Oregon law imposes the obligation of good faith and fair dealing on all parties to a contract. Oregon real estate law demands disclosure of material facts known by an agent and not apparent or readily ascertainable to a party. Click here for a detailed discussion of Agency Duties. Together, these obligations can create a duty to disclose the existence of a foreclosure or, in some circumstances, problems on the selling side. These disclosures are mandatory in the sense that they are demanded by law. Click here for a detailed discussion of the Disclosure Duties.

Mandatory disclosure on the selling side is rare. The pre-foreclosure market being what it is, however, there may be situations when an agent learns the buyer is being dishonest to the seller — for instance, a buyer who is running a foreclosure scam. An agent who discovers their buyer is involved in a scam and has no intention of performing as required by the sale contract, can find themselves stuck between their duty of loyalty and confidentiality to the client and duty of honesty to the other party. At the first hint that such a situation may develop, the agent should take the matter to their principal broker. There may be time to end the agency relationship. If not, the duty of honesty must always take precedent after, of course, full disclosure to the client.

Far more common than questions of honesty on the selling side are questions of disclosure of material facts on the listing side. Here, the disclosure question is when and if the foreclosure itself must be disclosed to potential buyers. Such disclosures are serious matters because disclosing a pending foreclosure will tend to drive down offers both in number and price. Fortunately, the mere fact that the seller is in default and facing potential foreclosure is not material and, therefore, need not be disclosed.

Although not well understood by agents, foreclosure itself is not material. That is the case because, until the sale takes place, the owner retains full ownership in the property and can sell it with clear title at anytime by simply paying off the loan. Thus, a foreclosure becomes material only if and when an offer is accepted with a closing date that is beyond the foreclosure sale date (or involves a short sale or other third-party approval e.g., a bankruptcy trustee). That is the case as long as the seller can stop foreclosure and deliver clear title at closing.

Disclosure of a pending foreclosure in the MLS, or in ads or simply by word of mouth from the listing agent raises serious loyalty and confidentiality issues. It may be that the seller wants to signal distress in order to attract bargain hunters and “investors,” but that is a decision for the seller after full disclosure of the potential consequences. Such decisions should never be made unilaterally by the agent. As long as the seller can deliver clear title without approval of a third-party, there is nothing that requires disclosure of pre-foreclosure sales. Click here to review similar disclosure timing issues in short sales.
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