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The following information regarding foreclosures is brought to you as a public service by the lawyers of the State of Oregon. The material presented is general legal information intended to alert you to possible legal problems and solutions.

A foreclosure is a procedure to remove a person's rights to own and have possession of real property, that is, real estate. After foreclosure, the person will no longer own the property, and will be required to move and take out all his or her belongings.

A foreclosure is started by a person, or company, holding a lien on real property. An owner will normally give a lien upon his or her real property as collateral for repayment of a debt. Typically, a homeowner gives a lien on his or her house to the bank as collateral for payment of a loan to the bank. In some cases, a lien can be placed on real property without the owner's consent where money is owing but has not been paid. For example, a carpenter can file a construction lien for work done on a house, the IRS can file a lien for unpaid taxes, and a creditor can file a lien for an unpaid judgment.

There are four common types of liens on real property. Those are (i) a trust deed; (ii) a mortgage; (iii) a land sale contract; and (iv) an involuntary lien.
A trust deed is a special type of mortgage given by the owner of the real property to a third party, called a trustee, who holds a power of sale for the property for the benefit of a creditor (such as a lender) until the debt is repaid. Banks and other lenders typically use a trust deed.

A trust deed can be foreclosed by a lawsuit in the circuit court of the county where the property is located. The party holding the lien asks the court for a judgment against the owner for the unpaid amount of the debt together with attorney fees and foreclosure costs. If the owner does not pay that full amount to the holder of the lien, then the sheriff of that county will auction off the property to the highest bidder for cash. If there is not enough cash received by the sheriff to pay the judgment in full, then the holder of the lien can collect what is still owed, called a deficiency, from the owner. The owner also must move out immediately.

If the foreclosure is on the owner's residence or the residence of the owner's spouse or child, then the owner merely loses the property but does not have to pay a deficiency. However, anyone else who guaranteed payment of the debt will have to pay the deficiency.

After the sale, the owner has 180 days to buy the property back from the purchaser at the sale for an amount equal to the auction price paid plus interest and any anything the purchaser had to pay for such items as taxes and maintenance. This is known as a right of redemption.

The holder of a trust deed can foreclose without going to court, too, through a foreclosure by "advertisement and sale." The trustee mails a notice to the owner, and any other persons holding an interest in the property, of the amount of the debt and the sale date, and publishes notice of the sale in a newspaper. The trustee then auctions off the property to satisfy the debt, the attorney fees and foreclosure costs. Following the sale, the owner must move out of the property. This foreclosure process takes approximately 140 days.

In this kind of foreclosure of a trust deed, the owner has no right of redemption. However, when the foreclosure is by "advertisement and sale," the owner does not have to pay a deficiency, either. In addition, the owner can stop the foreclosure by paying all delinquent payments together with trustee's and attorney fees and costs at any time up to 5 days before the scheduled sale date. The trustee will then file a notice in the county records showing that the foreclosure proceeding has ended.

A mortgage is similar to a trust deed but does not involve a third party trustee. With a mortgage, the owner gives a lien on the property as collateral for the debt.

A mortgage can be foreclosed by filing a lawsuit in the circuit court of the county in which the property is located. The foreclosure is handled in the same manner in which a court foreclosure of a trust deed is handled. The only difference is that there is no right to collect a deficiency from the owner following foreclosure, if the mortgage was given as collateral to the seller of the property, or if the mortgage was given to a bank or other lender for a debt of less than $50,000, and the money was used to pay for the property.

A third type of lien is a land sale contract. The land sale contract is a contract between the seller and buyer of real property. The seller agrees to give the buyer a deed to the property once the purchase price has been paid. It is very important to carefully read a land sale contract because the rights of the parties may vary greatly depending on the wording of the contract.

The seller under a land sale contract has three principal foreclosure rights.
First, the seller can file a lawsuit in the circuit court of the county where the property is located asking for the unpaid balance of the contract together with attorney fees and foreclosure costs. If the seller's case is successful, the sheriff will then conduct a public auction for cash. As with court foreclosure of a trust deed, if there is not enough cash to pay the judgment the buyer is responsible to pay the difference to the seller. The buyer also must immediately move out of the property after foreclosure. Unlike a court foreclosure of a trust deed, however, the buyer has no right to buy the property back after foreclosure.

The seller can choose instead to file a lawsuit in the county where the property is, to eliminate the buyer's interest in the property. This is known as strict foreclosure. In a strict foreclosure action, the seller gets the property back and the buyer must pay to the seller all of the seller's attorney fees and foreclosure costs. The buyer is not responsible for a deficiency other than attorney fees and foreclosure costs, but has no right to buy the property back.

The final foreclosure option is known as forfeiture. It is similar to a foreclosure by advertisement and sale of a trust deed. Here, the seller sends notice to the buyer and other parties having an interest in the property, explaining the amount of the debt and a forfeiture date. If the buyer does nothing, the buyer's interest in the property will be eliminated, and the buyer must immediately move out of the property. Until the date of the forfeiture, however, the buyer has the right stop the forfeiture by making up the back payments together with attorney fees and forfeiture costs. The seller will then file a notice in the county records showing that the forfeiture proceeding has ended.

The final category of liens is those that are placed against the property without the owner's consent. As described above, those can include liens filed by workmen on the property, liens filed for unpaid taxes and liens filed by creditors holding judgments against the owner. Each of those liens have their own special procedures for foreclosure. In most cases, however, the result is the same: the sheriff of the county where the property is located will hold a public auction and sell the property to the highest bidder for cash. If the cash is not sufficient to pay the amount of the debt, the person who owes the money secured by the lien will be responsible for the difference. With certain liens, the owner may have the right to buy back the property after the sale.

This information is from the Oregon State Bar's Tel-law service, a collection of recorded legal information messages prepared by the lawyers of Oregon. In addition to being online, the Tel-law service is accessible by telephone at 503-620-3000 or toll-free in Oregon only, 1-800-452-4776. A touch tone phone allows direct access 24 hours a day, 7 days a week. To receive a free Tel-law brochure listing the subjects available call 503-620-0222, ext. 0.