Reading and Understanding Title Reports

What is “Title”? The term “title” has been defined as that which is the foundation of ownership, of either real or personal property, and that which constitutes a just cause of exclusive possession. It has also been defined as ownership, equitable or legal.

Title Companies

Before a title insurer or its agent can insure a transaction, it must operate a title plant in the county where the real property is located or purchase title insurance from a company that does. ORS 731.438(1). All title services by a title insurer must be provided within Oregon, and the information used to produce the services “must be maintained and must be capable of reproduction within the state at all times.” ORS 731.438(2).

A title plant can be jointly owned and maintained in “any county with a population of 500,000 or more, or any county with a population of 200,000 or more that is contiguous to a county with a population of 500,000 or more.” ORS 731.438(4).

Preliminary Title Report vs. Title Commitment 

A PTR does not constitute title insurance. A PTR is also not a promise with respect to the state of the title of real property. It is simply an offer to issue title insurance in a particular form.

A title commitment is an agreement to issue a specified policy to a specified insured upon acquisition of the insurable interest, if accomplished within a limited time, and upon payment of the premium and charges.

Insurable Title

There is a difference between insurable title and marketable title. Title is insurable if the title company determines that, based on its examination of the public record, the company will deliver to the party to be insured a title insurance policy (i.e., a contract of indemnity) subject to the company’s usual printed exceptions and exclusions from coverage as well as subject to certain matters shown in the title report (e.g., a recorded easement).

Scope of Insurance

Title Vested

Any defect in or lien or encumbrance

Unmarketable Title

No Right of Access

Endorsements

Zoning - It provides assurance that the insured property is in a particular zoning designation and that certain specified uses are allowed in that designation. The endorsement does not insure, however, that any of the existing uses on the property are in compliance.

Access - The access endorsements provide additional assurances to the insured regarding access to the insured property, and can be used with owners’ and lenders’ policies. The endorsements specifically identify the physically opened street to which the insured property has access.

Environmental - The endorsements cover only loss sustained by reason of lack of priority of the lien of the insured mortgage over any environmental-protection lien recorded in the public records. The endorsements provide absolutely no protection to lenders regarding the numerous off-record issues raised by federal and state environmental laws.

Location of Improvements - the location-of-improvements endorsement assures that improvements having a specified street address or route or box number are located on the insured property.

Marketable Title

Marketable title is “title such as a prudent man, well advised as to the facts and their legal bearings, would be willing to accept.”

Abstract or Chain of Title

An abstract of title is also different from title insurance. An abstract is a summary of the chain of title to a particular parcel of property that shows how each owner acquired and disposed of the owner’s interest in the property. An abstract also discloses the nature and source of liens, encumbrances, and other matters appearing of public record in the chain of title.

Contents of a Title Report

Estate of Interest Covered

Fee Simple - The fee simple estate (also called “absolute estate” or “fee simple absolute”) is described as “full ownership.” A fee simple absolute is the most common estate in modern times; most people own their property in fee simple. The presumption is that a person conveys the fee estate unless the conveyance expressly states otherwise.  The fee simple absolute is considered the greatest estate because it is of unlimited duration. The estate ends only by the sale of the property or the death of the holder without heirs. It is freely alienable, devisable, and inheritable.

Current Owner of Estate or Interest

Shows the current owner of record and how title is vested, i.e. single man, window, husband and wife.

Parcel of Land Involved/Legal Description

Rectangular or Governmental System - Under the Rectangular System of survey, the surveyors first established a reference point from which a line ran due north and south. This north-south line was designated the principal meridian. The principal meridian for Oregon is the “Willamette Meridian.” After establishing the principal meridian, the surveyors located a point on the principal meridian from which they ran a line due east and west. This east-west line was designated the baseline. In Multnomah County, the baseline for Oregon runs east-west along Stark Street east of the Willamette River and Burnside Street west of the Willamette River.

Subdivision Plats - Subdivisions (but not partitions) are named on the plat. In either case, the locations and descriptions of all monuments found or set must be recorded on the plat, and the courses and distances of all boundary lines must be shown. ORS 92.050(5). Each lot or parcel must be numbered consecutively, and the lengths and courses of all boundaries of each lot or parcel must be shown. ORS 92.050(4). When the subdivision or partition plat is completed and approved, and all required fees are paid, the plat may be recorded in the county records of the county where the described land is situated. ORS 92.050(1).

Metes & Bounds - A metes and bounds description typically contains an introduction defining the general location of the property by reference to the governmental survey, the place of beginning, and the body that describes the various courses of the property boundary by distance and bearing.

Liens

A lien is a claim or charge on property as security for payment of a debt or the fulfillment of an obligation.

Covenants, Conditions and Restrictions

Covenants running with the land take different forms. When a single owner wishes to divide a parcel of land and create a scheme of contractual obligations binding on all future owners of the resulting parcels, the term declaration is an accurate description of what the owner does by recording a written statement of the covenants; hence the term declaration of covenants, conditions, and restrictions or CC&R declara­tion. Often, covenants are also included as a part of and literally on a recorded subdivision or partition plat.

Covenants and servitudes are important tools in private land use planning and regulation. Declarations of covenants, conditions, and restrictions (“CC&R declarations” or simply “CC&Rs”) for subdivisions often parallel public land use regulatory schemes and function as an overlay containing more restrictive requirements. In many instances, the CC&R declaration is coupled with an association, which is a quasi-municipal government for the project, providing services over and above the services provided by the local government.

Easements

An easement is a nonpossessory interest in the land of another that entitles the owner of the interest to a limited use or enjoyment of the other’s land and to protection from interference with this use. The inter­est, once created, may be irrevocable and generally is not subject to the will of the land owner.

Taxes

The first exception shown is a statement regarding the amount and status of the current year’s taxes (e.g., taxes now a lien, now due, or respective installment paid or unpaid).

Other Types of Title Insurance

Litigation Guarantee - The litigation guarantee is used by attorneys who are contemplating filing an action concerning the affected property, such as a quiet-title action, a partition action, or a suit to enforce an easement.

Foreclosure Guarantee - Judicial-foreclosure guarantees are issued to attorneys to indicate the status of the title and the parties to be named as defendants in a mortgage, trust deed, contract, or lien foreclosure suit. In addition to showing the status of title and the necessary defendants, a foreclosure guarantee shows all title exceptions that may or may not be pertinent to the contemplated foreclosure.

Overview of Collections and Foreclosures

Every homeowners and condominium association relies on assessments in order to operate. Assessments pay for insurance, maintenance, management, and other services necessary for an association to run properly. When owners don’t pay their assessments, the board has a duty to pursue collection efforts. There are two separate avenues for collecting delinquent assessments: 1) foreclosure of the association’s lien; and 2) a personal judgment against the owner for the amount of the assessments.

Liens

Most governing documents provide for an automatic (by operation of law) lien placed on the owner’s property the moment the assessment is delinquent.  State law in some jurisdictions may also provide for an automatic lien.  For planned communities in Oregon the statute reads:

(1) Whenever a homeowners association levies any assessment against a lot, the association shall have a lien upon the individual lot for any unpaid assessments. The lien includes interest, late charges, attorney fees, costs or other amounts imposed under the declaration or bylaws or other recorded governing document. (ORS 94.709)

Oregon condominiums have a similar statute:

(1) Whenever an association of unit owners levies any assessment against a unit, the association of unit owners shall have a lien upon the individual unit and the undivided interest in the common elements appertaining to such unit for any unpaid assessments. (ORS 100.450)

And lastly, Washington’s automatic lien statute for condominiums states:

(1) The association has a lien on a unit for any unpaid assessments levied against a unit from the time the assessment is due. (RCW 64.34.364)

However, it’s a good policy to always record a formal paper lien. The lien is always filed in the recorder’s office of the county where the property is located.

Typically, association liens are superior to all other liens except for first mortgages and deeds of trust, and tax liens. This means that if the association decides to foreclose its assessment lien, it does so subject to any first mortgages or tax liens.  If there is little equity in the owner’s property, then foreclosing the association’s lien may not be the best choice.

Personal Judgments

Aside from the association’s lien rights, the delinquent owner remains personally liable for the assessments.  (ORS 100.475, 64.34.364( 8)) Even if the owner sells the property in your community and moves elsewhere, their personal obligation to pay the balance remains.  This is true even if the property was foreclosed.

To secure a personal judgment, a lawsuit must be filed.  The lawsuit must be personally served on the owner, and the owner has an opportunity to file a written response.  The written response is called an “Answer.”  For a timeline of the collections process, click here.

If the owner fails to file an Answer, the association can ask the court for a default judgment.  Once the judgment is received the association may begin collecting on the judgment through garnishment of wages or bank accounts, filing a writ for the owner’s personal property to be sold at a sheriff's auction, or other legal procedures until the judgment is paid in full.

5 Common Collections Mistakes

Assessments are critical for community associations. Regular assessments allow the association to purchase liability insurance, maintain common property, and hire professional management. When an owner in a community fails to pay their share of the assessments, the other owners make up the deficit. Every condominium and homeowners association should have a collections policy that identifies exactly how the association will handle delinquencies.

Here are five common collection mistakes that board members often make: 1. Giving Up After a Foreclosure

Each community association has two enforcement routes to collect delinquent assessments. The first is the association’s right to lien the property or unit of the delinquent owner. The second is to pursue a personal judgment against the individual. The lien right and the personal judgment right are independent of each other. So, if an owner’s home or unit is foreclosed, the association still has a legal right to pursue the delinquent owner for the entire balance due to the association.

2. Failing to Timely Pursue Debt

There is a significant psychological component to debt. The longer a creditor waits to pursue collection efforts, the less likely the creditor will get paid. Each association should have a collections policy in place that explains to each owner exactly when collection efforts will begin after an assessment becomes delinquent. For associations with monthly assessments, collection efforts should begin 15-30 days after due. Associations with quarterly assessments should begin collections prior to the next quarter’s assessment.

3. Communicating About the Debt to Third Parties

Federal law prohibits collections agencies or collections law firms from communicating about an owner’s debt to any third-party. Board members should follow that same policy and never discuss an owner’s delinquency with other owners or third-parties. Discussion of deliquencies should be done in executive session during a regular board meeting.

4. Playing Favorites

Each association has clear guidelines on the amount of assessments, the frequency, interest rate, and late charges. The board should follow those guidelines with every delinquent owner and never make special arrangements with certain owners if those same arrangements are not available to all owners. Granted, when circumstances warrant the board may compromise on the total amount of debt in order to secure a settlement agreement. Legal counsel should be consulted prior to entering into a settlement agreement with a delinquent owner.

5. Not Allocating Assessments Correctly

In most planned communities each lot owner pays an equal share of the total amount of levied assessments. Some condominium associations allocate assessments based on square footage of the unit. In any case, always read your governing documents carefully to ensure assessments are allocated in accordance with the provisions in your Declaration or Bylaws.

Effective Collections Policies

At some point every condominium or homeowners association experiences delinquencies. Assessments are critical for the association to pay insurance, maintain common property, or hire professional management. When an owner is delinquent, the association has two options. It can foreclose on the association’s lien against the lot or unit, or file a personal lawsuit against the owner.

Every association should have a collections policy which outlines the steps that will be taken when an owner is delinquent. It’s critical that the policy is followed each time an owner is delinquent, and that the same steps are used with each owner.

The policy should include the following:

1. Citations to the authority to levy and collect assessments (usually the governing documents and state statutes)

2. The amount of the late fee and when the late fee will be charged.

3. Interest rate.

4. A statement that the association may file a foreclosure action.

5. When the first demand letter will be sent.

6. When the file will be turned over to an attorney or collection agency.

7. When a lien will be filed against the property.

8. If a judgment is obtained, how the association will collect on the judgment (garnishment, writ of execution against personal property)

Click here for a sample collections policy: CALAW COLLECTIONS RESOLUTION

For more information about Community Association Law Group's collections program, click here.

Judicial Foreclosure in Oregon

Overview

Oregon is a “lien theory” state, meaning that a mortgage of real estate only creates a lien or encumbrance and does not transfer title. Foreclosure of a mortgage lien is done through a statutory foreclosure lawsuit, i.e. judicial foreclosure.

This is a different process than the foreclosure of a deed of trust through advertisement and sale, which may be done non-judicially.

ORS Chapter 88 governs the foreclosure of mortgages:

Except as otherwise provided by law, a lien upon real or personal property, other than that of a judgment, whether created by mortgage or otherwise, must be foreclosed, and the property adjudged to be sold to satisfy the debt the lien secures, by bringing suit. Except as provided in ORS 88.103 (Sale of real property after mortgage foreclosure), in addition to the judgment of foreclosure and sale, if the lien debtor or another person, as principal or otherwise, has given a promissory note or other personal obligation for the payment of the debt, the court also shall enter a judgment for the amount of the debt against the lien debtor or other person. The provisions of this chapter as to liens upon personal property do not exclude a person that has a lien from any other remedy or right that the person otherwise has with respect to the property. (ORS 88.010(1))

1. Right to Foreclose

In order for the mortgage holder to foreclose, the mortgagee must default or breach the terms of the mortgage. Typically, this occurs when the homeowner stops or fails to pay the monthly mortgage payment.

2. The Foreclosure Lawsuit

A.  Procedure

The lawsuit to foreclose is filed in the circuit court in the county where the property is located. Like any other lawsuit, the foreclosure suit must be filed with the court, and then personally served upon the defaulting mortgagee.

The mortgagee has 30 days to file an “answer” or response to the suit. If the mortgagee fails to file a response, the mortgage holder is entitled to a “default judgment”. If a response is filed by the mortgagee, a trial date will be set and the case proceeds like any other circuit court case.

B.  Parties

ORS 88.030 describes other lien holders and debtors as defendants:

Any person having a lien subsequent to the plaintiff upon the same property or any part thereof, or who has given a promissory note or other personal obligation for the payment of the debt, or any part thereof, secured by the mortgage or other lien which is the subject of the suit, shall be made a defendant in the suit, and any person having a prior lien may be made defendant at the option of the plaintiff, or by the order of the court when deemed necessary. The failure of any junior lien or interest holder who is omitted as a party defendant in the suit to redeem within five years of the date of a sheriffs sale under ORS 88.106 (Sale and redemption) shall bar such junior lien or interest holder from any other action or proceeding against the property by the person on account of such persons lien or interest. (ORS 88.030)

The foreclosure lawsuit will usually name the following as necessary parties to the litigation:

1.  Owner of the mortgaged property;

2. If the owner is deceased, the personal representative of the estate and the heirs;

3. Junior lien holders, such as second mortgagees and judgment creditors.

4. Any individuals residing at the property

 C. Defenses The mortgagee may raise several defenses to the foreclosure action. Defenses include:

1.  Fraud

2.  Failure to credit payments

3.  Statute of Limitations

4. Laches

5. Unclean Hands

3. What Gets Foreclosed?

If it’s the first mortgage on the property, nearly all interests or liens on the property recorded after the first mortgage are wiped-out through the foreclosure lawsuit. For example, suppose an owner purchases the property through a mortgage in 1999. In 2001, the owner takes out a line of credit secured by the property. If the owner defaults on the 1999 mortgage and a foreclosure suit is filed, that suit will wipe out the 2001 line of credit lien.

A. Priority of Liens

1. Tax Liens

2. Condominium Liens

Whenever an association of unit owners levies any assessment against a unit, the association of unit owners shall have a lien upon the individual unit and the undivided interest in the common elements appertaining to such unit for any unpaid assessments. The lien includes interest, late charges, attorney fees, costs or other amounts levied under the declaration or bylaws. The lien is prior to a homestead exemption and all other liens or encumbrances upon the unit except:

     (a) Tax and assessment liens; and

     (b) A first mortgage or trust deed of record[.]

    (ORS  100.450(1))

A condominium lien can become superior to a first mortgage or deed of trust if proper notice is given. See ORS 100.450(7).

4. The Sale

Before the sheriff conducts the sale of the foreclosed property, they must publish notice of the time and place of the sale once a week for four successive weeks. The notice must describe the property. The mortgagor may then file a motion for the Court to confirm the sale after 10 days from the date of the sheriff’s sale. Typically, the Court will confirm unless there is evidence of fraud, abuse, or inadequacy of price.

5. Sheriff’s Deed 

After the statutory redemption period has expired, the purchaser or last redemptioner is entitled to receive a deed of conveyance from the sheriff.

6. Redemption

Up until the time of the actual foreclosure sale, the mortgagee may pay the amount of the debt and “redeem” his or her right in the property. This dismisses the foreclosure suit. Even after the sale, the debtor has another chance at redemption by paying the purchase price (plus taxes and other fees) within 180 days after the date of the sale.

If the rights of all persons entitled to redeem are acquired by the purchaser or a redemptioner before the statutory redemption period expires, then the court may direct the sheriff to make an immediate conveyance to that person, without requiring him or her to wait for the redemption period to expire.

Click here for a judicial foreclosure timeline chart: Oregon - Judicial Foreclosure