Right of redemption law (in Oregon)

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Right of redemption law (in Oregon)

Joe Liu
Beaverton, OR · Member since 2013 · 55 posts · 9 votes

Hi guys, does anyone have experience with the "right of redemption" law? So what I am wondering is if a Judicial foreclosure happens and lets say the house is worth $200k. They for whatever reason let it go to something stupid like $30k in property taxes, could I go out, seek out these x-owners with the "right of redemption" and buy the right of redemption from them and then pay off there $30k + fees and then take over the property?

Also, that 2nd part of this law - "by submitting notice to the Sheriff not more than 30 and not less than 2 days in advance of the redemption". Does this mean, redeem the right of redemption within 6 months. Once I pay off the outstanding loan, after 2 days, I have to let the sheriff know?

Also, I heard that if there is a 2nd loan on the house, that the 2nd loan has 2 months right of redemption. If anyone is from Oregon, have you heard of this?

------------- pulled this off the Oregon website ------------
Is there a right of redemption in Oregon?

Oregon has a post-salestatutory right of redemption for judicial foreclosures, which would allow a party whose property has been foreclosed to reclaim that property 180 days after the sale by making payment in full of the sum of the unpaid loan plus costs and by submitting notice to the Sheriff not more than 30 and not less than 2 days in advance of the redemption.

Thanks!

Joe

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Roger Sharp
Hillsboro, OR · Member since 2017 · 8 posts · 6 votes
9y

Chandler Cole, at a sheriff's sale held in connection with a judicial foreclosure, the sheriff does not deliver a deed to the property. The sheriff only delivers a certificate of sale. After delivery of the certificate of sale, the property owner has a statutory right to redeem the property within 180 days of the sheriff's sale by paying the price bid at the sale plus property taxes, HOA dues and expenses the certificate holder has paid to protect the property from waste, plus interest on the above at the rate of nine percent per annum. Sometimes the amount required to redeem the property is far less than the fair market value of the property. This means the right of redemption has some value. The property owner can get some of that value by selling the right of redemption to another party.

Let's remember that those property owners going through foreclosure are the human beings most likely experiencing some true misfortune in the foreclosure scenario.  Their properties, often their homes, are sold because they cannot pay their loans, often because of job loss, divorce, injury, death in the family and other events outside their control.  On the other hand, persons who bid at foreclosure sales voluntarily go to the sheriff's auction to bid because they hope to get a bargain, and they often do.  These hopeful bidders certainly have the opportunity to learn about the right of redemption before the auction, and they should.   They should not be surprised if the bargain they hoped to obtain is taken away by exercise of a  right of redemption.

The short answer to your question is that the high bidder at the sheriff's sale from a judicial foreclosure has not bought the property.  He or she has only purchased a conditional right to own the property after 180 days in the future if it is not redeemed.  The property owner can sell his or her right to redeem to someone else.  

Property owners need to take care that they do not sell too cheaply.  I have seen terrible examples of unethical behavior related to the purchase of rights of redemption for far less than was fair.    

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  • Simon Campbell
    Miami, FL · Member since 2012 · 612 posts · 189 votes
    13y

    You have this kind of backwards. Here is how it works:

    Property is in default (whether through a bank loan or unpaid property taxes).

    Property goes up for auction. Highest bidder wins.

    After the auction, the original homeowner has the right to redeem the property. They must pay the auction price plus any auction costs/fees plus interest within the redemption period.

    If the original homeowner redeems (usually the case with property tax foreclosure), the property is give back and the winner of the auction gets their money back plus interest (usually 15 - 24% APR).

    If the homeowner does not redeem (usually the case with mortgage foreclosure), the winner of the auction gets a non-insurable deed to the property after the redemption period expires.

    Here is the clincher, the winning bid must pay the full price either at the end of the auction or within 24 hours depending on the State.

    What you are bidding on is not necessarily the real estate but rather the loan position and the equity rights that come with that position. Any loans (known as junior lien holders) that were made after the one up for auction are eliminated by the foreclosure. All liens created prior to this debt now become the buyer’s responsibility. This could include other mortgages, IRS or contractor liens and delinquent property taxes. Before you bid on a property, you as the buyer are responsible to find out about any additional encumbrances on the property and you must be prepared to also pay these off if you want to have full rights to the property.

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  • Lynn McGeein
    Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
    13y

    Simon Campbell, I think what he's trying to ask is if he lets the auction go through (he is not a bidder), then buys the "right of redemption" from the owner -- basically, dealing with the owner who was foreclosed on, not the winning bidder, having a side deal so he gives the owner funds to buy the property back for the $30K plus fees, then they deed the property over to him for whatever fee he guaranteed the owner to exercise his right to redeem. We lived in Portland, OR, for a time, and I was always confused by their foreclosure system as well, but I'm sure there are systems in place that would not allow the owner to walk away from a $200K loan then buy the place back for the $30K it went for at auction (in this scenario), but maybe I'm mistaken.

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  • Joe Liu
    OP
    Beaverton, OR · Member since 2013 · 55 posts · 9 votes
    13y

    Simon Campbell Thanks Simon for the detailed response. Lynn is on the right track. From what I understand in Oregon is that you have the right of redemption only at the original loan amount, because if the loan is worth $200k, and the ARV is $100k and the bank starts the min bid at $50k and someone acutally wins the property at min bid for $50k, then the original owner can just redeem at $50k which wouldn't make sense. I heard they must redeem it at the original loan amount which is why they never do.

    On the flip side, have you ever heard of a 2nd lien having a 2 month right of redemption and if so, how does that work in the worse case scenario meaning, if the 2nd lien holder redeems there right of redemption, does that cancel out the owners right of redemption or can the owner then come in and redeem it back now from the 2nd lien holder? Or vice versa - the home owner redeems his right of redemption and then the 2nd lien holder comes in and buys it back from the owner.

    I know that is an unlikely scenario, but what is happening in Oregon is that groups will buy the rights of redemption from the owner before foreclosure and then buy the property at the auction. Another investor might want to come in and buy the rights of redemption from the 2nd lien holder who doesn't want it and is letting there 2nd lien go away, so an investor might give the 2nd lien hold a few hundred for there rights of redemption and now you have sort of a rights of redemption situation.

    Thanks guys!

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  • Cody C.
    Central Point, OR · Member since 2013 · 58 posts · 8 votes
    13y

    Interesting concept... That is a complex set up... and I don't know the answer, but lets see if one of these guys do... (or at least know someone who might!)
    Andy Chu, Jesse Tsai,Brandon Turner

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  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    13y

    Hi Joe Liu I have a right of redemption going on 2 doors down with the people being foreclosed on are "unknown heirs of a certain woman". I am sure the buyer would love to find the heir as I would too.

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  • Simon Campbell
    Miami, FL · Member since 2012 · 612 posts · 189 votes
    13y

    Oh I see your situation. Interesting concept.

    I have heard of owners taking the chance of having their property go up for auction and then redeeming it for the auction price. Usually, if the owner has an extra $50k stuffed under his mattress, the property would not have gone into foreclosure in the first place. But, if someone knows how to play the game and is willing to take on the risk - it could be done.

    The junior lien holder can only institute his right of redemption after the expiration of the original owners redemption period. The window for a junior lien holder to redeem is very narrow.

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  • Jesse Rivera
    Lender · Long Beach, CA · Member since 2013 · 496 posts · 296 votes
    13y

    Here is how it works in Oregon:

    You can indeed buy the right of redemption from the owner of the property after the auction, but if you redeem it, all of the subordinate liens reattach, as if the auction never took place. That is why nobody ever redeems a property (unless there were no subordinate liens and there was equity; I saw this happen a few months ago).

    The 2nd lien (and all subordinate liens) has 60 days to redeem, but the owner still has the full 180 days to redeem it, even if the 2nd has already redeemed. Once the owner redeems, nobody else can redeem.

    A strategy that we are using is to buy the right of redemption BEFORE the auction, then purchase the property at auction (if it is a good deal). Then the court will give us a deed after 90 days, and out title company will insure it. If it is a rehab, it takes 4-6 weeks anyway, then we can sell it and just stipulate the closing date has to be after we get the deed.

    We live in interesting times!

    2Reply
  • Joe Liu
    OP
    Beaverton, OR · Member since 2013 · 55 posts · 9 votes
    13y

    Jesse, thanks for that response! I had to re-read that twice, but that all makes sense now! If you don't mind me asking, who did you talk to in Oregon to get the inner workings of that law down? Some people know just snippets of it but no one has ever gone into that detail.

    0Reply
  • David K.
    OR · Member since 2013 · 2 posts · 0 votes
    13y

    So, now Im really confused!
    Found this on the oregon.gov website about right of redemtion:
    http://www.oregon.gov/DCBS/foreclosurehelp/pages/overview.aspx

    "One important difference in a judicial foreclosure, after the sale of the property, is the right of the former homeowner to recover the house within 180 days, known as the redemption period. To redeem the house within this period, the former homeowner, following a formal notification process, must notify the new owner of that intention. The former homeowner must pay the new owner, whether a person or the financial institution, the amount paid at the sheriff’s sale to purchase the house, including applicable interest. The total amount to redeem the property may also include payments made by the purchaser for property taxes, insurance, and other expenses to maintain the house in good condition."

    That clearly says that the debtor can buyback the property for the amount paid at the sheriff's sale NOT the entire judgement amount against the debtor (homeowener).

    So, given the example above, it would seem the original owner could buy back the home at the $50K amount (sheriff's sale amount) during the redemption period and not the full debt amount!
    I still don't believe it eventhough it's on the Oregon.gov webpage. Could they be wrong with their summary of the law?

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  • Simon Campbell
    Miami, FL · Member since 2012 · 612 posts · 189 votes
    13y

    No David Kelso, you understand it correctly. The redemption price is not the original mortgage amount but the price paid at the auction. In this scenario, the owner owes $200k but the property sells for the minimum bid of $50k. The original owner can redeem his/her property for the $50k plus interest.

    The problem that happens is that more than likely the homeowner does not have $50k just lying around. If they would have had that amount of cash, they would not have defaulted on their loan in the first place. Since they did default, no bank in their right mind is going to loan even $50k to them. So unless they can get a family member or friend to go out on a limb - or another investor "pays" them for their rights of redemption, the home will stay with the winning bidder.

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  • David K.
    OR · Member since 2013 · 2 posts · 0 votes
    13y

    Thanks Simon. Lets assume for this example that the homeowner has the cash to re-buy the property during the redemption period or finds an investor to JV with them and they front the money. I'm wondering what, if anything then would prevent said homeowner, who lets say purchased the property for 200k back during the peak knowing now that the FMV is far less, to strategically default with the idea of buying the home back for 50k during redemption, thus unburdening themselves of 200k in debt and owning their home free and clear?
    I get that one mechanism that the banks have for reducing the likelihood of his happening is that they can pursue deficiency judgment. Let's assume in this example though that when the bank filed the lis pendens they did not seek deficiency (which in most instances is the case in Oregon, especially if one hires an attorney).
    Lets leave aside the tax implications (1099c) for now. What would prevent this scenario?

    Another option in this example would be for the homeowner to front the cash to a friend to buy the home at auction on their behalf. Again, setting aside the tax questions, it seems the homeowner could turn the tables on the bank and come out ahead.
    What in the law am I missing that would prevent either scenario?

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  • Simon Campbell
    Miami, FL · Member since 2012 · 612 posts · 189 votes
    13y

    Technically, a homeowner could strategically default and buy their home back for the auction amount. Though legally possible, it rarely happens for several reasons.

    First, the default will be registered as a foreclosure on their record and will prohibit their ability to get a loan for up to 7 years.

    Second, there is the ethical concerns that come from legally agreeing to repay the $200k and then defaulting and only paying $50k.

    Third, I am unsure if there would be any legal ramifications if the lender found out that this was a strategic default and that the homeowner was able to continue to make the payments. This would no doubt vary from state to state and from lender to lender.

    It is possible if the property owner knows how to play the game and is willing to take the risks at the auction and the credit hit.

    0Reply
  • Dan White
    Investor · Fox Island, WA · Member since 2014 · 11 posts · 14 votes
    10y

    The reason why a homeowner can buy the property back for the bid amount plus costs is because this is a judicial foreclosure. The lender receives a judgement for the deficiency and can go after the foreclosed party as with any other judgement. As a private lender I have strategically done this as a method to collect. This deficiency will not go away as in a non-judicial setting and will impact the foreclosed party possibly indefinitely if the judgement is renewed every ten years.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Dan White  your statement is not accurate... if the loan being foreclosed ( first deed of trust) via trustees power of sale or judicial in Oregon and its a purchase money first position loan .. then there is no ability to get a deficiency judgment in Or or Wa. Or  CA, NV, AZ and a few other states..

    purchase money IE a loan used in first position to buy a primary residence is not allowed in any situation in these states to establish any deficiency the bank or lenders remedy is only the property.   this is why in AZ NV CA you had so many strategic foreclosures back in the day.

    the only reason Oregon went to judicial was for Robo signing type things.. and to make sure that the sales would not get overturned..

    Now in many other states you can get a deficiency from a home owner.. and in many states its dual action you get both  property back and judgment.

    I suspect the foreclosure were you got a judgement were not purchase money loans to owner occ's  .. and if you did for some reason you have some problems that are of another nature 

    commercial non owner occ etc your absolutely correct though

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  • Peter Hanna
    Spring, TX · Member since 2015 · 7 posts · 1 vote
    10y

    Hi. I'm a new investor, still learning. I live in Texas, and have come to understand one county's version of this, but in reading all your responses, I see that I have MUCH to learn in general. I have an interest in looking around in Oregon for tax sales, but it is obvious to me that I am woefully uneducated about these distinctions you guys have made. If I may, I'd like to see if I can summarize in newbie language and get correction. If this is a waste of time, maybe someone can point me in the direction of where to go to get a better understanding of this so I can learn and make informed decisions about whether it even makes sense to pursue this line of thinking in OR.

    If I am reading your comments correctly:

    • Home owner Alfred defaults on his taxes (in Texas this is the only kind of sale a sheriff or constable can hold, but looks like there is more than one kind of sale in OR?) at residence 123 someplace, portland OR,
    • 123 someplace goes to sale after court decision so that sheriff can recoup taxes lost, and buyer Bill purchases the property,
    • Alfred has 180 days to buy it back from Bill for bid amount, and court fees, but no longer has to pay back his original loan for 123 someplace, portland OR,
    • Meanwhile, contractor Clair has a second lien (not sure how she got it but she did) and she has 60 days to get her money back or gets the property, but Alfred can step in at the 90 day mark and still reclaim the property. Now, though, Al has to pay Bill for his original bid, court fees, AND has to pay Clair?
    • What if: Al does not reclaim and repay? Does Clair now get the property or Bill? If Bill, does Bill now have to pay Clair?
    • What if: Al doesn't reclaim, AND Clair doesn't reclaim? Bill gets the property outright on day 181? In Texas, the original owner can come back up to a year after the sale and get the property back, but has to pay bid amount, fees, interest, and any costs to make the property livable (fixed the roof leak, installed the heating/AC that was vandalized, etc.) but it looks like OR is saying get it in 180 days or else. Also in TX, the deed becomes insurable AFTER the time expires. Is that not so in OR? Once bad always bad?

    OR, do I just need to go look this up someplace I have yet to figure out online so far?

    P.S. - I forgot to mention that in TX, the bidder/winner is responsible for any new liens and taxes that accrued after the decision date, which in many cases seems to be at least a year or more of additional taxes, and who knows what new liens. Still working to figure out how to find that out, but that is another discussion.

    Peter Hanna

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  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y
    Originally posted by @Jay Hinrichs:

    @Dan White  your statement is not accurate... if the loan being foreclosed ( first deed of trust) via trustees power of sale or judicial in Oregon and its a purchase money first position loan .. then there is no ability to get a deficiency judgment in Or or Wa. Or  CA, NV, AZ and a few other states..

    I understand that if the Purchase Money Note is refinanced, you then revert to possibility of the deficiency judgment - - care to comment further??

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Jeff B.  your correct because it is no longer a purchase money DT

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  • Paul Na
    Portland, OR · Member since 2017 · 1 post · 0 votes
    9y

    @Jesse Rivera  We purchased a property at the Sherrif's auction in Oregon and are buying the rights to redemption from the owners.  Do we record the sale of redemption rights and then send it to the courthouse or what is the next step to get the property deed from the courthouse and how soon can we obtain it?  Thank you for your help!

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  • Jesse Rivera
    Lender · Long Beach, CA · Member since 2013 · 496 posts · 296 votes
    9y

    Hi Paul,

    Once you have the rights of redemption (use a bargain and sale deed), record it at the courhouse. Then you have 2 options. You can get the deed early (if there are subordinate liens, you wait the 60 days, and petition a judge to get the deed early. I have an attorney I can refer that does that for me), or you can just wait the 180 days and go to the sheriff with the original auction receipt (keep that!!) and he will issue a deed for you.

    Congrats on the purchase, hope that helps!

    1Reply
  • John Kevin Hunt
    Oregon City, OR · Member since 2017 · 2 posts · 0 votes
    9y

    Greetings,

    What about the converse?

    Let's say the defaulted Oregon homeowner in a judicial foreclosure sells her redemption rights post-judgment, pre-auction to Flipper #1 for $20K. Say that payoff on the property -- the redemption amount -- was $120K.

    At Auction, Flipper #1 is outbid by Flipper #2. Flipper #2's winning bid is $220K.

    Associate of homeowner ("AH"), using homeowner's fronted money, buys back redemption rights from losing bidder Flipper #1, for $10K.

    Which of the following is correct? 

    A. AH can redeem property by paying redemption amount of $120K to bank. Bank returns overrage of $100K to Flipper #2.

    B. In order to redeem, AH must pay $220K to upper #2.

    0Reply
  • John Kevin Hunt
    Oregon City, OR · Member since 2017 · 2 posts · 0 votes
    9y

    Typo: "upper #2" = Flipper #2.

    0Reply
  • Chandler Cole
    Real Estate Investor · Portland, OR · Member since 2017 · 2 posts · 0 votes
    9y

    Currently in Oregon there is a facility  that buys the rights of redemption from the homeowner that is getting foreclosed on, They do not even attempt to buy the property at auction and then turn around to the new buyer and offer the Rights Of Redemption for an inflated price (Example i know of.. they bought the rights for 400.00 and asked 2500 to the auction purchaser to buy the rights back). This is borderline legal, but is very unethical for a realty company to do. If they only have the rights of redemption but as the law states, they are not the owner that was foreclosed on, how are they allowed to take a property from the person who purchased it at auction?

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  • Brian Bellairs
    Beaverton, OR · Member since 2017 · 1 post · 0 votes
    9y

    I am a Realtor working with an owner and a buyer right now. The owner wants to exercise his redemption rights then sell the house to the buyer. I can't find anyone to tell me exactly how the process works. The Sheriff's office said "hire a foreclosure attorney". Oregon statues say that bank is entitled to what they paid at auction plus 9% interest and allowable fees. How do determine what the fees  are? How does the bank get the the money?  How does the title process work? Can a buyer get a loan and purchase the property?

    Seems like there would be a clearly defined way to do this. 

    Can anyone help me?

    0Reply
  • Roger Sharp
    Hillsboro, OR · Member since 2017 · 8 posts · 6 votes
    9y

    The Oregon statutes define how redemption works in Oregon.  The specific statutes to look at are ORS 18.960 to ORS 18.985.   I sent you a message inviting you to call me to discuss the situation.  I can answer your questions.

    0Reply
  • Roger Sharp
    Hillsboro, OR · Member since 2017 · 8 posts · 6 votes
    9y

    Chandler Cole, at a sheriff's sale held in connection with a judicial foreclosure, the sheriff does not deliver a deed to the property. The sheriff only delivers a certificate of sale. After delivery of the certificate of sale, the property owner has a statutory right to redeem the property within 180 days of the sheriff's sale by paying the price bid at the sale plus property taxes, HOA dues and expenses the certificate holder has paid to protect the property from waste, plus interest on the above at the rate of nine percent per annum. Sometimes the amount required to redeem the property is far less than the fair market value of the property. This means the right of redemption has some value. The property owner can get some of that value by selling the right of redemption to another party.

    Let's remember that those property owners going through foreclosure are the human beings most likely experiencing some true misfortune in the foreclosure scenario.  Their properties, often their homes, are sold because they cannot pay their loans, often because of job loss, divorce, injury, death in the family and other events outside their control.  On the other hand, persons who bid at foreclosure sales voluntarily go to the sheriff's auction to bid because they hope to get a bargain, and they often do.  These hopeful bidders certainly have the opportunity to learn about the right of redemption before the auction, and they should.   They should not be surprised if the bargain they hoped to obtain is taken away by exercise of a  right of redemption.

    The short answer to your question is that the high bidder at the sheriff's sale from a judicial foreclosure has not bought the property.  He or she has only purchased a conditional right to own the property after 180 days in the future if it is not redeemed.  The property owner can sell his or her right to redeem to someone else.  

    Property owners need to take care that they do not sell too cheaply.  I have seen terrible examples of unethical behavior related to the purchase of rights of redemption for far less than was fair.    

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