By Kelly Harpster
A new Court of Appeals decision clarifies what most lawyers already suspected and the Legislature already confirmed by amendment—that Oregon law does not require courts to include a money award in a judicial foreclosure judgment when the foreclosing party does not seek a money award.
In Bayview Loan Servicing, LLC v. Reed, 282 Or App 525 (2016), the Court of Appeals held that ORS 88.010 (2013) did not require a court to enter a personal money judgment against the debtor if the foreclosing plaintiff does not seek a money judgment. Prior to the foreclosure action, the debtor received a bankruptcy discharge of his personal liability for a defaulted mortgage. When Bayview later commenced a judicial foreclosure, Reed moved for summary judgment, arguing that entry of a money judgment against him was required by ORS 88.010(1) and that entering the money judgment would violate the federal discharge injunction. The trial court agreed, entered a limited judgment dismissing Reed from the case, and awarded Reed his attorney fees. Bayview appealed.
The trial court was not the first to interpret the statute to require a personal money judgment. A few years ago, during the peak of the foreclosure crisis, judges in several Oregon counties decided that in rem foreclosure actions were prohibited by ORS 88.010. The relevant part of the statute provided:
Except as provided in ORS 88.103, in addition to judgment of foreclosure and sale, if the lien debtor or another person, as principal or otherwise, has given a promissory note or other personal obligation for payment of the debt, the court also shall enter judgment for the amount of the debt against the lien debtor or other person.
Courts understood the word “shall” to mandate personal money awards regardless of the relief actually sought by the foreclosing plaintiff. The new interpretation created an acute problem if the debtor received a bankruptcy discharge prior to the foreclosure. Although bankruptcy law does not prohibit creditors from foreclosing a security interest post-discharge, bankruptcy law does prohibit creditors from obtaining a personal money judgment against the debtor. If every foreclosure judgment had to contain a money award against the debtor, including a debtor who received a bankruptcy discharge, then creditors could not judicially foreclose in Oregon without violating federal law.
The interpretation created problems in other cases, too. For example, some homeowners deed property to the lender in lieu of foreclosure. Many deeds-in-lieu permit the lender to foreclose if necessary to secure clear title but prohibit the lender from seeking a personal money judgment against the homeowner. The new interpretation of ORS 88.010 meant that a lender would have to breach its contractual promise to foreclose judicially.
As the interpretation spread slowly across the state, both debtor and creditor attorneys called for a statutory fix. The Oregon State Bar’s Debtor-Creditor section worked with the Consumer Law section to craft an amendment to clarify the intent of ORS 88.010. The Legislature passed the amendment in 2015, making clear that a court need not enter a personal money judgment against the debtor when other law prohibits it or the plaintiff does not seek a money judgment.
Because the amendment did not take effect until one month after entry of the limited judgment in Bayview, neither party argued that the amended statute controlled. Therefore, the court reviewed the history and context of ORS 88.010, concluding that statute, even prior to the amendment, did not require a court to enter a personal money judgment if the foreclosing plaintiff did not seek one. The Court of Appeals therefore reversed and remanded to the trial court for further proceedings.
The full opinion is available here.