Oregon Tweaks Laws Affecting Trustees
 By David E. Fennell, Esq., Routh Crabtree Olsen, P.S.
Although not nearly as ground breaking as 2009, this year’s Oregon legislative session witnessed some welcome and some not-so-welcome tweaks to laws that touch and concern mortgage lenders and foreclosure trustees. Three bills were at the forefront and are summarized below.
HB 3610 (Effective May 27, 2010)
Last year, the Oregon legislature passed SB 628. That bill required the trustee to send with the so-called “Danger Letter” a form by which the borrower can request consideration for a loan modification. The law further required the lender to respond to the request within 45 days. One of three responses was required: (1) Yes; (2) No; or (3) Provide additional information. SB 628 also required the foreclosing lender or its authorized agent to execute an affidavit averring that the lender fully complied with the requirements of that law. Finally, SB 628 required the trustee to record the lender’s affidavit of compliance “before” the trustee’s sale.
By passing HB 3610 this year, the Oregon legislature made changes to last year’s SB 628. Those changes are as follows:
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A. |
In cases where the lender is turning down the borrower’s loan modification request to provide the borrower, in the required written denial, “an explanation of how the beneficiary or the beneficiary’s agent calculated that the grantor was not eligible for a loan modification”. |
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B. |
HB 3610 further provides a safe harbor for compliance with the explanation of calculation requirement by adding that a “beneficiary or beneficiary’s agent complies with the requirement set forth in paragraph (b) of this subsection if the beneficiary or the beneficiary’s agent provides the information specified for a borrower notice in Supplemental Directive 09-08, as in effect on the effective date of this 2010 Act, issued by the United State Department of the Treasury under the Helping Families Save Their Homes Act of 2009, P.L. 11-22, as in effect on the effective date of this 2010 Act”. Servicers should ask their compliance departments to determine how compliance under the federal law can be achieved. |
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HB 3610 provides that the affidavit of compliance must specifically aver that the beneficiary or the beneficiary’s authorized agent provided the borrower the required explanation for denial of a loan modification in cases where the lender has denied the request for loan modification. |
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To complicate the foreclosure process just a little more, the legislature, through HB 3610, now requires the trustee to record the affidavit of compliance not later than five days before the sale. Last year’s law required the trustee only to record the affidavit some time before the sale. |
HB 3656 (Effective March 10, 2010)
This bill made two changes to existing law. On the bright side of the ledger, it corrected language in last year’s SB 628 that could have been construed to suggest that a foreclosure is not effective against any person entitled to notice who did not timely receive actual notice of the foreclosure. It has long been a tenet of the Oregon statutory nonjudicial foreclosure procedure that mailing notice to persons entitled to notice at their last known address was sufficient to extinguish their interest in the property. Actual notice never had to be proved. The unfortunate language carelessly included in SB 628 put cracks in this foundational application of the foreclosure law in Oregon. HB 3656 removed any suggestion that actual notice is necessary to extinguish an interest through nonjudicial foreclosure.
On the darker side, HB 3656 took last year’s HB 3004 arguable establishment of a one action rule applied against both loans in a “piggy-back” loan situation essentially as if they were one loan and tightened that prohibition by making it even harder to avoid application of the rule. Under HB 3004 (2009), assigning one of the loans to a different beneficiary, even an affiliate, appeared to solve the one action problem. But HB 3656 has closed that loophole by providing that the one action rule applies to loans made in the same transaction by the same lender (at origination) OR, at the time of foreclosure, now owed to the same lender or its affiliate. So the one action rule appears that it may apply even if one of the loans is no longer owed to the foreclosing lender. The new law purports to extend the rule to judicial foreclosures, too.
In my memorandum to clients last year warning of the effect of HB 3004 in the context of piggy-back loans, I gave the following warning to servicers and investors concerning the one action rule imposed by that bill on piggy-back loans:
[HB 3004] arguably [not all practitioners in Oregon agree that it does] creates a trap for lenders holding both first and second lien positions on the same property where the two trust deeds were given simultaneously (in a “piggy back loan” situation). Section 2 essentially can be read to provide that the foreclosure of the first or the second lien position in this situation deprives the lender of any rights to pursue recovery under the other loan. Put another way:
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Foreclosure of the first lien will extinguish not only the second trust deed, but also all right to pursue the borrower personally on the note; and |
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b. |
More frighteningly, foreclosure of the second lien will prohibit the lender from pursuing foreclosure of the first trust deed and pursuit of the borrower personally on the note [secured by the first lien]. The orthodox approach in foreclosing the second lien first may not be prudent anymore [in Oregon piggy-back loan situations]; imagine a third party purchaser purchasing at the second deed of trust foreclosure sale free and clear of the first lien deed of trust simply because the same lender held both lien positions. |
By tightening the application of the one action rule to piggy-back loans, HB 3656 renders this warning all the more imperative. The additional concern that under the new law identity of ownership at the time foreclosure commences is no longer a threshold condition gives servicers every incentive to carefully consider their foreclosure strategies not only in cases where they are servicing both loans in a piggy-back loan situation but also where they are servicing only one loan that was part of a piggy-back tandem at origination. This memorandum employs the most conservative interpretation of this statute, primarily to alert servicers and investors of the potential for trouble if foreclosure strategies are not carefully crafted prior to referral. As mentioned above, practitioners in Oregon do not all agree that the conservative interpretation of this law is the correct interpretation. It may ultimately take a court action to settle this disagreement. Before referring a loan to foreclosure, servicers should determine whether they are servicing both the first and second lien position in a piggy back loan situation. If so, they should contact their foreclosure attorney to assist in devising a foreclosure strategy that helps guard against any unintended consequences resulting from the application of last year’s HB 3004 and this year’s HB 3656. If possible, servicers should also try to identify if they are servicing a loan that was part of a piggy-back arrangement at origination. If so, they should advise their foreclosure attorney of that fact as well.
SB 1013 (Effective June 30, 2010)
In addition to making minor changes to Oregon’s landlord tenant laws, SB 1013 touches and concerns foreclosures by requiring the foreclosure trustee to add a much, much longer notice to tenants in the statutory form of notice of trustee’s sale. The required language is spelled out in the new statute. The additional notice is so long that the legislature recognized that publication of the notice of sale with the protracted tenant notice include would significantly raise the cost of publication. Rather than give the newspapers an undeserved windfall, SB 1013 allows the notice of trustee’s sale to be published with the notice to tenants redacted. Trustees may start using the longer notice now, but are not required to do so until June 30, 2010. |
