Opening Doors: Post Foreclosure Forcible Entry and Detainer

Opening Doors: Post Foreclosure Forcible Entry and Detainer

By Erich M. Paetsch & G. Paul Wallace, Creditor’s Rights & Bankruptcy Litigation Practice Group

There are more resources and procedural changes occurring in Oregon’s Forcible Entry and Detainer (“FED”) courts today. These changes are a response to Oregon’s significant increase in persons experiencing homelessness. The changes are focused on the standard FED process involving Oregon’s Residential Landlord and Tenant Act (ORS Chapter 90) (the “Act”). Obtaining possession following the FED process is allowed after a non-judicial or judicial foreclosure in Oregon. The FED process following a foreclosure excludes application of the Act. The FED process is intended to be an expedient and summary process to obtain possession. With the current emphasis on FED proceedings involving the Act, pursuing an FED after a foreclosure can be more complicated, especially when the validity of the prior foreclosure is challenged. Disputes over the validity of the foreclosure and legal title acquired by the purchaser through the foreclosure can significantly alter how an FED case proceeds and transform an FED proceeding into a protracted legal process.

FED Actions as the Means to Obtain Possession Post-Foreclosure

Whether purchasing real property through a judicial foreclosure or a nonjudicial foreclosure, the purchaser is entitled to possession of the property 10 days after the foreclosure sale in the absence of a bona fide tenancy. See ORS 18.946; ORS 86.782(6). While there are many instances where obtaining possession occurs without difficulty, there are others when post foreclosure occupants refuse to voluntarily surrender possession. Oregon law considers the occupants as tenants at sufferance and authorizes the purchaser to obtain possession by filing an eviction action. While most people think of the Act when it comes to evictions, the removal of a tenant at sufferance is pursued under ORS 105.100 et. seq., the FED statutes. The statutes governing most residential evictions under the Act do not apply to purchasers from a foreclosure, except to supplement ORS Chapter 105, and in situations where the occupants are bona fide tenants under a lease. ORS 86.782(6)(c).

Challenges to Foreclosure and an FED

The Oregon Trust Deed Act (the “OTDA”) contains a myriad of procedural requirements that, if not strictly followed, create grounds to challenge the validity of a nonjudicial foreclosure sale. If there are grounds to challenge the sale, they can include attacking title obtained by a purchaser. There is tension between challenges to title and FED actions. FED actions are intended to be “quick” and “summary” proceedings, where the only issue is who holds the right to possession. See Class v. Carter, 293 Or 147, 150 (1982). Litigation of title issues, on the other hand, conflicts with this purpose of FED cases and the way many FED courts operate. This tension has consistently challenged Oregon courts on how to resolve disputes where the validity of title is challenged in an FED case.

Most recently, this tension was confronted in an Oregon Court of Appeals Case, Duckworth v. Duckworth. See 327 Or App 219 (2023). The Duckworth court was faced with a question regarding the preclusive effect of a prior FED action that also determined title dispute issues. Id. at 221. The FED court had ruled in favor of the defendant, and evicted the plaintiffs after determining that plaintiffs did not have a claim to title of the property. Duckworth was the resulting civil case, where the plaintiffs once again challenged title and asserted that they were the rightful owners of the property, in response the defendants asserted that the FED court’s rulings on the title were preclusive. Id. at 222-23. This ruling sent the court of appeals on a “long and arduous journey through 179 years of Oregon FED statutes and caselaw” to determine the scope of FED cases. Id. at 228.

Principally, the Duckworth court was concerned with whether a FED court could make binding rulings on title. Id. The court began by analyzing the first 133 years of FED actions in Oregon. In so doing, the court discussed the statutory and common law evolution of the principle that title cannot be litigated in FED actions, which involved both express statutory language as well as “de facto” rules imposed by courts. Id. at 237. From 1977 to 1998, that principal became muddied by certain jurisdictional statutes that seemingly gave courts the ability to adjudicate title issues, provided that any ruling shall “in no way affect or determine title between the parties or otherwise.” Id. at 239 (quoting Former ORS 46.084 (1977)). That statute was abolished in 1998. Post-1998, there is neither an express statutory provision that prevented the adjudication of title issues in FED actions, nor a statute that allows for their adjudication in a non-preclusive manner. Id. at 243.

Duckworth and the OTDA

The Duckworth decision paid special attention to several cases involving the OTDA and tenants at sufferance. The Duckworth court noted that in opinions following the great recession in 2008, Oregon courts considered faults in the foreclosure sale as relevant to the right to possession in FED actions. Id. at 244-45. For example, in Bank of New York Mellon v. Owen, 299 Or App 248 (2019), the court ruled that the FED court was incorrect in excluding issues regarding the validity of a trustee’s deed in determining the plaintiff’s right to possession. Id. at 350-351; see also Bank of America N.A. v. Payne, 279 Or App 239, 243 n. 2 (2016) (reversing an FED judgment where the trustee was not validly appointed under the OTDA and thus the plaintiff could not be entitled to possession.) The Duckworth court found these cases persuasive in its conclusion that FED courts can resolve title dispute in ORS 105 actions. Duckworth, 327 Or App at 248. Special emphasis should be given to the discretionary nature of this rule, the Duckworth court cabined its holding by stating that FED courts are not required to adjudicate these types of disputes. Id. at 249.

The Future of Title Disputes in FED Actions Arising under the OTDA

The Duckworth ruling that it is in the FED court’s discretion whether to adjudicate title disputes opens the door to questions regarding the scope of an FED trial. As Duckworth discussed, there are cases in Oregon suggesting procedural missteps under the OTDA are relevant to the right of possession. Unsurprisingly, much like the rest of Duckworth’s analysis, these cases are not as straight forward as their holdings may appear. These cases all look to Staffordshire Investments, Inc. v. Cal-Western Reconveyance Corp., 209 Or App 528 (2006). In Staffordshire the purchaser of a deed of trust at a nonjudicial foreclosure sale was limited to damages of the purchase price after the trustee’s sale was unwound by the court. Id. at 544.

The crux of the Staffordshire ruling was that the trustee’s sale was void because the grantee and grantor entered into a forbearance agreement before the sale, meaning the grantor was no longer in default. Id. at 542-43. This holding, however, was limited to situations where the purchaser had not received the presumption of finality under ORS 86.803. Once a Trustee’s Deed is executed and recorded, the high bidder at a nonjudicial foreclosure is given bona fide purchaser status, and the recitals regarding default and notice contained in the Trustees Deed are conclusive, so long as the recitals are relied upon in good faith. ORS 86.803. This means that, even if there are defects in the sale, the grantor is foreclosed from challenging those defects once a bona fide purchaser records the trust deed. See Mikityuk v. Northwest Trustee Services, Inc., 952 Fsupp 2d 958, 966 (2013). The presumption of finality provides that, even when defects exist in the foreclosure sale, the purchaser is entitled to possession under ORS 86.782(a).

The presumption of finality isn’t the only grounds for establishing a right to possession under the OTDA. ORS 86.761(2) provides a purchaser at a nonjudicial foreclosure sale with defective notice with the same rights as a purchaser at judicial foreclosure. This establishes that, in cases with defective notice, the grantor has a right to redemption. See ORS 86.761(1). But it also establishes that, under ORS 18.946, the purchaser is entitled to immediate possession of the property and may remain in possession until the redemption right is exercised.

The Duckworth decision grants discretion to FED courts on whether to consider title issues in a non-Act FED proceeding following foreclosure.  The burden is on the FED courts to determine whether a foreclosure proceeding is defective or simply to resolve questions around possession. Allowing expanded proceedings is contrary to the typical FED court process involving the Act and deviates from the processes and procedures facilitating an expedited judicial process.  A FED court might be inclined to suggest an ejectment action in lieu of an FED as the proper way to proceed. However, Oregon law expressly permits an FED action in post foreclosure possession disputes. Despite Staffordshire’s ruling regarding void foreclosure sales, there remains a valid process for FED Courts to preserve the quick and summary nature of an FED action following foreclosure for purchasers as a bona fide purchaser for value In cases where the grantor-occupant alleges defects in the foreclosure process, both ORS 86.803 and 86.761 provide expedient ways to establish a right to possession in FED court. As the only issue in an FED case, these provisions pave the way to a quick resolution. The allegedly aggrieved party retains its rights to challenge the validity of the foreclosure action through separate civil litigation outside the FED courts.

Judicial Foreclosures and FED Actions

The risk of post-sale challenges arising from a judicial foreclosure sale are different than under the OTDA. Because the sale occurs by way of the judicial process, the debtor’s ability to challenge the sale occurs prior to it happening or the certificate of sale being issued. See ORS 18.892 (providing for challenges to a writ of execution); see also ORS 18.948 (allowing for objection to a sale within ten days of the sheriff’s return of writ). If the sale is not challenged  the sale is presumed to satisfy Oregon law. ORS 18.948(1).

Upon completion of the sale, the high bidder obtains a recordable certificate of sale, establishing the bidder as the purchaser. ORS 18.942. Once the certificate is issued, the purchaser is entitled to possession until the debtor exercises their redemption rights. ORS 18.946. Until the redemption price is paid, the purchaser may exercise its right to possession through an FED action. This FED process is far more contained than one under the OTDA. As the purchaser is entitled to possession, and that entitlement is only subject to the debtor’s redemption rights, the FED action is more likely to be a quick summary proceeding.

Conclusion

FED courts retain discretion whether to adjudicate title disputes in FED actions under the Duckworth holding. Several Oregon cases have heard title disputes where the validity of a OTDA foreclosure sale is contested in the context of an FED. Those cases, however, did not deal with the presumption of finality. In instances where the purchaser has recorded the Trustee’s Deed they are entitled to bona fide purchaser status and in turn possession under ORS 86.782(6)(a). Judicial foreclosures present an equally clear path to obtaining possession, as the opportunity for challenges occurs during the foreclosure litigation.  Therefore, despite questions surrounding the validity of the sale, the title to the real property is presumed valid, and the issue as to who is entitled to possession is far more limited than other cases that deal with title disputes in FED actions.

Erich M. Paetsch and G. Paul Wallace are both attorneys in the Creditor’s Rights & Business Litigation practice group. 

The information in this article is not intended to provide legal advice. For professional consultation, please contact Saalfeld Griggs PC at (503) 399-1070 or visit www.sglaw.com. © 2024 Saalfeld Griggs PC