A deficiency balance on foreclosure—also known as a mortgage deficiency or deficiency balance—occurs when a home or property is foreclosed on and the sale proceeds are not sufficient to pay off the mortgage. The remaining balance owed on the mortgage is a deficiency balance or mortgage deficiency.

Laws vary from state to state and a state’s laws and the terms of the mortgage may determine whether the mortgage lender (bank or mortgagee) will pursue a mortgagor who defaulted on a mortgage for any deficiency balance.

In Oregon, if a property is foreclosed upon and the sale does not generate enough funds to cover the outstanding mortgage balance, the lender may have the right to seek a deficiency judgment against the borrower for the remaining amount, known as a deficiency balance. However, Oregon has specific statutes that limit the ability of lenders to pursue deficiency judgments in certain types of foreclosures. For non-judicial foreclosures, which are the most common type in Oregon and do not involve the court system, ORS 86.797 generally prohibits deficiency judgments. This means that for most residential trust deed foreclosures, the lender cannot go after the borrower for any remaining balance after the property is sold. However, for judicial foreclosures, which go through the courts, lenders may seek deficiency judgments under certain circumstances as outlined in ORS 88.070. The specifics of whether a deficiency judgment is permissible depend on factors such as the type of loan, the type of property, and the foreclosure process used. Borrowers facing foreclosure should consult with an attorney to understand their rights and obligations under Oregon law.