Changes in the economy and real estate market have resulted in a greater occurrence of short sales, foreclosures, non-standard listings, and lender fraud. This article will address information about trust deed foreclosures, the most common form of residential foreclosure, and non-standard listings.
Trust Deed Foreclosures
Fortunately, the greater Portland market has remained relatively stable, particularly as compared to other areas of the country. However, as borrowers are experiencing difficulties, our market is experiencing an increase in short sales and foreclosures. Although many real estate licensees are not involved in foreclosure properties, we thought it might be useful to outline several key details that should be considered when listing a property that may be subject to a trust deed foreclosure, or in listing a property that has already been foreclosed upon and is owned by the lender.
It is important to ask questions in every listing interview about the status of the property. Licensees may want to determine how much the seller owes on the property, whether the seller is current on payments, whether there are any judgments and/or liens against the property, and whether the seller has the ability to sell the property. For instance, the seller will not have the authority to sell the property if he or she is involved in a bankruptcy. A licensee may also want to request a pre-listing report from a title company in order to identify any potential problems. Such a report may disclose the amount of any underlying indebtedness, whether there are any judgments or liens against the property, and whether the property is currently in foreclosure.
A licensee may also want to ask a seller whether he or she is involved in a foreclosure, and if so, when the foreclosure sale is scheduled to take place. Not surprisingly, many property owners involved in foreclosure may not fully comprehend the foreclosure process. In addition, they may not have even read the notice of default and sale sent by the lender that is foreclosing on the property. In such a circumstance, the licensee may want to request a copy of the notice of default and sale in order to determine a timeline within which the property may be sold by the seller before it is sold at a foreclosure sale.
In Oregon, a lender must give a minimum of 120 days notice to a property owner before it conducts a foreclosure sale. The property owner has the right to cure the default by paying all past due sums owing to the lender up to five days before the foreclosure sale, including interest, penalties and costs incurred by the lender in initiating foreclosure against the owner. Perhaps most importantly, the property owner has the right to sell the property and pay off the entire indebtedness at any time prior to the foreclosure sale.
Should a property owner opt to sell his or her property before a foreclosure sale, the listing and selling licensees must be acutely aware of the relevant timelines and advise their clients that the property sale must be closed before the foreclosure sale is scheduled to take place. It is also important for a licensee to understand that a lender has no obligation to extend its anticipated foreclosure sale date, regardless of whether the property owner has a buyer lined up to purchase the property. If a property owner is unable to cure his or her default of the loan, and unable to sell the property before the foreclosure date, a licensee may want to advise the owner to consult with a bankruptcy attorney. Although this may give the owner additional time in which to occupy the property before being forced out, a lender may be successful in convincing the bankruptcy court to allow it to continue with foreclosing on the property.
As with any issue outside the scope of listing and selling real estate, licensees are advised to strongly recommend that property owners experiencing financial problems speak with a CPA, tax consultant, attorney or other advisor in order to determine the best course of action. Bankruptcies, foreclosures and short sales may impact the property owner in different ways, and a real estate licensee should never advise a client as to the best course of action.
As a result of the increase in foreclosures, many real estate licensees have adapted to the market by listing foreclosure properties on behalf of lenders that have acquired title through the foreclosures. In doing so, licensees may be requested to sign a non-standard listing agreement provided by the lenders, or an addendum to the standard RMLS™ listing agreement.
Although there is nothing inherently wrong with non-standard listing agreements or addendums to listing agreements, it is important for licensees to understand what they are signing. For instance, a non-standard listing agreement may contain language that requires a licensee to indemnify the lender from any and all claims arising from a misrepresentation of information regarding the property. Understandably, lenders typically sell foreclosure properties on an “AS IS” basis, without making representations as to the condition of the properties. However, language that requires a licensee to indemnify the lender for any misrepresentations may cause a problem for a licensee who relies on potentially inaccurate information provided by the lender, or who fails to conduct his or her own due diligence on representations concerning the property.
Furthermore, non-standard listing agreements or addendums may contain other terms that licensees are not familiar with, or do not expect to see in a listing agreement. As with any other unfamiliar document, licensees would be well advised to fully review any proposed non-standard listing agreement before agreeing to its terms. Also, licensees should speak with their principal or managing brokers before signing non-standard documents in order to ensure that the documents do not violate brokerage policies, and that any claims relating to the documents or sale of foreclosure properties will be covered under the brokerage’s errors and omissions insurance policy.
While many licensees may choose to refocus their efforts in a changing market, including seeking opportunities to work with distressed property sellers and buyers and listing foreclosure properties, other licensees have been involved in this area of the market almost exclusively. Regardless of one’s level of experience in listing and selling distressed properties, licensees should understand what they are dealing with, know when to send their clients to professional advisors, educate themselves about foreclosure timelines, and always keep open lines of communication with their principal or managing brokers.
This column contains general information only and must not be construed as legal advice.
Questions may be submitted directly to Maylie & Grayson by fax at (503) 775-1765,
by email at or by mail at 7959 SE Foster Road, Portland, Oregon 97206.