diff --git a/lib/dao.js b/lib/dao.js
index cf7dc7ea9..75bb0b094 100644
--- a/lib/dao.js
+++ b/lib/dao.js
@@ -1109,8 +1109,15 @@ DataAccessObject.findOrCreate = function findOrCreate(query, data, options, cb)
         let obj;
 
         if (data) {
-          obj = new Model(data, {fields: query.fields, applySetters: false,
-            persisted: true});
+          const ctorOpts = {
+            fields: query.fields,
+            applySetters: false,
+            persisted: true,
+          };
+          if (Model.settings.applyDefaultsOnReads === false) {
+            ctorOpts.applyDefaultValues = false;
+          }
+          obj = new Model(data, ctorOpts);
         }
 
         if (created) {
@@ -1632,6 +1639,9 @@ DataAccessObject.find = function find(query, options, cb) {
             applySetters: false,
             persisted: true,
           };
+          if (Model.settings.applyDefaultsOnReads === false) {
+            ctorOpts.applyDefaultValues = false;
+          }
           let obj;
           try {
             obj = new Model(data, ctorOpts);
diff --git a/test/basic-querying.test.js b/test/basic-querying.test.js
index 57fd3b4e9..cef6f540c 100644
--- a/test/basic-querying.test.js
+++ b/test/basic-querying.test.js
@@ -917,6 +917,75 @@ describe('basic-querying', function() {
           });
         });
     });
+
+    it('applies default values by default', () => {
+      // Backwards compatibility, see
+      // https://github.com/strongloop/loopback-datasource-juggler/issues/1692
+
+      // Initially, all Players were always active, no property was needed
+      const Player = db.define('Player', {name: String});
+      let created;
+      return db.automigrate('Player')
+        .then(() => Player.create({name: 'Pen'}))
+        .then(result => {
+          created = result;
+
+          // Later on, we decide to introduce `active` property
+          Player.defineProperty('active', {
+            type: Boolean,
+            default: false,
+          });
+          return db.autoupdate('Player');
+        })
+        .then(() => {
+          // And query existing data
+          return Player.findOne();
+        })
+        .then(found => {
+          should(found.toObject().active).be.oneOf([
+            // For databases supporting `undefined` value,
+            // we convert `undefined` to property default.
+            false,
+            // For databases representing `undefined` as `null` (e.g. SQL),
+            // we treat `null` as a defined value and don't apply defaults.
+            null,
+          ]);
+        });
+    });
+
+    it('preserves empty values from the database when "applyDefaultsOnReads" is false', () => {
+      // https://github.com/strongloop/loopback-datasource-juggler/issues/1692
+
+      // Initially, all Players were always active, no property was needed
+      const Player = db.define(
+        'Player',
+        {name: String},
+        {applyDefaultsOnReads: false}
+      );
+      let created;
+      return db.automigrate('Player')
+        .then(() => Player.create({name: 'Pen'}))
+        .then(result => {
+          created = result;
+
+          // Later on, we decide to introduce `active` property
+          Player.defineProperty('active', {
+            type: Boolean,
+            default: false,
+          });
+          return db.autoupdate('Player');
+        })
+        .then(() => {
+          // And query existing data
+          return Player.findOne();
+        })
+        .then(found => {
+          should(found.toObject().active).be.oneOf([
+            undefined, // databases supporting `undefined` value
+            null, // databases representing `undefined` as `null`
+          ]);
+        });
+    });
   });
 
   describe('count', function() {
diff --git a/test/manipulation.test.js b/test/manipulation.test.js
index 9c939c0d6..7a42726d5 100644
--- a/test/manipulation.test.js
+++ b/test/manipulation.test.js
@@ -1619,6 +1619,78 @@ describe('manipulation', function() {
         })
         .catch(done);
     });
+
+    it('applies default values on returned data', () => {
+      // Backwards compatibility, see
+      // https://github.com/strongloop/loopback-datasource-juggler/issues/1692
+
+      // Initially, all Players were always active, no property was needed
+      const Player = db.define('Player', {name: String});
+      let created;
+      return db.automigrate('Player')
+        .then(() => Player.create({name: 'Pen'}))
+        .then(result => {
+          created = result;
+
+          // Later on, we decide to introduce `active` property
+          Player.defineProperty('active', {
+            type: Boolean,
+            default: false,
+          });
+          return db.autoupdate('Player');
+        })
+        .then(() => {
+          // and findOrCreate an existing record
+          return Player.findOrCreate({id: created.id}, {name: 'updated'});
+        })
+        .spread(found => {
+          // Backwards-compatibility
+          // When Pen does not have "active" flag set, we change it to default
+          should(found.toObject().active).be.oneOf([
+            // For databases supporting `undefined` value,
+            // we convert `undefined` to property default.
+            false,
+            // For databases representing `undefined` as `null` (e.g. SQL),
+            // we treat `null` as a defined value and don't apply defaults.
+            null,
+          ]);
+        });
+    });
+
+    it('preserves empty values from the database when "applyDefaultsOnReads" is false', () => {
+      // https://github.com/strongloop/loopback-datasource-juggler/issues/1692
+
+      // Initially, all Players were always active, no property was needed
+      const Player = db.define(
+        'Player',
+        {name: String},
+        {applyDefaultsOnReads: false}
+      );
+      let created;
+
+      return db.automigrate('Player')
+        .then(() => Player.create({name: 'Pen'}))
+        .then(result => {
+          created = result;
+
+          // Later on, we decide to introduce `active` property
+          Player.defineProperty('active', {
+            type: Boolean,
+            default: false,
+          });
+          return db.autoupdate('Player');
+        })
+        .then(() => {
+          // And findOrCreate an existing record
+          return Player.findOrCreate({id: created.id}, {name: 'updated'});
+        })
+        .spread(found => {
+          should(found.toObject().active).be.oneOf([
+            undefined, // databases supporting `undefined` value
+            null, // databases representing `undefined` as `null`
+          ]);
+        });
+    });
   });
 
   describe('destroy', function() {