By Tori Klein and Allyson Leavitt
Published: January 27, 2013 12:00AM, Midnight, Jan. 27
Foreclosure. Most people understand the basics: someone borrows money to buy a home, can’t make the agreed-upon payments for whatever reason, and must give the home to the lender to cover the unpaid debt. What is otherwise a cut-and-dried contractual agreement has been the topic of multiple state and federal legislative sessions. Soon the Oregon Legislature will focus on foreclosure.
Good foreclosure legislation can help the Oregon housing market recover, but lawmakers and the public need accurate facts. Our company has been purchasing and redeveloping distressed homes for more than seven years. We carefully track the market and maintain a database. We believe the information now used in the foreclosure debate is incomplete.
One fact is obvious, but often overlooked: foreclosures are not a problem in themselves; they are a consequence of a problem created several years ago. Until we invent a time machine so we can go back and solve the initial problem, we are left to deal with the consequence.
The number of Oregonians who feel this direct consequence is misunderstood. The vast majority of Oregonians and Lane County residents pay their mortgages. Only about 0.5 percent of homeowners have their homes sold at foreclosure auction each year. In the last five years, only about 3 percent of all homes in Lane County have been sold at foreclosure auction.
It’s often forgotten that bankruptcy, unemployment and foreclosure are realities in our society — difficult realities, but they have some positive attributes: they allow people to get a fresh start after a period of financial hardship, new business start-ups can follow layoffs, etc. There are valid social and public-policy reasons why we want these processes to reach a conclusion quickly. The same efficiency is necessary for foreclosure.
We all want legislation that is best for all Oregonians. Any action to address homeowners facing foreclosure must also keep in mind the high percentage of homeowners who do not get foreclosed on each year. Legislation that disregards this fact won’t take into account how delays in the foreclosure process negatively affect the majority of Oregonians who continue to pay their mortgages — for instance, by resulting in higher fees for future loans and keeping home values low.
Three specific things will help address the consequence of foreclosure.
First and foremost, if we want fewer foreclosures in 2014, we need more jobs in 2013. This is the real solution. Changes in employment — a new job that requires relocation or the loss of a job — are a leading cause of foreclosures today.
When unemployment goes up, foreclosures go up, and when unemployment goes down, foreclosures go down. Unemployment and the number of foreclosures have tracked each other closely in Lane County for the past five years, and both are now declining from their peaks a few years ago. Oregon and Lane County officials should be focusing on jobs.
Second, we need fair and efficient foreclosure processes for the small number of people involved. Oregon has two processes for foreclosure — a “notice and sale process” and a “court process.” The lender chooses one of these two processes. The notice and sale process is efficient and economical, while the court process is expensive but provides a forum in which homeowners can participate.
We need to improve these processes so that in the long term we have a clear, efficient and understandable path forward for homeowners who are unable or unwilling to pay their mortgages. Making the process onerous to one or both parties only creates delays — delays that impede both the housing market’s recovery and homeowners’ ability to start rebuilding their financial lives.
To ensure fairness, we need to allow homeowners to override the lender’s choice of a foreclosure process — if the lender chooses “notice and sale” process, the homeowner should be allowed to remove the matter to the courts to ensure judicial oversight. To increase efficiency, we must simplify the notice and sale process and focus on small adjustments to the current laws.
Third, it’s unfair to expect the Legislature to single-handedly fix the foreclosure consequence, so we must educate those facing foreclosure about the options of bankruptcy and housing counseling.
Bankruptcy court offers an organized method of getting debtors on their feet again. Housing counselors work with homeowners to determine if staying in a home is even an option, or whether people truly need a graceful exit from their obligations, like foreclosure.
As an Oregon business that employs and creates jobs for more than 100 Oregonians, we want the housing market to recover. The housing market is healing, and we want to see it continue to do so. We hope our policymakers, if fully informed, make decisions that will encourage growth of both jobs and the housing market in our state.
Tori Klein and Allyson Leavitt are employees of Gorilla Capital Inc. in Eugene.