Use Caution When Selling REO Properties, by Phil Querin, PMAR Legal Counsel, Querin Law, LLC Q-Law.com


Foreclosure Sign, Mortgage Crisis

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By now, most Realtors® have heard the rumblings about defective bank foreclosures in Oregon and elsewhere. What you may not have heard is that these flawed foreclosures can result in potential title problems down the road. 

Here’s the “Readers Digest” version of the issue: Several recent federal court cases in Oregon  have chastised lenders for failing to follow the trust deed foreclosure law. This law, found inORS 86.735(1), essentially says that before a lender may foreclose, it must record all assignments of the underlying trust deed. This requirement assures that the lender purporting to currently hold the note and trust deed can show the trail of assignments back to the original  bank that first made the loan.

Due to poor record keeping, many banks cannot easily locate the several assignments that  occurred over the life of the trust deed. Since Oregon’s law only requires assignment as a condition to foreclosing, the reality of the requirement didn’t hit home until the foreclosure crisis was in full swing, i.e. 2008 and after.

Being unable to now comply with the successive recording requirement, the statute was frequently ignored. The result was that most foreclosures in Oregon were potentially based upon a flawed process. One recent federal case held that the failure to record intervening assignments resulted in the foreclosure being “void.” In short, a complete nullity – as if it never occurred.

Aware of this law, the Oregon title industry is considering inserting a limitation on the scope of its policy coverage in certain REO sales. The limitation would apply where the underlying foreclosure did not comply with the assignment recording requirement of ORS 86.735(1). This means that the purchaser of certain bank-owned homes may not get complete coverage under their owner’s title policy. Since many banks have not generally given any warranties in their

REO deeds, there is a risk that a buyer will have no recourse (i.e. under their deed or their title insurance policy) should someone later attack the legality of the underlying foreclosure.

Realtors® representing buyers of REO properties should keep this issue in mind. While this is  not to suggest that brokers become “title sleuths,” it is to suggest that they be generally aware of the issue, and mention it to their clients, when appropriate. If necessary, clients should be told to consult their own attorney. This is the “value proposition” that a well-informed Realtor®  brings to the table in all REO transactions.

©2011 Phillip C. Querin, QUERIN LAW, LLC

Visit Phil Querin’s web site for more information about Oregon Real Estate Law http://www.q-law.com

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3 thoughts on “Use Caution When Selling REO Properties, by Phil Querin, PMAR Legal Counsel, Querin Law, LLC Q-Law.com

  1. So is there anyway for the title companies or the Bank selling the property to affirm the assignment recording requirement of ORS 86.735(1)? How would a buyer protect themselves without investing thousands into a transaction?

  2. Real Estate Brokers should have their clients consider the risk of buying all Bank owned property in Oregon. A growing percentage of the properties on the market are bank owned. This issue could have a big affect on the Oregon market. Especially in zip codes where there are a high number of foreclosures.

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