In Oregon, if the foreclosure sale price is less than the amount you owe on the mortgage loan, the foreclosing bank can't come after you for the difference, called a "deficiency," following a nonjudicial foreclosure. But deficiency judgments are allowed with some judicial foreclosures.
In a foreclosure, the total debt that the borrower owes to the bank sometimes 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 $600,000, but the home sells for $550,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the bank can seek a personal judgment, called a "deficiency judgment," against the debtor to recover the deficiency. Generally, once the bank gets a deficiency judgment, the bank may collect this amount—in our example, $50,000—from the borrowers using regular collection methods, like garnishing the borrowers’ wages or levying the borrowers’ bank account.
Over the years, most foreclosures in Oregon have been nonjudicial. But in 2012, banks switched to judicial foreclosures for various reasons that are no longer applicable. Banks have since reverted to primarily using the nonjudicial process again.
Deficiency judgments aren't allowed after nonjudicial foreclosures. In Oregon, a deficiency judgment isn't allowed against the borrower following a nonjudicial foreclosure.
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. § 86.797). A “residential trust deed” means a trust deed on property that is residential, consists of four or fewer residential units, and the borrower, the borrower’s spouse or the borrower’s minor or dependent child occupies the property as a principal residence at the time the trust deed is recorded or, in the case of a purchase money loan, the property is intended to be the principal residence of the borrower, the borrower’s spouse or the borrower’s minor or dependent child after the trust deed is recorded. (Or. Rev. Stat. § 86.705).
To find the laws that govern Oregon foreclosures, go to Chapter 86 of the Oregon Revised Statutes. Statutes change, so checking them is always a good idea. How courts and agencies interpret and apply the law can also change. And some rules can even vary within a state. These are just some of the reasons to consider consulting an attorney if you’re facing a foreclosure.
If you’re behind in your mortgage payments and want to learn about possible defenses or ways avoid a foreclosure, consider talking to a local lawyer. Also, it's a good idea to consider making an appointment to talk to a HUD-approved housing counselor as well.