In Oregon, if the foreclosure sale price is less than the amount you owe on the mortgage, the foreclosing lender can't 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 might be able to sue you in some circumstances.
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 $400,000, but the home only sells for $350,000 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. (To learn more about deficiency judgments in the foreclosure context, see Deficiency Judgments: Will You Still Owe Money After the Foreclosure?)
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 However, in 2012, lenders switched to judicial foreclosures for various reasons that are no longer applicable.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 have since reverted to primarily using the nonjudicial process 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 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).
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:
To find the laws that govern Oregon foreclosures, go to Chapter 86 of the Oregon Revised Statutes.
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.