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Facing the unintended consequences of the foreclosure bill
Judicial foreclosures have gained in momentum on a scale of 10 to 1 compared to non-judicial foreclosures
November 26, 2012
Senate Bill 1552 requires banks, when filing a non-judicial foreclosure, to provide homeowners a face-to-face mediation session to help them avoid losing the home.
Despite its intent, Oregon lawmakers put into motion some unintended consequences to homeowners, which are just the tip of the iceberg.
According to Gorilla Capital, a purchaser of distressed real estate, in the 20 Oregon counties that they serve, there were less than 90 judicial foreclosures per month the first three months of 2012. Judicial foreclosures reached 522 in October, 561 in September, and 538 in August.
“The foreclosure tide is rising,” said Gorilla Capital CEO John Helmick. “Lenders have turned over the foreclosure files to their attorneys and we are seeing increasing numbers of judicial foreclosures being filed in all counties in Oregon. The non-judicial foreclosure route is being used for less than 10 percent of all foreclosures and is no longer an accurate indication of the distressed real estate market or the number of Oregonians who are facing foreclosures.”
According to a real estate agent at Sun Country Realty, they know that the trend is going to affect them, but it is too early to tell to what extent. The time frame of a judicial foreclosure is longer than the alternative of a non-judicial foreclosure.
Crook County Sheriff’s Deputy Brandy Lange is in charge of recording the judicial foreclosures for the Sheriff’s Office. She indicated that once they receive them, they publish them for four consecutive weeks, and then they have 60 days from the time they receive it to get it returned to the court.
“This is the most I’ve ever had since I have been here,” said Lange. She has recorded 19 so far this year, and she has several in process. In the previous two years, they had yearly totals of 14 for each year.
The original intent of the bill was to provide an educational component that helps the distressed homeowners understand the process that they are in and what options and avenues of assistance are available to them. With non-judicial foreclosures, if a home sells for less than what the owner owes, the deficiency is forgiven. In a judicial foreclosure, the homeowner can be responsible for the difference if the home sells for less than what is owed.
Although homeowners can feasibly be responsible for owing money on the home they just lost in a judicial foreclosure, there are many variables and scenarios within any set of circumstances. Non-recourse foreclosures have one set of outcomes, and other variables can affect it — such as how long they lived in the home, whether they refinanced — and they could end up with a cancellation of debt.
There are also special circumstances such as a qualified mortgage relief, which may not require additional taxes. Homeowners facing foreclosure should always check with an accountant to see how debt relief should be handled.
Jordan Simmons, of Simmons Realty, Inc., said that the long-term effect of the influx of judicial foreclosures could dry up the market and cause a real shortage of real estate properties.
“There are not nearly as many properties on the market, and it’s actually going to make the prices go up,” said Simmons.
Helmick said the negative impact judicial foreclosures will have on the housing market is building.
“With the judicial foreclosure process now becoming the standard operating procedure, Oregon will have the same experience as states that have only judicial foreclosures; the number of homes that are in the foreclosure process will increase dramatically over the next two years, creating a huge drag on the housing recovery in Oregon, and may reverse the recent gain in Oregon home prices.”