In Oregon, if the foreclosure sale price is less than the amount you owe on the mortgage, the foreclosing lender cannot come after you for the difference (called the "deficiency") after a nonjudicial foreclosure. However, deficiency judgments are allowed with certain judicial foreclosures and lenders on second mortgages or HELOCs may be able to sue you in some circumstances.
Read on to learn what a deficiency judgment is, when your mortgage lender can collect one against you in Oregon and when it cannot, and what happens to the deficiency in a short sale or a deed in lieu of foreclosure in Oregon.
(For more articles on foreclosure in Oregon, visit our Oregon Foreclosure Law Center.)
What Is a Deficiency After Foreclosure?
When a lender forecloses on a mortgage, the total debt owed by the borrowers to the lender frequently exceeds the foreclosure sale price. The difference between the sale price and the total debt is called a deficiency.
Example. Say the total debt owed is $200,000, but the home only sells for $150,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount (in our example, $50,000) from the borrowers by doing such things as garnishing the borrowers’ wages or levying the borrowers’ bank account. (Learn about methods that creditors can use to collect judgments.)
(To learn more about deficiency judgments in the foreclosure context, see our Deficiency Judgments After Foreclosure area.)
Oregon Deficiency Judgments
Over the years, most foreclosures in Oregon have been nonjudicial. However, in 2012 lenders switched to judicial foreclosures for various reasons that are no longer applicable. Lenders will likely revert to nonjudicial foreclosures again. (Learn more at Nolo’s Bankruptcy, Debt & Foreclosure Blog "Nonjudicial Foreclosures Likely to Resume in Oregon".)
(To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)
Learn more about the Oregon foreclosure process.
Deficiency judgments are not allowed after nonjudicial foreclosures. In Oregon, deficiency judgments are not allowed following nonjudicial foreclosures.
Limitation on deficiency judgments in judicial foreclosures. Deficiency judgments are allowed in judicial foreclosures, but not in foreclosures of residential trust deeds (Or. Rev. Stat. § 86.770). A “residential trust deed” means a trust deed on property that, at the time the foreclosure is started, is:
- occupied by the borrower, the borrower’s spouse, or the borrower’s minor/dependent child as a principal residence, and
- consists of four or fewer residential units (Or. Rev. Stat. § 86.705).
Can Lenders of Second Mortgages, HELOCs, and Other Junior Liens Collect From You?
Generally, when a senior lienholder forecloses, any junior liens (these would include second mortgages and HELOCs, among others) are also foreclosed and those junior lienholders lose their security interest in the real estate. If a junior lienholder has been sold-out in this manner, that junior lienholder can sue you personally on the promissory note. This means that if the equity in your home doesn’t cover second and third mortgages, you may face lawsuits from those lenders to collect the balance of the loans.
However, in Oregon, a junior loan holder cannot personally sue you to collect the deficiency following a senior loan’s foreclosure if:
- the same lender created both the senior and junior loan at the same time, and
- the funds were used to help purchase or refinance the property (Or. Rev. Stat. § 86.770).
Learn more in our article What Happens to Liens and Second Mortgages in Foreclosure?
Deficiency After a Short Sale in Oregon
A short sale is when you sell your home for less than the total debt balance remaining on your mortgage and the proceeds of the sale pay off a portion of the mortgage balance. (Learn more about short sales to avoid foreclosure.)
In Oregon, a lender can get a deficiency judgment following a short sale. However, Oregon law prohibits lenders from seeking a deficiency judgment after a short sale if the lender:
- reports to the Internal Revenue Service that it has cancelled all or part of the borrower’s debt as a result of the short sale, and
- provides the borrower with a copy of the report (Or. Rev. Stat. § 86.157).
Deficiency After a Deed in Lieu of Foreclosure in Oregon
A deed in lieu of foreclosure occurs when a lender agrees to accept a deed to the property instead of foreclosing in order to obtain title. With a deed in lieu of foreclosure, the deficiency amount is the difference between the fair market value of the property and the total debt. (Learn more about deeds in lieu of foreclosure.)
In Oregon, a lender can get a deficiency judgment following a deed in lieu of foreclosure. To avoid a deficiency judgment with a deed in lieu of foreclosure, the agreement must expressly state that the transaction is in full satisfaction of the debt. If the deed in lieu of foreclosure agreement does not contain this provision, the lender may file a lawsuit to obtain a deficiency judgment against you.
Oregon Foreclosure Law
To find the laws that govern Oregon foreclosures, go to the Oregon State Legislature’s webpage at www.leg.state.or.us. Click on “Bills/Laws,” then “Oregon Revised Statutes,” and look in ORS Volume 2, Chapter 86 for the 2011 edition. (This version does not include new statutes or amendments to statutes enacted by the 2012 regular session of the Legislative Assembly).