Should I consider a Short Sale or Foreclosure in Oregon?

By
Real Estate Agent with Paramount Real Estate Services

Foreclosure Notice of Default

We are constantly being asked if sellers should consider a short sale if they are in the midst of being threatened with foreclosure.  To answer that question one would need to thoroughly research their particular lending situation.  First of all it is important to know that Oregon is a "one action" state.  This means that a lien holder holding a note on a piece of Real Property has one option to settle the debt that is owed.  If the lien holder chooses to foreclose, then that is considered their choice of action.  They have repossessed the property and taken it back.  This satisfies the lender and is considered a "settlement" and removes the lien holder from the ability to pursue any further judgments.  If the lien holder agrees to release the lien on a Short Sale, this bank still can reserve the right to pursue any further deficiencies with the borrower.

 Deficiency Judgment

 This action alone causes many borrowers to let their home go through foreclosure.  It should be understood that Foreclosure can be the largest hit on a person's credit leaving them with other consequences ranging from higher insurance rates, problems purchasing anything on credit, and issues with job placement or promotion just to name a few.

Help with Short Sale

Short Sales can be a less painful alternative, but it may not be right for everyone.  The benefits of selling your home on a short sale can do a number of things:

1.  A homeowner is able to negotiate with their lien holder to release any deficiency judgments in the future.

2.  A homeowner may be able to satisfy their senior lien holder in full and then minimize the impact of judgment with only the junior lien holders.

3.  A homeowner is able to sell their home with dignity resulting in less depreciation on their neighborhood.  It is believed that a foreclosure can devalue a neighborhood by 9% on average!

4.  A homeowner may be able to rebound quicker to purchase another home or other possessions on credit.  Often times we are seeing a 2 year turnaround versus up to 7 years for a foreclosure or bankruptcy.

5.  A homeowner is able to negotiate the balance of any deficiency judgment often settling on a fraction of the balance. 

If a senior lien holder recaptures a piece of Real Estate through foreclosure, it is important to understand that any junior lien holders still have the right to pursue a deficiency judgment.  The first mortgage is satisfied, but a borrower is not off the hook with any other lenders in a junior position.  That is why it is our opinion that if the senior lien holder can be paid off, then it may be in the best interest of the borrower to sell on a short sale hoping to negotiate the second lien.  If a borrower is short on both liens, then it may be in their best interest to let the property foreclose depending on how much the first mortgage is short.  Lien holders have up to 6 years in Oregon to file any deficiency judgment.  Remember that any deficiencies can be negotiated and you will want a qualified professional to help you navigate through that emotional and draining process as well.

Make sure that you research your representative well whether it is an attorney or a Real Estate agent.  If you decide to sell your home on a Short Sale, then the success of your entire transaction falls mainly on the experience and negotiating ability of the Listing Agent or attorney hired to represent you.  Hiring someone who is incompetent or does not have much experience in this field will be costly.  Just because an agent has a license does not qualify them to represent you in a short sale.

Foreclosures are Frustrating

The fact is that facing a foreclosure, bankruptcy or short sale is not going to be a pleasant experience no matter how you slice it.  Your credit is already damaged to some extent and you will more than likely feel exhausted trying to keep up with the demands from your banks.  It is advised that no one travels this road alone.  If you are deciding to let your home go through foreclosure, then you will want to contact an attorney to understand the potential repercussions of that choice.  If you decide to sell on a Short Sale, then you will need a qualified Real Estate Professional to help you navigate the sale.  Your lender is going to require that your home is listed with a professional and marketed in all areas to ensure the highest sale.  They will also require significant documentation from you showing that you qualify for a hardship.  Your bank does not trust you and will research your entire life to make sure that you can not afford your home.  Expect to submit the last 2 years tax returns, last 6 months bank statements and income pay stubs, a hardship letter, all financial statements, and short sale information packets provided by your lender.  Short Sales are reserved for borrowers suffering a true hardship.  Borrowers looking to walk away because they don't want to pay for their depreciating asset will have a hard time finding cooperation from their bank.

Freedom from Overwhelming Bank Loans

In deciding which route is best for you and your family, it is important to know all of the choices that are open to you.  More than likely the advise that you receive will more than likely be customized to your personal situation.  There is no "one size fits all" answer to this question.  Seek competent advice making sure that your agent understands your situation thoroughly.

It needs to be understood that we are not Real Estate Attorneys and we highly advise anyone considering a foreclosure, short sale, or bankruptcy to consult the advice of a competent attorney specializing in that particular field.

 

Brian & Nina White, Principal Brokers in the State of Oregon, are Certified Foreclosure Alternative Consultants.

*Senior Lien Holders and First Mortgage Holders are synonymous.  Junior Lien Holders and Second Mortgage Holders are synonymous.

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Brian & Nina White

CRS, FACS

Principal  Brokers/Owners

Paramount Real Estate Services

3886 Commercial St. SE #203

Salem, OR 97302

503-385-1518

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Comments (5)

Paddy Deighan MBA JD PhD
federalfinanciallawgroup.com - Vail, CO
Paddy Deighan J.D. Ph.D

great analysis of a seldom talked about issue (one action)...clear and concise...great blog!!

Dec 06, 2011 06:49 PM
Jim Allhiser
Perfection Inspection, Inc. - Salem, OR
Salem, Oregon Home Inspector

A lot of great information there Brian.  Nice.

I love the video.  I can see Nina on her own home improvement show.

Dec 07, 2011 01:43 AM
Joetta Fort
The DiGiorgio Group - Arvada, CO
Independent Broker, Homes Denver to Boulder

But even in Oregon, a bank can give a written release of their right to pursue the seller, right?  So far, that's what the banks have done for my clients except when it comes to investment properties.

Dec 13, 2011 10:26 AM
Anonymous
Brian White

Joetta, it is possible to negotiate a full satisfaction of the deficiency; however many banks are not doing it.  The problem that sellers are facing is that the sale begins with a contingency that the bank will approve the short sale.  Listing Agents, representing our clients in their best interest, should also include that it is also contingent upon the banks forgiving that deficiency.  Because the fact is that no one knows if they will forgive it or not until they send over that approval letter.  Many buyers are already weary of short sales.  Expecting them to wait the months it takes to get an approval is already a challenge.  Expecting them to wait with the contingency of the bank releasing the judgment rights is another huge hurdle.  The problem lies in the timeframes.  If a listing agent does not include verbiage to protect the sellers, which most do not, then they are bound by the contract no matter if the bank approves the sale with forgiving the deficiency or not.  They are bound simply by an approval of a Short Sale.  So, if the bank plays hard ball and does not remove the right to pursue judgment, then the seller is potentially stuck either way; in one direction from the bank's threat to pursue judgment and the other way being in contract to sell with the buyers.  Either way, it puts a seller in a poor situation.

Dec 14, 2011 06:10 AM
#4
Joetta Fort
The DiGiorgio Group - Arvada, CO
Independent Broker, Homes Denver to Boulder

You are doing a great job, looking out for your sellers. There's so much for people to understand, and it all constantly changes.  Here in Colorado we have a State-approved short sale addendum that covers these issues. So if an agent takes the time to go over the addendum before they have the client sign, at least the client has an idea what might happen. Thank you for your well-written post.

Dec 14, 2011 11:44 AM

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