of Default under ORS 86.735 shall pay to the county recording clerk $100 in addition to any recording fee charged for recording the Notice of Default. At the end of each month, the clerk is to forward the proceeds of the $100 charge to the Attorney General for deposit into the Fund.
- Note: There are certain exceptions to the $100 charge if the foreclosing entity does not commence more than a total of 250 actions to non-judicially foreclose residential trust deeds or judicially foreclose mortgages. In order to obtain the exemption, they must provide an affidavit either:
- Within 30 days after the effective date of this Act to claim the exemption for calendar year 2012 and not later than January 31 in any subsequent calendar year; or
- At the time the foreclosing entity files a Notice of Default under ORS 86.735.
13. Bank’s Notice of Borrower Noncompliance If a bank determines that a borrower is not eligible for any foreclosure avoidance measure or that the borrower has not complied with the terms of a foreclosure avoidance measure to which the borrower had agreed, the bank or its agent, at least 30 days before the foreclosure sale date specified for the trustee’s Notice of Sale pursuant to ORS 86.740 or 86.755 (2)(b), shall notify the borrower in writing of the bank’s determination and shall serve the notice in the same manner as the Notice of Sale under ORS 86.740(1). The following requirements apply to the notice of noncompliance:
- It must explain in “plain language” the basis for the bank’s determination.
- The bank or its agent must mail a copy of the notice to the Department of Justice on the same date on which the notice is served on the borrower.
PCQ Comment: Note that the Notice of Noncompliance is intended to warn the borrower that the lender is proceeding with the foreclosure. SB 1552 did not do away with “dual tracking” but at least the borrower is warned now that it is actually proceeding. If the borrower disagrees, they now have 30 days in advance of the sale to initiate litigation or seek some resolution with the bank.
14. Bank’s Affidavit of Compliance At least 20 days before the foreclosure sale date specified for the trustee’s Notice of Sale, the bank or its agent must:
- Record in the public records for the county where the sale is to be held, an affidavit stating that the bank has complied with the requirements for the bank’s notice of noncompliance and mail a copy to the Oregon Department of Justice.
- The affidavit must:
- Identify the property that is the subject of the sale.
- Identify the borrower and the trustee and the beneficiary (as of the date of the affidavit).
- State that the bank or its agent has complied with the requirements of sending out the notice of non-compliance to all necessary parties.
- Include proof of service on the borrower for the notice of noncompliance.
- The Attorney General by rule shall specify a form for, and the contents of, the notice of the borrower’s noncompliance, and shall identify an address to which the bank or its agent must mail the copy of the notice of noncompliance and the affidavit of compliance.
15. Bank’s Failure to Comply A bank or its agent that fails to comply with the notice of noncompliance and affidavit of compliance provisions described in Secs. 13 and 14, above, is liable to the borrower in the amount of $500 (plus the borrower’s actual damages) for each failure to comply. Additionally:
- The borrower may bring an action against a bank or its agent in the circuit court to recover the sums due.
- The borrower must commence the action within two years after the date on which the bank or its agent should have complied, but did not.
- Even if the bank has a contrary agreement with the borrower, a court may award reasonable attorney fees, costs and disbursements to the borrower if they prevail.
PCQ Comment: I assume the intent is to not permit attorney fees to the bank if it prevails. It is not stated, but with a fixed liquidated amount of $500/per violation, it appears that this is the borrower’s sole remedy, i.e. no general or punitive damages.
16. Significant Amendments to Oregon’s Trust Deed Foreclosure Law What follows is a list of the important changes to how non-judicial foreclosures will be conducted in the future:
- The term “residential trust deed” is important in judicial foreclosures of a primary residence. This is because the anti-deficiency judgment protections of ORS 86.770 apply only when a residential trust deed is being foreclosed. Until the effective date of SB 1552, the term “residential trust deed” refers to one that is occupied as such “as of the commencement of the foreclosure.” This meant that for those borrowers who relocated to another primary residence (you can only have one at a time) for reasons such as job relocation or employment opportunity, before the foreclosure was officially “commenced” by filing and service of a complaint, the trust deed was no longer a “residential trust deed.” Thus, if the bank then decided to foreclose the home judicially, there was always a theoretical risk that it could seek a deficiency, since the trust deed was no longer “a residential trust deed.” This will now change. A “residential trust deed” is defined under SB 1552 to mean one that secures a primary residence as of “the time a default that results in an action to foreclose the obligation secured by the trust deed first occurs.”
PCQ Comment: This means that once a default occurs that results in a judicial foreclosure being commenced later, vacating the residence will not result in a loss of the anti-deficiency judgment protections of ORS 86.770. In other words, the only way a borrower would be exposed to the risk of a deficiency judgment following judicial foreclosure would be if he/she moved out before the nonpayment default that ultimately led to the foreclosure (e.g. they vacated while they were still current).
- ORS 86.735, the statute dealing with the filing of non-judicial foreclosures, has been amended to impose the following requirements: (a) The foreclosing bank or its agent must record the certificate of compliance received from the mediation service provider; (b) The bank has provided the borrower with the notice of noncompliance (discussed at Sec. 13, above); and, (c) The borrower is not in compliance with the agreed-upon foreclosure avoidance measure.
PCQ Comment: Note that in addition to recording the certificate of compliance (received from the mediation service provider) at the commencement of the foreclosure, the bank must file the affidavit of compliance at least 20 days before the foreclosure sale date specified for the trustee’s Notice of Sale.
PCQ Comment: This provision will assure borrowers in default that they will have an opportunity to mediate if they feel it necessary. In many cases, modification leaves buyers in the dark about the status of the process or the reasons for denial. This law should provide more transparency for those who need it. We’ll know more once the A.G. completes the rulemaking.
- A copy of the Notice of Sale must be sent to the mediation service provider appointed by the Oregon Attorney General.
- If the non-judicial sale is postponed, the foreclosure trustee, in the manner provided for service of the Notice of Sale under ORS 86.740 (1), shall give written notice of the new time, date and place for the sale to the borrower and any other person to whom Notice of Sale was given under ORS 86.745. The notice must be given at least 15 days before the new sale date. The sale may be postponed once, for not more than two calendar days, without giving the 15-day notice. The sale may not be postponed for more than two calendar days or more than once without giving the 15-day notice.
PCQ Comment: Until now, the only way a borrower would know if their foreclosure sale was postponed was to attend the sale. This was because postponement only officially occurred when the foreclosure trustee said so at the time of the sale – or simply did not conduct the sale at that date and time. This was a cause for consternation to borrowers for several reasons: (a) If they were in the process of trying to secure a short sale or other pre-foreclosure solution, they could never be quite sure if or when the sale was actually held; (b) If they were members of a planned community, their HOA assessments did not stop until the property changed hands, i.e. to the bank or the third-party purchaser at the sale. In some instances, borrowers stopped paying their assessments as of the scheduled sale date, only to find out months later that the foreclosure sale had been postponed – meaning they were still personally liable; (c) knowing the actual date of the postponement in a written notice is better for borrowers who for various reasons do not know to go to the foreclosure trustee’s website (the accuracy of which is not guaranteed); or (d) they were simply expecting the sale to occur on a date certain so they could “move on.” In all of these cases, the new requirement that the notice of postponement be in writing gives more certainty to borrowers about what to expect and when to expect it. (Note that these provisions only apply to postponements. If the sale is “cancelled”, i.e. there is no new date scheduled – which can happen for no apparent reason, or because the lender decided to foreclose judicially – this new law may not apply.)
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