Can amortgagee be prohibited from waiving a deficiency on a short sale due to state law?

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Can amortgagee be prohibited from waiving a deficiency on a short sale due to state law?

My buyer client is involved in a short sale on an investment property. The mortgagee and investor have agreed to all terms of the sale, but the mortgagee says it can’t waive the deficiency on the balance of the seller’s loan due to OR law. I can’t find this law anyplace and no one at the state can find it. The seller will not go through with the sale unless he gets the deficiency waived. Need to know if this is true.

Asked on November 19, 2010 under Real Estate Law, Oregon

Answers:

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 13 years ago | Contributor

You need to seek help from a foreclosure and bankruptcy attorney in your area.   There is an antideficiency judgement statute in Oregon but it does not necessarily apply on a short sale.  A lender could agree to release or “waive” its security in exchange for partial payment of its note on a short sale. But unless the lender agreed to fully extinguish the debt, it could sue on the note balance and collect any amount that remained unpaid.  I do not think that the lender "can't" waive the deficiency from what I have read.  And I would challenge the lender here to come up with the legal backing for it's statement.  Good luck.


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