Professor Shays, help please? My oregon 80/20 foreclosed on the 80, they say I owe on the 20

[david29989]

Hello, I had a no doc 80/20 loan in Oregon on my personal residence and lived there for a little over 2 years before they foreclosed. Both loans were used to buy the house and I signed them both the same day at time of purchase. The servicer of both loans, only foreclosed on the 80% loan and now say I owe them for the 20% loan (they charged it off). Total purchase price was $360k, and they foreclosed and sold it for $300k. It is my understanding Oregon is a non-deficiency state but since the 20% loan did not foreclose, I think they are trying come after the promissory note. I have read Oregon law, specifically 88.030 that, if I understand it correctly, states anyone who has a lien subsequent to the primary mortgage MUST be included in the foreclosure, and 88.070 states that after foreclosure on purchase money mortgages they cannot come after me for a deficiency. There are many posts out there for California and I am certain that I would be off the hook in CA, but there are not any specific posts I can find for Oregon. Can anyone help with clarifying this? Professor Shays, ideas? I thank all of you in advance for your help!

[ORNV3]

David,
I live in Oregon and spoke to an attorney last week about this type of situation last week. I will be in a similar situation soon. Unfortunately for me, my property is in Nevada. When I was first telling her about the situation, she was excited to tell me the great news that since both loans were used to purchase to property... they couldn't do anything other than foreclose. She thought my property was in Oregon. Maybe this helps you, maybe not. That's just what she said to me. Good luck!

By the way, how long after the foreclosure and sale did it take for the second to contact you?

[The Professor]

Oregon anti-deficiency laws typically provide no protection for other than purchase money mortgages (such as a second mortgage obtained after the original acquisition) and there is no protection when the property is not used as the primary residence of the purchaser. However, there is one interesting twist when it comes to Oregon. It appears that what would normally be a purchase money mortgage, isn't one where the unpaid balance is above $50,000 (see Sections 88.070 and 88.075 below).

Section 88.075 was repealed in 2007 and replaced with similar language in the revised section 88.070. Both statutes read as follows:

88.075 When certain mortgage is considered a purchase money mortgage. A mortgage entered into after September 13, 1975, is a purchase money mortgage if the mortgage is given to a vendor to secure the unpaid balance of the purchase price of real property or if the mortgage is given to a lender or any other person to secure up to $50,000 of the unpaid balance of the purchase price of real property used by the purchaser as the primary or secondary single family residence of the purchaser. [1975 c.618 §6]

88.070. [When a judgment is given for the foreclosure of any mortgage given to secure payment of the balance of the purchase price of real property, the judgment shall provide for the sale of the real property covered by such mortgage for the satisfaction of the judgment given therein, but the mortgagee shall not be entitled to a deficiency judgment on account of the mortgage or note or obligation secured by the same.] When real property is sold pursuant to a judgment foreclosing a mortgage and the proceeds of the sale are not adequate to satisfy the amounts secured by the mortgage, all judgment remedies for collection of the unsatisfied amounts expire when the sale is made if:
(1) The mortgage was given to a seller to secure the unpaid balance of the purchase price of real property; or
(2) The mortgage was given after September 13, 1975, to a person other than a seller to secure not more than $50,000 of the unpaid balance of the purchase price of real property used by the purchaser as the primary or secondary single family residence of the purchaser.

The problem that presents itself is this $50,000 issue. Since your second appears based upon the information provided to be in excess of that amount (.2 * $360K=$72K), you appear to exceed that $50K base. From a representative capacity, I suspect that a good argument could be made that the difference ($72K-$50K) should be considered non-purchase money, lessening the impact to $22K. But that's just an argument.

You need a Oregon lawyer skilled in real estate law and debt collection practices to help on this. Sorry you are facing these difficulties.

Daniel

[david29989]

ORNV3,
They contacted me about the second approximately one month after the foreclosure. Could you give me the contact info of the attorney you spoke with here in Oregon?

Professor,

Why are there 2 subsections under 88.070 ? Under subsection (1) I qualify but under subsection (2) I may not. Reading the 2 subsections the only difference between them is:
(1) The mortgage was given to a seller to secure...
(2) ...to a person other than a seller to secure...

Again, I appreciate all info with respect to my situation. Thank you all.

[The Professor]

Section 1 applies to what is characterized as vendor (seller) financing where the seller carries back the loan. Based upon your indication that the same loan servicer managed both loans, my conclusion was that neither loan was with the seller of the property. Am I wrong? If I'm not then you would fall under Section 2 (all other lenders).

Daniel

[david29989]

Daniel,
This was not an owner finance transaction so I must fall under subsection 2. Having said that, anyone then, even people who did not have a second mortgage, if they foreclosed on their first mortgage, and that first mortgage was over $50k, then they would owe any deficiency in that foreclosure. That would mean Oregon is an anti-deficiency state and the ex-homeowner would be protected only if he bought a $250k (or less) home on an 80/20 loan...and that is it. In any other situation they would be required to pay the deficiency? I hope this is not the case.

[The Professor]

My recollection is that Oregon has the same restriction relating to the utilization of the non-judicial foreclosure process and then not being able to proceed for a deficiency judgment as California has. So for first loans, personal liability is generally avoided because virtually all first lenders would foreclose in this manner rather than going the judicial foreclosure route.

Daniel