When a property is sold at a foreclosure sale, the sale price might not be enough to pay off the mortgage debt. The difference between the total mortgage debt and the sale price is called a "deficiency." In some states, the bank can get a personal judgment, called a "deficiency judgment," against a foreclosed borrower for the deficiency amount.
Oregon homeowners who lose their property to a nonjudicial foreclosure won’t have to pay a deficiency judgment. However, deficiency judgments are allowed with some judicial foreclosures.
What Is a Mortgage Deficiency in an Oregon Foreclosure?
In Oregon, a bank may choose to foreclose by filing a lawsuit in court or by using a nonjudicial process. Usually, banks opt to use the nonjudicial process allowed under Oregon law.
Either way, the process ends when the property is sold at a foreclosure sale. At the sale, the bank can bid up to the total amount of the debt, including foreclosure fees and costs, or it might bid less.
Banks regularly bid less than the total amount of a borrower's mortgage debt at foreclosure sales. Once again, the difference between the total debt and a lesser winning bid at the sale is the "deficiency."
Example of a Mortgage Deficiency in an Oregon Foreclosure
Suppose Owen takes out a $400,000 loan to buy a home. Unfortunately, Owen eventually gets laid off. He falls behind in payments, and the bank forecloses.
At the time of the foreclosure sale, Owen owes the bank $375,000. But the home sells for $350,000. The deficiency is $25,000.
What Is a “Deficiency Judgment” After a Foreclosure Sale?
If state law allows it, the bank can seek a personal judgment against the borrower to recover the deficiency (if there is one) after a foreclosure sale. Again, this judgment is called a “deficiency judgment.”
How Banks Collect Deficiency Judgments
Generally, once a bank gets a deficiency judgment, it may collect this amount from the borrower using regular collection methods, like garnishing wages or levying a bank account.
Does Oregon Allow Deficiency Judgments?
In Oregon, deficiency judgments aren't allowed after nonjudicial foreclosures. But they're sometimes permitted in judicial ones. Most homeowners in Oregon, however, won't face a deficiency judgment after either type of foreclosure.
No Deficiency Judgments After Nonjudicial Foreclosures in Oregon
In Oregon, a bank can’t get a deficiency judgment against the borrower after a nonjudicial foreclosure. (Or. Rev. Stat. § 86.797). Because the majority of foreclosures in that state are nonjudicial, foreclosed homeowners usually don't have to pay a deficiency judgment.
Deficiency Judgments Are Sometimes Allowed in Oregon Judicial Foreclosures
Deficiency judgments are allowed in judicial foreclosures but not in foreclosures of “residential trust deeds.” (Or. Rev. Stat. § 86.797).
What is a residential trust deed? A "residential trust deed" is a trust deed on property that's 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).
Can I Avoid a Deficiency Judgment in Oregon?
If your bank gets a deficiency judgment against you, you might be able to eliminate your liability for the judgment (and other dischargeable debts) in a Chapter 7 or Chapter 13 bankruptcy. Or you might be able to raise a defense to the deficiency.
Getting Help
If you’re facing a Wyoming foreclosure and want to get information about potential defenses you might have, consider talking to a local foreclosure attorney. To learn about different ways to avoid a foreclosure, consider also talking to a HUD-approved housing counselor.