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 “It’s one thing to be stubborn when relying on well-reasoned principle; it’s quite another to be stubborn relying on no principle.” Anonymous [Sort of.] 

 

An interesting, though not surprising, article recently appeared in The Oregonian, titled: “Lenders not engaging in Oregon foreclosure mediation program.”  Before discussing what’s behind the banks’ decision, it is necessary to understand that SB 1552, Oregon’s mandatory mediation law, is essentially focused on the following two groups:

  1. Folks whose trust deed is being foreclosed non-judicially.  That is, a Notice of Default has been recorded in the public records. This event triggers the mandatory mediation law, and requires lenders[1] to offer the borrower an opportunity to meet and mediate, to see if an agreement can be reached on a specific “foreclosure avoidance measure” [e.g. modification, deed-in-lieu, short sale, or any other such mechanism that avoids the foreclosure]. If the borrower timely responds, complies with other criteria, and pays a $200 filing fee, the foreclosing lender must participate.  If the lender does not participate, or fails to do so in good faith,[2] it cannot receive the coveted “Certificate of Compliance” from the mediator.  This Certificate must be recorded on the public record before the sale can occur.  No Certificate, no foreclosure.[3]
  2.  Folks who are not in a formal non-judicial foreclosure, but due to their economic circumstances, are “at risk” of default under their note and trust deed.  The law does not define at “at risk” borrower.  Thus, it could be someone who is still current, but is on the cusp of defaulting due to the high cost of their mortgage payments; or it could be someone who hasn’t paid for a year, but the bank has not yet commenced any foreclosure.  Thus, even if a bank routinely forecloses judicially, such as Wells Fargo, before the foreclosure is filed in court, an “at risk” borrower could request that Wells enter into mediation to see if the parties could agree on a foreclosure avoidance solution.  But the sticking point in “at risk” mediations is that SB 1552 contains no sanction for lender non-compliance.[4]

The recent Oregonian article focused largely on folks in category No. 2, since clearly, banks that commence non-judicial foreclosures in Oregon must comply.  So, with that preface, herewith are some snippets from the Oregonian article:

  •  “The state’s contractor charged with running the mediation program told an advisory committee in Salem on Wednesday that 132 eligible homeowners applied for the program on the grounds that they are at risk of foreclosure. The law allows at-risk borrowers to request a meeting with their lender even before they’ve missed a payment. *** But none of the mortgage servicers responded to the requests within 15 days as required under the law that created the program.”
  • “When asked by The Oregonian for the reason, the answer was simple: ‘They just don’t want to play,” said Jonathan Conant, who is managing the state mediation program on behalf of the Florida-based Collins Center for Public Policy. He added that the five largest lenders operating in the state have indicated they won’t participate in the mediation process under any circumstances.’”
  • “Meanwhile, lenders have also stopped filing out-of-court foreclosures. More are proceeding with court-supervised foreclosures, avoiding the mediation program altogether through the traditionally slower and costlier judicial foreclosure process.”
  • According to the article, here’s what the Lender’s Lobby and Lackeys say:
    • “There is just so much coming at these folks in terms of new requirements,” Markee[5] said. ‘Many of them are talking to their legal counsel and other learned people trying to make rational decisions about how to proceed with this issue.’” [Hmm. “Legal counsel and other learned people….” Now there’s a phrase that begs to be parsed. Hopefully, at least one such “learned” person will include someone schooled at the College of Common Sense.  Just a small dose would hopefully convince the Big Banks that totally ignoring Oregonians’ pleas for help will backfire.  More about this later. – PCQ] 
    • Markee and Kenneth Sherman Jr., general counsel for the Oregon Bankers Association, both told the advisory committee they couldn’t explain why mortgage servicers hadn’t responded to the requests for mediation. [Sorry guys – But as a fellow lawyer, I don’t believe that for a minute. First, you wouldn’t even talk to The Oregonian without your clients’ OK.  Secondly, you wouldn’t be quoted saying  anything without first having it vetted by your clients in advance. Third, to say you “don’t know,” really means that your Big Bank clients told you to say you “don’t know.”  Fourth, you do know.  The real reasons are pretty clear.  But if struggling Oregon homeowners were told the real truth, they’d quickly decide that your industry should never be permitted to conduct business in this state again. More about this later. – PCQ]

Before moving on, let’s look at the actual text of the law.  What follows is taken from Section 2(7)(a) of SB 1552, the “at risk” provisions.  The references to “grantor” refer to the borrower; the “beneficiary” is the lender or servicer that is foreclosing; the “trustee” is the foreclosure trustee who actually conducts the non-judicial foreclosure process; and the “mediation service provider” is The Collins Center for Public Policy, which has been designated by the Oregon Attorney General to coordinate all mediations arising under SB 1552.

  • “A grantor that is at risk of default before the beneficiary or the trustee has filed a notice of default for recording under ORS 86.735 may notify the beneficiary or trustee in the trust deed or the beneficiary’s or trustee’s agent that the grantor wants to enter into mediation. Within 15 days after receiving the request, the beneficiary or trustee or the beneficiary’s or trustee’s agent shall respond to the grantor’s request and shall notify the Attorney General and the mediation service provider identified in subsection (2)(b) of this section. The response to the grantor must include contact information for the Attorney General and the mediation service provider.”  [Emphasis mine.]
  • “A grantor that requests mediation *** may also notify the Attorney General and the mediation service provider of the request. The Attorney General shall post on the Department of Justice website contact information for the mediation service provider and an address or method by which the grantor may notify the Attorney General.”
  • “Within 10 days after receiving notice of the request *** the mediation service provider shall send a notice to the grantor and the beneficiary that, except with respect to the date by which the mediation service provider must send the notice, is otherwise in accordance with the provisions of subsection (3) of this section.”
  • “A beneficiary or beneficiary’s agent that receives a request under paragraph (a) of this subsection is subject to the same duties as are described in [the remaining applicable provisions of SB 1553].”

So when the 2012 Oregon Legislature said that when an “at risk” borrower requests mediation, “…the beneficiary or trustee or the beneficiary’s or trustee’s agent shall respond to the grantor’s request and shall notify the Attorney General and the mediation service provider….” [Emphasis mine.]  – what did it mean?

As lawyers, we were taught that when certain legislative action is called for, it can be divided into those that are required versus those that are only permissive [or in legal parlance, those that are “precatory”].  For example, words like “shall” and “must” are mandatory.  Compliance is compulsory.  Words such as “may,”  “should,” “can,” etc. are permissive.  An example of a permissive statement in a will, might be: “I hope that my son and daughter will keep the house in the family.” It is purely a wish or desire; it is not a requirement.  The will does not say that the son and daughter cannot sell the family home; to the contrary – they can do so without violating the terms of their inheritance.

However, as any sixth grader knows when his parents tell him that he “must do his homework before being allowed to play outside with his friends,” there is little room left for negotiation.  So it is with the use of mandatory words such as “shall” in the “at risk” provisions of SB 1552.  Had the Oregon Legislature intended for banks to have a  choice in deciding whether or not to respond to an “at risk” borrower’s request to mediate, it could have easily said so by using permissive rather than mandatory words.  By changing a single word, the mandate for how Big Banks are to deal with mediation requests from “at risk” Oregon homeowners would be entirely different.  For instance, it could have said:

“Within 15 days after receiving the request, the beneficiary or trustee or the beneficiary’s or trustee’s agent may respond to the grantor’s request by notifying the Attorney General and the mediation service provider identified in subsection (2)(b) of this section.”

Clearly, such a simple change was within the power of the drafters of SB 1552.  To put a finer point on all this, let’s look at other portions of the “at risk” provisions quoted above:

  • “A grantor that is at risk of default before the beneficiary or the trustee has filed a notice of default for recording under ORS 86.735 may notify the beneficiary or trustee in the trust deed or the beneficiary’s or trustee’s agent that the grantor wants to enter into mediation. [Emphasis mine.]
  • “A grantor that requests mediation *** may also notify the Attorney General and the mediation service provider of the request.” [Emphasis mine.] 

Clearly, the use of the word “may” in these two instances, is because not all “at risk” borrowers” may want to mediate.  And if they choose to mediate, they may not elect to notify the Attorney General. Those that do, can, and those that don’t, need not.  These are voluntary choices; not mandatory imperatives.

Voilà! Now we know that the drafters of this legislation understood the difference between “shall” and “may”!  They were used differently for a reason.  Now was this all that difficult?

Remember, that both the lender and consumer lobbies were at the table when SB 1552 was negotiated.  The Big Banks and their high paid lawyers could have pushed back on the choice of “shall” or “may” – but they didn’t.  And so, when I hear lawyers, lobbyists and lender lackeys say that the Big Banks need to consult with “legal counsel and other learned people *** to make rational decisions about how to proceed…” I want to gag.  Why the handwringing? “Shall” means “shall.”  “May” means “may.”  It’s not like we’re trying to interpret the First Amendment to the Constitution.

So when the mandatory mediation law says that banks “shall” respond, there is no room to rationally argue that they have a choice of not responding. Ignoring “at risk” Oregon homeowners who want to mediate a foreclosure avoidance solution clearly violates the spirit and intent of the law.  And like so many other legal positions taken by Big Banks over the last five years, this too will come back to haunt them. [Continued in Part Two]


[1] This law does not apply to individuals, financial institutions, mortgage bankers, and consumer finance lenders     that commenced 250 or fewer foreclosures in the preceding calendar year.

[2] In Big Bank lexicon, the term “good faith” is noticeably absent, so we can expect an argument from the lenders’ lobby and lackeys, as to exactly what that term requires of them.

[3] Note that 1552 only applies to non-judicial foreclosures.  Thus, a lender could decide to avoid the mandatory mediation process altogether, and simply file the foreclosure in court, and proceed judicially.

[4] Lest someone say that this was a bonehead mistake, I think not.  Legislative negotiations on such a volatile issue can result in an impasse, where the consumer lobby must say to itself, better to have the provision included, even without a built-in enforcement mechanism, than to have nothing at all.  I agree.  The fact that mandatory mediation is in the law at all, is a minor miracle.  I’m comfortable with leaving it up to a judge to determine if it’s OK for the Big Banks to thumb their noses at Oregon’s distressed homeowners. So far, the courts have been lining up pretty consistently behind the Little Guy – Niday being the most recent example.

[5] Jim Markee, a lobbyist representing the Oregon Mortgage Lenders Association.

On July 11, 2012, Oregon’s mandatory mediation law will go into effect.  For a summary of the law and time lines, go to my posts here and here.  In anticipation of this important new law, I’ve developed a glossary of terms [go to this link]  for use by those involved in the mandatory mediation process. Hope it helps! – PCQ

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 Continue reading “Oregon’s Mandatory Mediation Law – The Timelines”

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….” Continue reading “Oregon’s SB 1552 Analyzed – Mandatory Mediation and More!”

Can I sell my home (i.e. my “primary residence”)  for less money than I owe to my bank? The short answer is that “it depends.”  If there is only one lender and the short sale price clearly represents the current fair market value of the property, the answer – in Oregon, at least – is most likely “Yes.”  If there are two lenders, the issue becomes more complicated, but in many cases, the answer is still “Yes.”   Short sales have been with us for several years now.  However, it hasn’t been until the last year, or so, that banks have finally come around to understanding that actually, short sales represent a far better alternative than foreclosure in almost all cases.   The reasons, for bank and borrower, are the same: time and money.
  1. While all distressed transaction will negatively impact one’s credit, short sales can be completed faster than foreclosures.  This means that credit repair can begin sooner with a short sale.
  2. Lenders are finally realizing that short sales eliminate the title risk that can occur when they take properties back via non-judicial foreclosure.
  3. In some cases, second position lenders can retain deficiency claims after being foreclosed by the first position lender.  The short sale process brings this issue to a head before closing, thus giving borrowers the ability to actually negotiate the matter.  Negotiation in advance is a far preferable alternative than having the home foreclose and then waiting to hear from a collector seeing repayment at some unknown time in the future.  Remember: The statute of limitations for commencing legal action on a promissory note is six years.  This means that the collection company has plenty of time to wait for the borrower to get back on their feet.
  4. Typically, if a homeowner wanted to do a deed in lieu of foreclosure, the bank will require that they first try to complete a short sale.  So distressed homeowners should commence a short sale sooner rather than later, even if they believe it will be unsuccessful. The deed in lieu should be Plan B; the short sale Plan A.
  5. Most people with significant negative equity are distressed; the short sale process is the fastest way to get past this unpleasantness, since it can be completed sooner than the other two alternatives, foreclosure and deed in lieu of foreclosure.
  6. Many big banks have significant REO inventory.  This means they are incurring millions of dollars of carrying costs that will continue until they can re-sell the home.  Short sales do not increase REO inventory since they get the home off their books and into the open market sooner. This savings of time and money is even more significant if the lender is foreclosing judicially, since there is a six-month right of redemption following the sale.  (The “right of redemption” is the period, provided by statute, that foreclosed borrowers have to repurchase their home after the sale.  This statutory right only has value when the foreclosed borrower had equity, which is rarely the case today.)  Nevertheless, this right of redemption means that the property must remain in the banks’ REO inventory even longer following a foreclosure.
  7. Banks are starting to realize that short sales yield better prices than REOs.  According to a recent Bloomberg article, short sale proceeds were 15% higher than foreclosure or REO sale proceeds.  (And according to the article some lenders are actually paying delinquent borrowers to pursue non-foreclosure solutions. To read the entire article, go to this link.
  8. Nonpayment of one’s mortgage is the only way to invite a foreclosure.  But if a distressed homeowner first stopped making their loan payments in 2012, the foreclosure will not likely be completed until 2013.  We don’t yet know whether the government will extend the 2007 Mortgage Forgiveness Debt Relief Act (which cancels the income tax on debt forgiveness) now set to expire on December 31, 2012.  Since a short sale can usually be completed in six months, there is still plenty of time this year to close it before December 31.
  9. For homeowners wanting to relocate for employment or other reasons, they will generally find the short sale a faster solution than a deed in lieu or a foreclosure, and frequently it can be handled even after they have moved.
  10. Although some are faster than others, generally, most short sales, once started, actually do result in a successful closing.  In other words, unlike loan modification, which can be an exercise in futility, short sales do produce results.

[Caveats: 1. The following information is solely based upon Oregon law.  Residents from other states should not assume their laws will result in the same outcome. 2. This post is for informational purposes only and should not be relied upon as “legal advice” for your particular situation.  In all cases, you should consult with your own attorney.  There are many facts and circumstances that can change results.  You need to speak with an expert who is familiar with the terms of your specific loan. – PCQ] As we enter 2012, four to five years following the real estate and credit debacles – depending on your location – we’re still in the doldrums.  Drifting, and not moving in any specific direction.  So, are there any words of wisdom, any encouragement, any sense that this static economic situation will improve? To those looking for predictions, this post is not for you.  I have insights, but suspect they are no better than the next person’s.  However, having said that, for those readers interested in a discussion about some of the Portland housing statistics, go to this link.  Beyond that, for the present, I will refrain from the temptation to say what I think the future holds for Oregon’s housing inventory or its Realtor® industry.  I’m saving that for another time. Rather, the purpose of this post is to provide some degree of encouragement.  This is not to suggest that things will necessarily turn around this year – or at least not materially so – but that things could always be worse; that life, by definition, is a series of highs and lows, and  events are rarely as good, or as bad, as they may first appear. So what do we make of this housing recession, foreclosure mess, and tight credit, all coupled with lagging employment numbers? What about those – now estimated to be nearly 30% of American homeowners – who are struggling with negative equity, meaning that their total mortgage indebtedness exceeds their home’s value? Continue reading “Distressed Housing: This Too Shall Pass”

As we move into the New Year, our friends in the banking, servicing, and title industries have hastily convened a conference call to deal with the latest MERS setback in court.  It seems that when Fannie Mae sought permission to evict some folks from the home it had recently foreclosed, the local Jackson County Circuit Court Judge said “Fannie May Not.”  As usual, Belial Bank’s devilish President and CEO, B.L. Zebub, moderates.  He is joined by his trusted cronies to consider what to make of this decision coming out of sleepy Southern Oregon.  In attendance with  B.L. is his honest but naïve legal intern, Les Guile, who, of late, has developed a tendency to speak more freely.  Could it be that a conscience stirs within this young novitiate, and that he is tiring of the Machiavellian personalities on these calls?  Also in attendance is title industry hand-wringer Liz Pendens and her nemesis, Dee Faulting, of the default servicing industry.  Damian Faust, Belial’s lead counsel and hatchet man is present, as is the Bank’s chief schemer and PR man, Kenneth Y. Slick III (aka “KY”).  B.L.’s loyal secretary, Lucy Furr, has dutifully transcribed this conversation, although she apparently forgot to “scrub” it, as instructed by B.L.   As before,  I am unable to disclose the source of this purloined post. – PCQ

B.L. Zebub: “I just read the decision in Federal National Mortgage Association vs. Goodrich. Well, the timing couldn’t be more prophetic; December 7, 2011 and we find out we just got bombed in court.  Folks, I want to know what happened here!   This was a little garden variety eviction.  It can’t get much simpler than that.  All the bank has to prove is their superior right of possession.  We have our high-powered bank attorney flown all the way down to……..where is it “Jackson County” Orygon?  Where the hell is that?  Quick, someone, see if you can locate it on an AAA Trip Tik!  I doubt it.  Do they even have an airport there?  Did we have to pay to have our attorneys chauffeured to court again?!  That’s the problem – all those backwater bleeding heart liberal judges feeling sorry for the little guy!  I had a bad feeling about this case the minute I found out it wasn’t going to be tried in Portland.  It seems the farther away from the city you get, the more risk there is that some wild-eyed lib is gonna take issue with MERS.  Remember what happened in the Flynn case?  Where was that, Columbia County – wherever that is?  Damien, enlighten us. What went wrong?  I assume our lawyers take off their Rolex watches and Tiffany jewelry before they go to court.  We don’t want these hayseeds thinking that we actually make a pretty good living foreclosing Oregonians out of their homes.” Continue reading “Belial Bank Conference Call Discussing The Goodrich Decision & MERS”

As we know, until recently, the vast majority of foreclosures in Oregon were conducted non-judicially, by advertisement and sale.  However, due to the McCoy and Hooker decisions,[1] the efficacy of this method of foreclosure has been placed in doubt. The proposal described below suggests that before filing judicial foreclosures, homeowners be offered an opportunity to convey the property back to the bank in lieu of foreclosure. This would avoid any McCoy/Hooker title problems, since the deed would come directly from the homeowner.  If there were subordinate liens on the property, the lender could either negotiate a voluntary removal of that lien, or could decide to foreclose judicially or non-judicially without the borrower’s involvement. This solution would provide significant benefits: (a) Lenders could avoid the costly filing fees, legal fees, and prolonged foreclosure process, compounded by the six month right of redemption; (b) Borrowers would be able to transition out of their distressed housing situation sooner, and would avoid having to hire an attorney to explain their rights; (c) The Oregon court system would avoid the time and cost of ramping up for hundreds or thousands of judicial foreclosures, saving significant money and administrative time.  – PCQ Continue reading “The Deed-In-Lieu-of-Foreclosure: A Solution Whose Time Has Come”

 

Senior Supervisor, Bank Hardship Letter Department

Have you ever been curious about what “test” the Big Banks apply when deciding to allow short sales?  I have.  What follows is my analysis only.  Readers are free to disagree; but remember, a couple of anecdotal stories overheard at a cocktail party, do not a trend make.  There are rules and there are exceptions to those rules.  I’m interested in the rules. – PCQ

First, we know that the Big Banks all base their borrower assistance programs on the concept of “deservedness.” Now, with the help of a sleeper agent working “deep cover” at the highest levels of a Big Bank, we have discovered the following purloined paperwork (including this candid staff photo taken at work), describing, in depth, the inner workings at one lender’s Hardship Letter Department:

“You get our help only if you deserve it. To be deserving, you must have a “hardship.” We get to define the meaning of “hardship.” It must relate to something unplanned or beyond your control[1]:  Such as illness, death, divorce, job loss, financial inability to pay, mandatory relocation, etc.  Pregnancy cannot be “unplanned” or “beyond your control” according to the Planned Parenthood folks, so it won’t get you into our “deservedness” line.

When you seek our help, we expect you to prepare and sign, under oath and penalty of perjury, a “Hardship Letter,” describing in detail, your tale of woe, beginning from early childhood and continuing through adulthood.  We ask that it be hand written on cheap bond notebook paper (blue lines only – and no fancy yellow legal pad paper!), with a No. 2 pencil and shaky hand.

Before writing your Hardship Letter, we recommend watching one or more of the following sad movies to serve as your cinematic Muse and help conjure up the appropriate melancholy [in no specific order]: Titanic, Schindler’s List, Steel Magnolias, and Ordinary People.  For the distressed older Baby Boomers, we suggest Love Story and Old Yeller. Continue reading “Do You Know Who Just Read Your Hardship Letter?”

The Conundrum. In Oregon we have a foreclosure conundrum:  ORS 86.735(1) requires lenders to record all successive trust deed assignments when non-judicially foreclosing a trust deed.  However, lenders have routinely either lost, never created, or destroyed, their trust deed assignment documents during the securitization frenzy of 2005 – 2007. This means that starting with the subprime loans, and working their way up the food chain, lenders have been non-judicially foreclosing trust deeds without recording the necessary assignment documents. This has resulted in two significant court rulings [McCoy in Oregon’s federal bankruptcy court, and Hooker, in Oregon’s federal district court – PCQ] holding that these defective non-judicial foreclosures are invalid.The upshot has been that title companies have become skittish about insuring marketable title when banks attempt to sell their REO properties following a non-judicial foreclosure. In order to avoid the problem, many banks have decided to take a “poison pill” – that is, even though it  benefits no one, they are beginning to judicially file foreclosure lawsuits in court, in order to avoid the McCoy and Hooker problem that was limited to non-judicial foreclosures.

However, the judicial foreclosure alternative carries with it a host of unpleasant side effects for everyone.

  • It entails costly court filing fees;
  • It taxes already limited judicial resources;
  • It requires that borrowers be given a six-month right of redemption following the foreclosure sale, which hampers the lender’s ability to quickly re-sell the property;
  • It creates a potential public record and credit stigma on borrowers, who now have a court judgment taken against  them;
  • It continues the oppressive psychological impact on borrowers who are served, sued, and then must retain an attorney to figure out their legal options;
  • It continues  the reputational damage of Big Banks, by drawing further attention to the never-ending foreclosure crisis.

The Solution. Is there a better alternative?  Yes, and it is in plain sight.  I have discussed it in a prior post, here. The answer  is to secure a pre-foreclosure result. This is not rocket science. “Is anyone home, McFly?” Here’s a pre-foreclosure solution that banks should embrace, rather than continuing to pile on beleaguered homeowners, just because lenders and servicers can’t seem to comply with Oregon’s non-judicial foreclosure law:

  1. Prior to commencing any foreclosure, judicial or non-judicial, lenders should contact the borrower to see if they would execute a Deed-in-Lieu-of-Foreclosure (“DIL”).  It would be “without merger”, which would permit the lender to foreclose a subordinate lienholder, if necessary;
  2. The DIL would contain certain borrower title warranties to the effect that they have not placed or permitted undisclosed liens on the property [this would be confirmed with a lender’s title policy, of course. – PCQ];
  3. The lender and borrower would execute a global settlement of all claims – including any borrower rights of redemption and any lender rights to a deficiency judgment;
  4. The borrower would agree to turn over the subject property to the lender in broom clean condition;
  5. If a foreclosure lawsuit was already filed, the lender would execute a Judgment of Dismissal against the borrower, “with prejudice and without costs or fees”.

 

Win-Win. It would seem that this DIL solution would result in a win-win for all parties and the Oregon judicial system.   Assuming that there are no lienholders on the property that may have priority claims, that puts an end to all the unpleasantness; the borrower gets on with their life.

If a foreclosure suit was already filed, the other co-defendants (e.g. junior lienholders) would likely permit default judgments to be taken without costs and fees.  If a priority battle was necessary, and no judicial foreclosure had been filed, the lender could pursue them non-judicially, without having to name the borrower, who has already deeded his/her property back to the lender.

Going forward, title would be marketable to any REO buyer. The McCoy and Hooker problems are entirely avoided. The banks get back the property without the cost and delay of a lawsuit, and everyone’s happy….sort of.

How Do We Make This Work? My suggestion is to encourage those in the judicial system to embrace this approach.  Require that at the time of filing a judicial foreclosure, bank attorneys sign an affidavit under oath, swearing to the fact that they [not their lender-clients who gave us the robo-signers, DocX, and other shenanigans – PCQ] had formally offered the above protocol and the borrower either rejected it or could not be reached.

If anyone can tell me what’s wrong with this approach, I’m willing to listen.   But until I’m convinced otherwise, this proposal would seem to give the lender what they want – marketable title, and the borrower what they need – finality.
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