Homeowner Beware: The Return of Judicial Foreclosure in Oregon

If you’ve been reading the business news in the past couple of weeks, you’ve probably heard about Senate Bill 1552. It’s certainly garnered its share of press ink. And with good reason. As often is the case with government-imposed bank regulations, it has so far proven to be a miserable failure.

The bill was intended to establish some new protections for consumers facing foreclosure by eliminating the banks’ dual-track foreclosure process (where a bank forecloses on borrowers in the midst of negotiating short sales or loan modifications) and forcing banks to meet face to face and mediate with borrowers seeking an alternative to foreclosure (such as a short sale or loan modification). Instead, HB 1552 has made a difficult and cumbersome process even more difficult and cumbersome. For many borrowers, it could also have some fairly significant financial ramifications.

Unfortunately, the bill only applies to non-judicial foreclosures, which — up until this bill passed — meant most of the state’s residential foreclosure filings. Non-judicial foreclosure is typically considered a less expensive, more streamlined process than a judicial foreclosure, which is handled via the court system. Also, when an Oregon borrower undergoes a non-judicial foreclosure on their primary residence, they are protected by law from the bank pursuing a deficiency judgment (a monetary award based on the amount of the loan that the borrower defaulted on). There is no such consumer protection in Oregon for a judicial foreclosure.

Not surprisingly, the banks are none too keen about participating in the newly required mediation program — it’s expensive and time-consuming. Their solution: Change the way they file their foreclosures. In a recent class I attended, Sheri Schriver, Title Advisory for Western Title & Escrow, detailed just how dramatic the shift has been. As she explained: “From June 11, 2012-July 11, 2012, there were 114 non-judicial notices of default recorded in Deschutes County. From July 11, 2012- Aug. 11,2012, there were three.”

Meanwhile, as an article in the Bend Bulletin pointed out, Oregon’s mediation program has also failed spectacularly: Not one of the 151 requests for mediation from homeowners has even gotten a response from their commercial lenders.

What does this mean for borrowers at risk of defaulting on their loans? I wish I knew. None of the experts seems to have a clue, either. For example, Schriver couldn’t answer many of the questions posed during our judicial-foreclosure class (for example, can the sale of a home close escrow before the borrower’s 180-day right-of-redemption period expires?).

We’re looking at a playing field that was dramatically altered overnight. And a solution isn’t likely until the state Legislature meets at its next full session in February, according to Jeff Manning, spokesman for the Oregon Department of Justice.

If you’d like to read more about this mess, there are several helpful articles, including this one in the Oregonian and this one in Oregon Business.

About the Author
Lisa Broadwater, GRI, CDPE, is a Central Oregon-based real estate professional who specializes in listing and selling homes, especially in Sisters, Tumalo, Bend and Redmond.

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