What is foreclosure?
Foreclosure is the legal process the financial institution, having an interest in your mortgage loan,
can initiate to take away your house if you are in default. Foreclosures
can be initiated by anyone who has a lien on your house, including your lender or the county (if you don't pay property taxes),
state (if you owe any state taxes) or federal government (if you owe any federal taxes).
How does the foreclosure process work?
There
are two common types of foreclosure processes in Oregon -
judicial and non-judicial. The most used process in this state is the non-judicial, where the document securing the loan is
a "Deed of Trust." The parties involved in this model are: the financial institution or "beneficiary,"
which is the institution you owe the money to; the "trustee," which is the neutral party to whom you conveyed or
"transferred" temporarily the title of your house to be hold in trust until your loan is paid off; and you as a
borrower or "trustor/grantor."
One of the most important components of the foreclosure process is the proper procedures of notification. For purposes of illustration, we will briefly discuss the process of foreclosure
by "advertisement and sale," which will start if you, the homeowner, is not making your mortgage payments as agreed
and they have been continuously late for at least 60 to 90 days. After trying to contact you to have you bring your mortgage
payments current, the financial institution will give instructions to the trustee to start the foreclosure process or, in
lending jargon, "accelerate" the loan. First, the trustee will send out a notification of sale to you and all parties
with an interest in the property. This notification lets you know your home is in the foreclosure process and it will be filed
in the county or counties where your house is located. At this point the information about the loan in default and the foreclosure
process becomes public information.
The notification of sale should include the following:
·
Your name(s) and address, the names of
the trustee and financial institution.
·
The legal description of the property
and often the commonly known address
·
Information about the records within the
county where the notification of sale has been recorded
· The reason why your house is in foreclosure
· The total amount(s) owed
· The decision made to sell the property to satisfy the debt
· The date, time and place of the sale
· Your rights under state law to stop the foreclosure process if you bring your loan current, including
paying expenses incurred by the financial institution to cover the foreclosure process.
You have the right to reinstate your loan by bringing your loan current, in addition to paying the expenses mentioned above, but you should do this no
later than 5 days before the sale (auction date) of the house.
At least 20 days prior to the sale of the property, the trustee should publicize for the last time the sale/auction in a local newspaper in the county or counties
where the property is located. The publication will also include the date, time and place where the sale of the property will
take place.
The buyers of the property will be entitled to take possession of the property ten (10) days after the auction date.
Anyone interested, including yourself, may present a bid to
buy the house.
Also, if you do not pay your annual property taxes to the county or counties where your house is located, after three years of unpaid property taxes,
the county will start the foreclosure process themselves to collect the tax owed.
Proper procedures of
notification must be followed. You will receive in your annual property tax statements the notification about when
your house is subject to foreclosure.
What if
my house sells for less than I owe?
If your house is sold at auction or is transferred to the
lender and the amount for which it was sold or transferred is not enough to cover the balance of your loan, the financial institution, with certain exceptions, may have to cancel or forgive
the balance between the fair market value of the house and the amount you owe. This balance or deficit is also known as "cancellation
of debt." The institution will file the applicable IRS forms with the amount(s) owed and other relevant information.
You will receive a copy of the applicable 1099 form(s) in reference to the amount "forgiven." With certain exceptions,
you may have to include this amount as part of your income when you file your income taxes. Talk to a tax adviser about the
potential impact on your tax filings.
A recent law, the "Mortgage Forgiveness Debt Relief Act of 2007" amending the Internal Revenue Code,
provides with additional exclusions for some homeowners who lost their homes, if occupied as their primary residence, to foreclosure and the lender canceled or "forgave" a debt
secured by the house. This new law can be applied for residential discharged debts of up to $2 million ($1 million if married
filing separately) made on or after January 1, 2007, but before January 1, 2010.
For additional information please see our resources section for the IRS web site or contact your
tax advisor.
