Compass Newsletter - Articles

Cure, Deficiency, and Redemption - Key Foreclosure Concepts

By Eric Yandell
(Winter 2011)

In the last two years, foreclosures have increasingly been in the news and have become an all-too-real concern for many of our friends and fellow citizens. The most prominent context of discussion, of course, involves residential property. Government sources state that 1 out of every 200 homeowners will face foreclosure before the current housing crisis ends. In Oregon, nearly 30,000 homes went through foreclosure in 2010 alone, with a four-year projection (2009 - 2012) of approximately 86,000 homes.

The term “foreclosure” describes a group of processes by which property is sold or (in some cases) surrendered to pay a debt and applies to all kinds of property, not just single family residences. The source of the “debt” may be the cost of buying property, money borrowed for other purposes (e.g. a home equity loan) or even money borrowed by a third party for which property is pledged as security. The foreclosure process can take a variety of forms, which vary markedly from state to state. Almost all states have a “judicial” foreclosure process, in which a court compels a sale of the property, generally by the sheriff. All but 17 states have some form of “non-judicial” foreclosure process in which the property is sold at public auction by a “trustee” or other official without court intervention. One or two states have an even blunter process in which a lender is authorized to hold a deed and record it on default without sale. (Oregon courts have declared this technique a violation of due process.)

Oregon has both judicial and non-judicial foreclosure processes. Traditional mortgages may only be foreclosed judicially. For most loans, however, the lender is given a trust deed rather than a traditional mortgage. Oregon added the trust deed as an available real property security device in 1959, largely to compete with California (which recognized the trust deed form) for construction lending dollars following World War II. A trust deed may be foreclosed either judicially or non-judicially at the election of its holder (called the “beneficiary.”).

A land sale contract, which is a form of seller (not lender) financing, may be foreclosed in court in two ways: 1) through “strict foreclosure” in which the seller takes the property back in satisfaction of the debt (unless the court decides the seller would receive a windfall and orders the property sold); or 2) through “specific performance,” in which the property is sold, generally by the sheriff. A third process – “forfeiture” – is non-judicial and results in a buyer surrendering her interest in the property.

The available foreclosure processes vary considerably depending on the type of security instrument and the source of the debt, but three key rights – cure, deficiency and redemption – are common to, and describe fundamental differences between, these processes.


Foreclosure becomes available when a buyer/borrower has defaulted on obligations to the seller/lender, most commonly by failing to make timely payments. Generally, the contract or promissory note will authorize the seller to “accelerate” the debt on default, so that the entire balance is immediately due. In some instances, however, a buyer has a right to “cure” by performing his delinquent obligations, thereby reinstating the loan and stopping the foreclosure.

The buyer has no right to cure once the seller begins a judicial foreclosure process. The buyer must pay the entire balance, not just the amount in arrears, to stop foreclosure. However, before she can accelerate, the seller must send the buyer a notice specifying the amount owed or other steps needed to cure and provide a reasonable opportunity under the circumstances for the buyer to perform. Failure to do so bars the remedy and the seller has to start from scratch, losing time and often paying the buyer’s attorney fees.

By comparison, both non-judicial foreclosure and forfeiture statutes incorporate cure provisions. A buyer who winds up in a non-judicial foreclosure may cure up to five days before the sale date by paying all sums delinquent at the time and certain foreclosure charges. Similarly, to forfeit a buyer’s interest under a land sale contract, the seller records a notice in the real property records specifying the default(s). By statute, depending on the portion of the purchase price the buyer has paid, he will have from 30 to 120 days to cure. If he does not, he “forfeits” all interest in the property back to the seller.


A “deficiency” is the difference between what the seller is owed (including interest, costs and legal fees) and what someone (frequently the seller herself) pays for property at the foreclosure sale. Depending on the source of the debt, the type of instrument employed, or the remedy selected, the seller or lender may or may not be entitled to pursue a deficiency.

No deficiency is available following non-judicial foreclosure or forfeiture. Susceptibility to cure (which may cause the seller to have to start over on a later default) and unavailability of a deficiency are the trade-offs the legislature enacted when it gave sellers and lenders a quick and predictable way to get property sold or surrendered without going to court.

In most judicial foreclosures, a seller will have a right to a deficiency judgment against the buyer, co-borrower or guarantor. A deficiency is limited or prohibited in the following circumstances:

  1. Judicial foreclosure of a “residential trust deed” – i.e. a trust deed on 1 - 4 dwelling units occupied at the time foreclosure is begun by the borrower, his spouse or his minor or dependent child. Note that a deficiency is available against the guarantor of such a loan;
  2. A “purchase money mortgage” – i.e. a mortgage given to the seller to secure the balance of the purchase price for any kind of property or to a lender to secure up to $50,000 of the purchase price of a primary or secondary residence. Note that the restrictions do not apply when a trust deed is judicially foreclosed unless the trust deed is a “residential trust deed”; and
  3. Strict foreclosure of a land sale contract, whether the property is restored to the seller or sold at sale.


In some situations, the buyer has a right to buy the property back for what was paid plus certain additional charges within 180 days following a sheriff’s sale. (A junior lien claimant has a 60-day redemption right). In theory, the right of redemption protects the buyer against unreasonably low sales prices by providing an extra six months to find a new source of funds. The right of redemption, however, is not available following a non-judicial foreclosure or when a seller sues for specific performance of a land sale contract.


The rights to “cure” defaults, to obtain a “deficiency” judgment, and to “redeem” property following sale vary and may affect the choice of security instrument on the original purchase or remedy upon default. Following you will find a table that outlines their applicability in most circumstances.


Judicial / Non-Judicial




  Purchase Money1 Judicial No No Yes
  Non-Purchase Money Judicial No Yes Yes
Trust Deed        
  Residential2 Both Yes No No
  Judicial Foreclosure   No No Yes
  Non-judicial Foreclosure   Yes No No
  Commercial Both      
  Judicial Foreclosure   No Yes Yes
  Non-judicial Foreclosure   Yes No No
Land Sale Contract        
  Strict Foreclosure Judicial No No No
  Specific Performance Judicial No Yes No
  Forfeiture Non-Judicial Yes No No

1 “Purchase Money”: Mortgage given to a) Seller to buy property; b) Lender to secure $50,000 or less to buy primary or secondary residence.

2 Residential Trust Deed = 1-4 dwelling units, one of which is occupied by borrower, as a principal resident, his spouse, or his minor or dependent children at time foreclosure commenced.