Deficiency judgments need to receive careful attention no matter if the owner is being foreclosed, plans on attempting a short sale or is considering giving a deed in lieu of foreclosure.

A deficiency occurs when the proceeds of a sale return less to the foreclosing lender than the amount of the mortgage.  For example, if the loan is $200,000, the lender takes back the property and sells it for $180,000, there's a deficiency of $20,000.

In Oregon, if the proceeds of a mortgage loan are used to purchase a property, the mortgage is called a "purchase money mortgage." If the property is foreclosed via the trust deed, the lender will not be entitled to a deficiency.

The above has generally been taken to refer to first trust deeds. Historically, people made a down payment and took out a mortgage to buy the house, resulting in a single trust deed.  However, the statute, as I read it, does not say mortgages with first trust deeds. It only refers to purchase money mortgages.  Over the last few years, lots of homes were bought with "piggyback" loans, where a first and second trust deed were combined to make the purchase. Is not the second note and trust deed also a purchase money mortgage? I think it is, and I'd fight the lender if it tried to seek a deficiency judgment, here. 

There's no quibblng with "cash out" loans, where the owner borrows against the home and spends the proceeds for, say, a car or boat, college tuition or whatever.  Foreclosing lenders are entitled to collect a deficiency on these. Most common here are HELOC's, or Home Equity Line of Credit loans. A refinance of a first trust deed may also be subject to deficiencies, since the re-fi may be a cash out.

The laws covering deficiency judgment come from the foreclosure statute. That means with a short sale or a deed-in-lieu of, where there is no foreclosure, all debt is subject to deficiency judgments. Owners and real estate brokers and other third parties must take special care to make sure all debt is forgiven when these transactions occur.  Some tax liablilty can also result, by the way, as forgiveness of debt counts as income.

On these kinds of issues, I strongly advise people to consult with real estate attorneys, tax attorneys and CPA's.