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