Oregon Laws – The Interim 2008 Legislative Session and 2009 Regular Session produced many new laws designed to address many of the problems created by the credit and real estate crises existing since late 2007. What follows is a list of those important for Realtors® to be aware of when representing their clients.

SB 628 – This law amends the Notice of Default (“NOD”) that is required to be given by lenders commencing the foreclosure of a trust deed securing the borrower’s primary residence. Here is a quick summary:

• It requires that the NOD advise the borrower of the loan modification process and requires that a modification request form be given to them.
• It requires that the lender evaluate the borrower’s information in a timely manner and process the modification request form in good faith.
• It gives the lender 45 days of receipt to respond.
• It prohibits completion of the foreclosure sale until after the lender has responded to the borrower’s modification request.
• It outlines procedures for the lender to follow if the borrower makes a timely request for a meeting.
• It requires the filing and recording of the lender’s affidavit – on or before the date of the foreclosure sale – describing compliance with these procedures.
• It exempts trust deeds that the lender, in good faith, determines are ineligible for loan modification. It does not apply to the foreclosure of properties secured by a trust deed that a government agency holds for loans funded through a government program.
• It is effective on July 30, 2009.₁

HB 3004 – This law provides that following the foreclosure of a primary residence, other secured lienholders on the same property may not pursue a deficiency against a borrower on any additional trust deed secured by the property. Thus, foreclosure of a piggyback second mortgage or a subordinated HELOC secured on a principal residence are all exempted from any deficiency judgment. The law does not extend this protection to guarantors of the note and trust deed, but does prohibit actions by the guarantor against the borrower. The bill became effective in August, 2009.₂

HB 3656 – Due to confusion about the legal effect of HB 3004, the Oregon legislature, in its 2010 Special Session, re-wrote HB 3004 – which is now better, but not free of questions. As it stands, the Oregon law seems to protect borrowers against promissory note liability on both the first and second promissory note and trust deed – so long as they were taken out at the same time and with the same lender. Unfortunately, in referring to lenders, the Legislature added the words “…or an affiliate.” Thus, today there is a school of thought that if there were different lenders at the time of closing, but the first or second, or both, sold their paper to an “affiliate” the anti-deficiency protection would still apply. While the Legislature had it in their power to define “affiliate” in law, it chose not to – thus leaving it to attorneys to argue the law’s meaning in court.

SB 952 – This law requires that if the property being foreclosed is occupied by a tenant under the Oregon Residential Landlord Tenant Act, the lender’s notice of default must include a notice to any persons in possession. The notice must include, among other things, contact information for the Oregon State Bar and a person or organization that provides legal help to tenants at no charge. The law also provides that the purchaser at the foreclosure sale must give the tenant in possession not less than 60 days notice of termination if possession is under a written fixed term tenancy (i.e. a lease) and 30 days if it is a month-to-month tenancy. However, the 30 and 60-day periods only apply if at least 30 days before the date first set for the trustee’s sale the tenant provides the trustee handling the foreclosure, with a copy of the rental/lease agreement that established the tenancy. It became effective in August 2009. The law makes it clear that subject to limited exceptions, the purchaser at the foreclosure sale is not considered a “landlord” under the Oregon Residential Landlord Tenant Act unless he/she: (a) Accepts rent from the person in possession under the tenancy; (b) Enters into a new rental agreement with the person who possesses the property; or (c) Fails to terminate the tenancy by giving the 30 or 60 day notice following the foreclosure sale. However, the purchaser may act as a landlord for purposes of terminating a tenancy in accordance with the provisions of ORS 90.396, which authorizes the issuance of a 24-hour notice of termination for certain outrageous acts, including violence or the threat of violence. The law also exonerates the purchaser from liability to the tenant due to damage to the property or return of a security deposit, so long as neither event occurred after the trustee’s sale.₃

HB 2481 – For those Realtors® from California, where this issue first arose, some sellers were recording covenants on the land, which called for the payment of money or fees when the property was transferred. This law prohibits any conveyance or agreement for transfer of real property from imposing fees or other consideration upon future transfer of the property. There are certain exceptions. It is effective June 17, 2009.₄

HB 3630 – Oregon’s Foreclosure Consultant Law. This law was a product of the 2008 Oregon Interim Legislative Session. As the housing boom became a housing bust, many homeowners found the interest on their adjustable loans resetting at rates they could no longer afford. The effect was that sellers sought to extricate themselves from these high interest rate loans by either selling the home, refinancing, or seeking a loan modification. Investors, many from California with cash pulled out of their HELOCs₅, had come to Oregon to buy “cheap” rental housing. They too were caught in the crunch, because they soon found they had either bit off more than they could chew, they could not afford the higher HELOC interest rates, and/or they could not dispose of their Oregon rental inventory. Real estate during the 2004 – 2008 period was almost considered a “liquid asset,” like stock, that could be quickly sold. Alternatively, it could be quickly refinanced with little or no pre-qualification. However, once both liquidity and financing froze up, homeowners and investors were now stuck with assets they could no longer afford to hold over the long term.

Enter the “consultants” who, for an up-front fee, would offer to help owners in doing everything from seeking loan modifications, assisting in negotiating with the bank on short sales, or they would enter into an unrecorded purchase arrangement, allowing the seller to remain in there as a renter, while the consultant sought a buyer themselves, did a short sale, and pulled all of the remaining equity out of the home for their own benefit. As a result, in the 2008 Special Legislative Session, Oregon adopted what became known as the “Mortgage Rescue Fraud Protection Act” aka “The Foreclosure Consultant Law.”₆

The full list of services falling under the Foreclosure Consultant Law include activity designed to: (a) Prevent, postpone or stop a foreclosure sale; (b) Obtain a forbearance from a beneficiary or mortgagee; (c) Assist the homeowner in exercising a right of redemption; (d) Obtain an extension of the period within which the homeowner may reinstate the homeowner’s obligation; (e) Obtain the waiver of an acceleration clause that is: (A) Contained in a promissory note or contract; and (B) Secured by or contained in a deed of trust for, or mortgage on, a residence in foreclosure or in default. (f) Assist the homeowner’s credit resulting from a recorded notice of foreclosure or default.

Unless expressly excluded from the coverage under the Bill, if an individual meets this broad definition of a “mortgage consultant,” – either “directly or through association with another….” they automatically become subject to a variety of strict legal requirements that must be met before they are entitled to provide, or be paid for, mortgage consulting services.

The compliance requirements include such things as: (a) Providing a written contract with full disclosure of the nature and extent of the services the foreclosure consultant is to provide; (b) The contract must be written in the language that is spoken by the homeowner and that was used in discussions between the homeowner and foreclosure consultant; (c) A full disclosure of any compensation the foreclosure consultantor a person working in association with the foreclosure consultant is to receive; (d) An explanation of certain rights of cancellation of the foreclosure consulting contract. (Italics added.)₇

The failure to comply with this law may constitute an unlawful trade practice, which could result in the assessment of general and punitive damages and an award of attorney fees. Oregon licensed real estate agents and lawyers are exempted from the law, so long as they are engaged in “professional real estate activity.” In addition to the standard brokerage transactions that licensees are permitted to do, ORS 696.010(15(L) expressly provides that “professional real estate activity” to include one who, for compensation or the expectation of compensation “…advises, counsels, consults or analyzes in connection with real estate values, sales or dispositions, including dispositions through eminent domain procedures….”₈

Clearly, the short sale process, which many brokers are engaged in today, is an activity that would fall under the Mortgage Consultant Law (e.g. “…preventing, postponing, stopping, or obtaining forbearance from a pending foreclosure….”) but for the language expressly exempting them. So while having a short sale discussion with the seller, it is almost essential to make sure the owner has, or will, explore other alternatives, such as a loan modification, refinance, deed-in-lieu, etc. even though these alternatives will not entail an actual sale of the home – or a commission to the broker. However, such a discussion is necessary to protect against the claim that the broker pushed the owner into a short sale transaction when he/she had other, perhaps, better, alternatives, which they did not know about. How this discussion occurs is important in order to avoid an accusation that the broker is engaging in the unlawful practice of law.

Accordingly, licensees must always make sure their clients are aware of three important facts: (a) The licensee is not an attorney; (b) The licensee is not rendering “legal advice”; and (c) The owner should consult with one or more experts in areas such as law, tax, finance, and credit consulting.

Based upon the above and the volume of complaints that the HVCC is resulting in inaccurate and undervalued appraisals, perhaps NAR’s request for an 18-month moratorium is a good one. During that time we could determine if its unintended consequences outweigh any consumer benefit.

HB 2191 – Oregon’s Debt Management Law. – Apparently there was some miscommunication – or no communication at all – when the Legislature met during its 2010 Special Session and passed this law. While it appears that its primary target is debt consolidators, it overlaps with the foreclosure consultant bill a year earlier, HB 3004. The important thing to know about HB 2191 is that if one does the sort of things that define a foreclosure consultant (including short sales) that they must be registered with the Oregon Department of Consumer and Business Services (“DCBS”) and also be bonded.

However, the real problem with HB 2191 is that it does not exempt real estate licensees. So on its face, it appears that technically, a licensee engaged in negotiating with a bank for their seller-client’s short sale, is not a violation of HB 3004 (the foreclosure consultant law) but it is a violation of HB 2191 (the debt management law) unless the licensee is registered and bonded.

Fortunately, the DCBS has implemented administrative rules that seem to resolve the problem. Essentially, they permit real estate licensees to engage in short sales and related conduct on behalf of distressed property owners – so long as they are doing so within the course and scope of their professional real estate activity for which they were licensed. However, the litmus test is whether they demand or receive any “extra” compensation, above and beyond their regular commission. If they do, they still have to be registered through the DCBS and bonded.

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Footnotes

1. http://www.leg.state.or.us/09reg/measpdf/sb0600.dir/sb0628.en.pdf
2. http://www.leg.state.or.us/09reg/measpdf/hb3000.dir/hb3004.en.pdf
3. http://www.leg.state.or.us/09reg/measpdf/sb0900.dir/sb0952.en.pdf
4. http://www.leg.state.or.us/09reg/measpdf/hb2400.dir/hb2481.en.pdf
5. Home Equity Line of Credit.
6. HB 3630. The legislation consists of two primary sections: (1) Engaging in mortgage consulting; and (2) Dealing in “equity conveyances” – i.e. where the “consultant” takes an interest in the subject property for purposes of selling it or, if unsuccessful, reconvening it back to the debtor. This material only deals with the mortgage consultant aspect. In my opinion, the second portion of the law is very risky for anyone to engage in, whether they are a Realtor®, investor, etc. even though they may have complied with the letter of the law. Washington’s version of this portion of the law calls it “equity stripping” which is essentially what is occurring, i.e. the owner loses all of their equity in their home while the consultant gains control of it and flips it for a profit. Title companies have become very wary of these equity stripping schemes, and some will not handle any transaction that involves a double closing. Fannie and Freddie have issued regulations about this practice, which are discussed later in this article.
7. See Section 4 of the Bill for a complete enumeration.
8. There are several other exempted professions, including, mortgage brokers, title insurers, etc. so long as they are acting within the scope of their license.