2 minutes reading time (308 words)

Why you should be really careful about refinancing your home. . . . deficiency judgments.

This applies to young people who are buying a home, so please pay attention you guys. If you have a house, you need to read the rest of this.

 If you've been thinking of refinancing your home, there's something that the advertisements for great deals don't tell you . . . and it can really hurt you.

When you buy your house, it is usually financed. That means you've borrowed money to pay for it, and you have to pay that money back. That's okay, even if you eventually find that you can't pay it back.

In Oregon, all the bank can do is take the house back. They don't get a judgment against you for the remaining amount you still owe.

They have to be satisfied with taking the house back.

When you refinance, or take a second mortgage, or get a line of credit that is secured by a home, you make a new problem.

First, the bank can take your home and sell it at auction. And when they don't get enough from the auction to pay themselves off, they can collect what is still owed. It's called a deficiency judgment. And they will take further steps to collect it.

It could be puzzling why a person would refinance to get a little smaller payment, or a minute interest rate reduction. The act of refinancing a loan exposes you to a deficiency judgment.

But the answer is simple: they just don't tell you about deficiency judgments.

So this is the difference: if you can't pay the first purchase loan, all they can do is take the house back. On a refinance, they can first sell the house at auction, and then they can get a deficiency judgment for what you still owe.

I hope this helps someone. It comes up often in my law practice.

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