A lender in Oregon holds both a first trust deed and a second trust deed on the same property. The borrower defaults and the first trust deed holder initiates a non-judicial trustee's sale. The property sells at the trustee's sale for an amount sufficient to satisfy the first trust deed but leaves nothing for the second trust deed holder. Under Oregon law, what happens to the second trust deed after the trustee's sale?
Correct Answer
C) The second trust deed is extinguished by the trustee's sale, and the second lender loses its lien on the property.
When a senior (first) trust deed is foreclosed through a non-judicial trustee's sale in Oregon, junior liens — including a second trust deed — that were recorded after the first trust deed are extinguished by the sale. The purchaser at the trustee's sale takes title free and clear of the junior liens. The second trust deed lender loses its secured interest in the property. However, the second lender's ability to pursue a personal deficiency judgment is limited by Oregon's anti-deficiency rules applicable to non-judicial foreclosures, making this a particularly unfavorable outcome for junior lienholders.
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Related Concepts
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
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