In a short sale, Oregon law does not permit deficiency judgments on first mortgages and acquisition loans. Homeowners with home equity lines of credit (HELOC), second mortgages, and cash-out refinances may be subject to a deficiency judgment. Laws in other states vary, and deficiency judgments may be permitted depending upon the state.
What is a deficiency judgment? A deficiency judgment may be awarded to the mortgage issuer if the borrower fails to repay the entire mortgage when the home is sold. If the home’s value drops and the borrower cannot sell the property for at least the money due on the mortgage, a deficiency judgment serves as a court order to the borrower to repay the difference between the home’s sale price and the remainder on the mortgage. This is also known as “recourse on the loan.”
The potential for a deficiency judgment doesn’t just happen with a short sale however. It’s one of the risks of allowing the home to be foreclosed. If the home is auctioned for less than the bank’s interest in the property, the bank can also seek a deficiency judgment against the former homeowner for the remainder of the money due on the home. Likewise, the bank can seek recourse if the bank sells the property through a means other than auction, and does not recoup the money still owed on the home.
State law in Oregon protects you from recourse on your original loan, but what about your second mortgage or lines of credit? The cash-out refinance you may have done is also not protected from recourse. What can you do?
Work with a professional loss mitigation company like Sell Home Owner. Our negotiators will work with the bank to help you avoid traps like deficiency judgments. If you don’t work with professional loss mitigators and foreclosure consultants to negotiate your own short sale, the bank may readily agree to the sale because the door is still open for them to pursue the remainder via a deficiency agreement. Professional loss mitigation companies will provide you with the facts you need to make an informed decision about short sales and foreclosures in Oregon.