Oregon Ct. Rules Lender Cannot Be Forced to Accept Title to Property via Chapter 13 Bankruptcy Plan

Oregon US District Court decision (April 22, 2015).

A lienholder (“Bank”) appealed a bankruptcy court ruling that confirmed a Chapter 13 Bankruptcy Plan that had been filed by the borrowers on a loan held by Bank which was secured by the borrowers’ property. Under the confirmed Chapter 13 Plan, the property owners were permitted to transfer title to the subject property to the Bank, thereby forcing Bank to take title to the property subject to the junior liens that had been created by the borrowers, in addition to homeowners association dues and assessments that accrued after the bankruptcy filing. The effect of the trial court’s ruling was to forcibly transfer title to the property to Bank along with the attendant liabilities.

The appellate court reversed the lower court decision holding that “a secured creditor cannot be compelled to take title to collateral over its objection. The appellate court stated that the bankruptcy court’s decision had impermissibly transformed the Bank’s right as a secured creditor to take the subject property through a foreclosure proceeding into an obligation (the terms of the deed of trust held by Bank allowed, but did not require, Bank to take title to the subject property through foreclosure). The court noted that its decision was consistent with Oregon state law which provides that a mortgagee must consent to the transfer of a deed to encumbered property.

See case decision: Bank_of_N.Y._Mellon_v._Watt_