Representing Buyers of REOs in Oregon
Phillip C. Querin, QUERIN LAW, LLC
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 “Reader’s Digest” version of the issue: Several recent federal court cases in Oregon have chastised lenders for failing to follow Oregon’s trust deed foreclosure law. The specific law, found in ORS 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 now hold the note and trust deed can show the trail of successive assignments back to the original bank that first made the loan. Having such proof is a form of establishing that the lender is the proper party to file the foreclosure.
Due to poor record keeping years ago during the securitization frenzy, many banks now cannot locate the several assignments that occurred over the life of the trust deed. Since Oregon’s law only requires assignment as a condition to foreclose, the reality of the law didn’t hit home until the foreclosure crisis was in full swing, i.e. 2008 and after.
As they were now unable to comply with the successive recording requirement, the statute was frequently ignored by many lenders. The result was that most non-judicial foreclosures (i.e. where the lender forecloses the trust deed by newspaper advertisement and public recording of certain documents) in Oregon were potentially flawed. Some recent Oregon federal judges have held that the failure to record the missing Trust Deed Assignments results in the foreclosure being invalid.
Thus, it now appears that some bank REO properties may contain a title flaw when they are sold into the open market. This raises some questions:
The other area of concern is the physical condition of REO properties. Because market prices remain so stagnant, and REO inventories continue to climb, banks are selling many of their foreclosed properties at very attractive prices. As a result, buyers and investors are generally willing to accept the stringent AS-IS provisions usually made a part of every REO sale. But do they fully understand the extent of these disclaimers? Here are a few of the clauses I’ve seen in bank REO Addenda that buyers (and the real estate agents representing them)1 should be aware of:
Brokers representing buyers of REO properties should be careful to explain to their clients that many of the “standard” buyer protections found in the OREF printed form are superseded by the bank’s Addendum. While prices may be attractive, the strict “AS-IS” nature of REO transactions today requires that every buyer’s pre-closing due diligence be as extensive as possible – possibly more than the standard equity sale. Once an REO purchase is closed, it could be virtually impossible to later complain that the bank had any special disclosure obligations.
©2012 QUERIN LAW, LLC
1Although not addressed above, listing agents should be careful to make sure they meet the affirmative obligations of full disclosure required in ORS 696.805(2), which includes the following duties to all parties: (a) To deal honestly and in good faith; (b) To present all written offers, written notices and other written communications to and from the parties in a timely manner without regard to whether the property is subject to a contract for sale or the buyer is already a party to a contract to purchase; and (c) To disclose material facts known by the seller’s agent and not apparent or readily ascertainable to a party.