Monday, October 5, 2009

Dealing with Foreclosure in Oregon, Part 5

Dealing with Foreclosure in Oregon
(c) 2009 Benjamin D. Knaupp
Attorney at Law
Admitted in Oregon since 1997

#5. What happens to my property debts after foreclosure?
So lets say your home is worth $300,000 on the open market, and you owe $350,000. The foreclosure sale occurs, and the bank ends up with ownership of your home. Can the bank pursue collection of the other $50,000 you owe? What if you also have a second mortgage for $25,000? Will the second mortgage lender pursue collection of its debt against you? Under an Oregon law sometimes referred to as the "anti-deficiency statute," currently the first mortgage holder cannot pursue you for the unpaid debt; but a second mortgage holder is not barred from a personal lawsuit to collect its debt from you.
Homeowners with more than one mortgage typically face a foreclosure action from the lender in first position, which, if finalized, removes any junior mortgages as a lien against the property. However, this does not erase your debt to the lender, and they retain the right to sue you if you default on your promissory note. It is not common for a second position lender to pursue you for a deficiency after the foreclosure sale, unless they believe you have sufficient personal assets available to satisfy a judgment. Therefore in some circumstances, it might be advisable to continue paying the second mortgage, or negotiate a deal with the lender if you have other assets you want to protect from a lawsuit.
Another debt that is becoming more common is homeowners association dues and assessments. Increasing numbers of young, first-time homeowners in Oregon are buying town-homes and condominiums. Many of these homeowners don’t understand that when you hold title to property which is governed by a homeowners association, you are personally liable for the debts and assessments. Oregon law allows the homeowners association to file a lien against your property for unpaid dues and assessments; and also to bring a personal lawsuit against the owners if the money is not paid. Therefore, a foreclosure sale does not relieve the homeowners of personal liability for dues and assessments levied during the time they held title to the property.
Next up is part 6: Will I owe tax on my debts after foreclosure?
For all 8 questions stay tuned for updates to this blog or go to my legal website. You can also watch my video explaining the 8 foreclosure questions in brief. If you live in Beaverton, Hillsboro, or Portland Oregon, give me a call with your questions or comments, or post a comment to this blog.


  1. Thank you for sharing the information regarding foreclosures. Not everyone can be helped in the way they want but the goal is to avoid foreclosure. Foreclosures solutions and short sales offer ways and help in order to keep your home.

    KL - Realtor

  2. Ben - what if the home was foreclosed upon, however, the homeowners association never filed a lien against the property, then the property was resold, and now the homeowners association is bringing a lawsuit against the former original owner for dues? Is that common? Thank you!

    1. Dear Interplanet Janet:

      Yes, the homeowners association can file a personal lawsuit against the former owner for unpaid dues and assessments that became due before the foreclosure sale was complete, even if they never filed a lien against the property. Oregon law gives homeowners associations the power to hold owners personally liable for dues and assessments.

  3. Please Help! Can a private seller seek deficiency judgement on a seller finance deed of trust in a judicial foreclosure rental owned under LLC . Thank you in advanced!

    1. Dear Szhng:

      A private seller can seek a deficiency judgment by going through the judicial foreclosure process IF the property is not "residential" property as defined by ORS 86.705.

    2. Dear Ben,

      Thank you for the reply, on ORS § 86.770¹
      Effect of sale
      • • actions for deficiency
      • • restrictions
      (3) Notwithstanding ORS 88.070, in a judicial foreclosure of a trust deed that is
      not a residential trust deed the judgment must provide that if the sale proceeds ...

      then i saw on ORS 88.070 saying no deficiency judgment for purchase money mortgage,
      ORS 88.070 Decree foreclosing purchase money mortgage on real property. When a decree is given for the foreclosure of any mortgage given to secure payment of the balance of the purchase price of real property, the decree shall provide for the sale of the real property covered by such mortgage for the satisfaction of the decree given therein, but the mortgagee shall not be entitled to a deficiency judgment on account of the mortgage or note or obligation secured by the same.

      So does that mean there's no deficiency judgment in this case? depend on if this is a mortgage or a deed of trust? what if one of the LLC member move into to the rental before the LLC is being served?


    3. Dear Ben,
      Does a seller finance consider a purchase money mortgage? here is what I read on ORS88.075 ORS88.075 When certain mortgage is considered a purchase money mortgage. A mortgage entered into after September 13, 1975, is a purchase money mortgage if the mortgage is given to a vendor to secure the unpaid balance of the purchase price of real property or if the mortgage is given to a lender or any other person to secure up to $50,000 of the unpaid balance of the purchase price of real property used by the purchaser as the primary or secondary single family residence of the purchaser. [1975 c.618 §6]

      So back to the issue, will there be deficiency judgment against the LLC? if the note are personal garrantee by its member? what will happen?


    4. Dear Szhng:

      Your questions involve interpreting Oregon law for mortgages (ORS 88) as well as the application under Oregon law for trust deeds (ORS 86). Because your questions involve a very specific scenario that may be more complicated than it appears, I cannot answer your questions without further investigation into all the facts involved. This blog is not an appropriate or safe way for me to give such specific legal advice. I recommend you contact me for private legal advice. My website, with contact information, is I am certain I can answer your questions once I know all the facts involved.