In Oregon, if the foreclosure sale price is less than the amount you owe on the mortgage loan, the foreclosing party (the "lender") can't come after you for the difference (called the "deficiency") after a nonjudicial foreclosure. Deficiency judgments are allowed with certain judicial foreclosures, and lenders on second mortgages or HELOCs might be able to sue you in some circumstances.
But what if you complete a short sale? What happens to the deficiency? Oregon law prohibits deficiency judgments after a short sale under certain circumstances. Read on to learn more.
A “short sale” is when you sell your home for less than the total balance you owe the lender. The proceeds from the short sale pay off part of the debt. The deficiency amount is the difference between the sale price and the total amount owed.
In Oregon, a lender can generally get a deficiency judgment following a short sale. But Oregon law prohibits a lender from seeking a deficiency judgment after a short sale if the lender:
So, if you complete a short sale in Oregon and you get an IRS Form 1099-C (“Cancellation of Debt” form) in connection with the sale—meaning the lender canceled (forgave) the deficiency amount—then the lender can’t file suit or seek payment for any deficiency following the foreclosure sale.
If the IRS sends you a Form 1099-C, the canceled amount might be considered income for tax purposes. Cancellation of debt can be treated as taxable income in the year the cancellation took place. (Tax laws are complicated, and, in some situations, the IRS won’t count the canceled debt as income. For specific information about your particular situation, get help from a qualified tax professional.)
If you want to fight a foreclosure in court or need help working out a short sale or deed in lieu of foreclosure with your lender—hopefully one that won’t leave you on the hook for a deficiency—consider talking to a foreclosure attorney. It’s also recommended that you speak to a HUD-approved housing counselor.