Oregon Laws on Post-Foreclosure Deficiency Judgments

Oregon currently prohibits lenders from obtaining a deficiency judgement after a foreclosure or short sale, but not a deed in lieu of foreclosure.

Losing one’s home to foreclosure can be extremely stressful. For some distressed homeowners, however, the sale of their home in a foreclosure auction does not necessarily mean their concerns are over. In some states, homeowners may be liable for deficiency judgments after foreclosure. If you’re facing foreclosure, determining whether your state allows deficiency judgments will help you decide what the best options are for you.

What is a Deficiency Judgment?

If a home is sold at a foreclosure sale for less than the amount owed on the mortgage, the difference is called the deficiency. In some states, the lender may file a lawsuit to collect the deficiency. A deficiency judgment is a money judgment as a result of such a lawsuit, holding a borrower personally liable to repay the deficiency.

Are Deficiency Judgments Allowed in Oregon?

To find out whether deficiency judgments are allowed in Oregon, you should look to Oregon’s laws regarding deficiency judgments, which can be found in Oregon Revised Statutes (Ore. Rev. Stat.) Sections 86.157 and 86.797. A summary of Oregon’s laws governing deficiency judgments can be found below.

Deficiency Judgments Prohibited After Foreclosure and Short Sale

Oregon law prohibits lenders from seeking deficiency judgments from the borrower after:

  • a nonjudicial foreclosure or
  • a judicial foreclosure of a residential trust deed. (A “residential trust deed” means a trust deed on property that has four or fewer residential units, one of which the borrower, the borrower’s spouse or the borrower’s minor or dependent child occupies as a principal residence at the time the trust deed is recorded or, in the case of a purchase money loan, one of which 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, § 86.797.

In addition, Oregon 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. Ore. Rev. Stat. § 86.157.

Deficiency Judgments After Deed in Lieu of Foreclosure

Oregon does not have specific statutes regulating deficiency judgments after a deed in lieu of foreclosure. Thus, the specific deed in lieu of foreclosure agreement negotiated by the borrower and the lender will determine whether the borrower remains liable for any balance owed on the mortgage. To be safe, borrowers should get from their lenders a written release of liability for any deficiency.

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