Will your lender be seeking a deficiency judgment against you ….

The other day I was interviewing with a prospective client about their distressed property and the options available to them. After researching their options on the internet they were confused about whether a lender has the right to pursue a deficiency judgment against them if they were to short sell their home. Not wanting to go through the ordeal of selling their home only to have the unresolved debt stall their fresh start they asked for my take on the subject.


The first recommendation was that they seek professional counsel from a qualified real estate attorney and CPA. I then shared some of the research that the Oregon Realtors legal hotline had recently provided its members. The hotline offered that currently in Oregon since the short sale of a property is a voluntary modification of terms of the loan agreement, the new agreement can contain any terms the parties agree to. In a voluntary modification like a short sale the deficiency is the unpaid balance of the note. A note holder can sue in court for the unpaid balance of the note unless the maker of the note bargains for and gets “full satisfaction” of the note. Should the borrower get only the note holders verbal agreement to waive their lien and not foreclose that would leave the borrower exposed for the unpaid balance.

To get “full satisfaction” the borrower needs to ask for it!! Otherwise the lender is allowed to waive their lien on the property, forego foreclosure and continue to hold the note as an unsecured debt. Since the note is no longer secured by the property and has become a personal debt, the lender is no longer bound by the foreclosure laws of Oregon. The lender is now free to pursue a judicial judgment for the unsecured debt. In Oregon the statue of limitations for pursuing a judgment is ten years, with the possibility of an extension for another ten years. Just when you thought you would be rebuilding your credit in the next two to four years this dog could be following you around for the next ten years if you do not ask for and receive in writing “full satisfaction” to your lien.