Signed into law earlier this year and taking effect July 11, 2012, SB 1552 creates a statewide foreclosure mediation program and significantly alters the mortgage foreclosure process in Oregon for beneficiaries (lenders) and grantors (borrowers). The Act does not only apply to large lenders who complete more than 250 foreclosure actions in Oregon per year, it imposes new requirements and responsibilities on any beneficiary of a residential trust deed in Oregon, including individuals and smaller lenders.
Besides imposing a new requirement on large lenders to enter mediation with a grantor at the grantor’s request, the Act changes key provisions in the established legal framework in Oregon that governs the non-judicial foreclosure of residential trust deeds. The Act calls for the Attorney General (AG) to enact rules which will inform the practical effect of many of its key provisions. The AG will release temporary administrative rules in the next few weeks, which will be in effect for 180 days. It is expected that the Act will be modified during the 2013 Legislative Session to clarify inconsistencies within the statutory text and to make further adjustments once the full extent of the practical effects of the Act become apparent to the constituencies affected by this legislation.
Because of the uncertainty surrounding its implementation, even those individual beneficiaries and lenders not contemplating a non-judicial foreclosure should become aware of the Act’s provision regarding “at-risk” grantors. The Act creates a process by which “a grantor that is at risk of default” may request to enter mediation by notifying the beneficiary or trustee named on the trust deed. Upon receiving such a request from a grantor, the beneficiary must do two things within 15 days: (1) notify the AG and the mediation service provider (the vendor responsible for administering the foreclosure mediation program created by the Act) of the grantor’s request and (2) respond to the grantor, including in the response contact information for the Attorney General and the mediation service provider.
Unfortunately, the Act does not contain a definition of what makes a grantor “at risk of default”. If the AG does not provide a definition for an “at-risk” grantor through the rulemaking process, then supposedly any grantor feeling weary of making their loan payments could deem themselves “at-risk” and invoke this procedure. It is not yet clear from the statutory text or the AG’s draft rules whether a request by an “at-risk” grantor requesting to enter mediation with an individual beneficiary imposes an obligation on the beneficiary to enter mediation with the grantor.
In addition, the Act makes the following changes of concern to individual beneficiaries who pursue a non-judicial foreclosure (also known as foreclosure by advertisement and sale) of their security interest after July 11, 2012:
File Affidavit of Exemption. At the time of filing the Notice of Default (or by August 10, 2012 and by January 31 in subsequent years), beneficiaries must file a sworn affidavit of exemption with the county clerk or pay an additional $100 fee. The affidavit of exemption basically states that the beneficiary did not initiate foreclosure on more than 250 properties in Oregon the preceding calendar year. A model Affidavit of Exemption form will be made available as part of the AG’s rules.
Serve Notice of Determination Letter on Grantor. At least 30 days before the trustee’s sale, if the beneficiary has determined that the grantor is not eligible for a foreclosure avoidance measure (i.e. modification, short sale, deed in lieu, etc.) or that the grantor has not complied with the terms of a foreclosure avoidance measure to which they previously agreed, the beneficiary must serve upon the grantor a written document stating in plain language the basis for the beneficiary’s determination, sending a copy to the Department of Justice. A model Notice of Determination Letter form will be made available as part of the AG’s rules.
Record Affidavit of Compliance. At least 20 days before the trustee’s sale, the beneficiary must record an affidavit in the clerk’s records of the county where the property is located. This affidavit must identify the grantor, the trustee, and the beneficiary, the property that is subject to the trustee’s sale, include proof of service of the notice of determination letter on the grantor and it must state that the beneficiary or their agent has complied with the requirements of the notice of determination letter. A copy of the affidavit must be sent to the Department of Justice.
Penalty for Noncompliance. The Act creates a penalty for beneficiaries or their agents who do not comply with the notice of determination provisions. A grantor can bring an action against a beneficiary or their agent for non-compliance. Upon prevailing, the grantor would receive $500 plus their actual damages plus attorney fees and costs.
Kenneth Sherman, Jr.
Ken assists clients in solving everyday legal issues in the areas of estate planning and administration, real estate and land use, and business transactions. In addition, Ken serves as counsel to the Oregon Banker’s Association and he works directly with many of Oregon’s community banks on operational and transactional issues.