A trust deed is a real property security instrument created by statute. The relevant statute is the Oregon Trust Deed Act, ORS 86.705-86.795. A trust deed is similar to a mortgage but usually gives the security holder a “right of sale.” This “right of sale” allows the security holder to foreclose on the property without having to file a lawsuit in court. This process is called “foreclosure by advertisement and sale” and is found in ORS 86.735.
Trust deeds are called trust deeds because the deed is held by a third-party trustee. When the grantor (the property owner) pays the debt owed to the beneficiary (the lender), the trustee re-conveys the property back to the grantor. If, however, the grantor defaults, the beneficiary can elect to have the trustee foreclose on the trust deed. When that happens, the foreclosure is accomplished by the non-judicial procedures set out in the Oregon Trust Deed Act.
As with judicial foreclosure of mortgages, foreclosure of a trust deed by advertisement and sale requires a default. Unlike mortgages where the security holder can accelerate the entire debt, the property owner on a trust deed can cure the default by paying the amount delinquent under the trust deed. This right to cure by paying the delinquency instead of the entire debt is a powerful right. The right to cure is, however, cut off on the fifth day before the date set for the sale.
Non-judicial foreclosure is commenced by the recording and service of a Notice of Default. The contents of the Notice are set out in ORS 86.745. Among other things, the Notice will state the names of the parties involved, the sum owing on the obligation and the date, time and place of the sale. The notice starts the foreclosure clock running.
A non-judicial sale cannot be set for less than 120 days after the Notice is given. To this time must be added the time necessary to process the paper work and complete service — generally two or three weeks. The Notice must also be published in a newspaper of general circulation in the county for four consecutive weeks. The last publication must be at least twenty days prior to the sale. Taken together, these notice and publication procedures make it difficult to complete a non-judicial foreclosure in less than six months. Five months from the date of notice is pretty much the minimum time required for a non-judicial foreclosure.
According to ORS 86.770, “[a] guarantor of an obligation secured by a residential trust deed may not recover a deficiency from the grantor or a successor in interest of the grantor” “Residential trust deed” is defined in ORS 86.705(3) as â€œa trust deed on property upon which are situated four or fewer residential units, one of which the grantor, the grantorâ€™s spouse or the grantorâ€™s minor or dependent child occupies as a principal residence at the time a trust deed foreclosure is commenced” There is no right of redemption following a non-judicial sale.
Whether a trust deed is a “residential trust deed” is determined at the time of foreclosure and, therefore, may change depending on who is occupying the property. Thus, what started out as a residential trust deed may become a non-residential trust deed. This can expose the grantor to a deficiency judgment. It is for this reason that real estate licensees should never make statements about whether a particular owner will or won’t be exposed to a deficiency judgment in a particular non-judicial foreclosure.
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