January 21, 2016
To All SLG Clients and Affiliates.
Subject: California Supreme Court Confirms that There are no Rights to a Deficiency After a Short Sale. A Borrower can’t Waive the Protections.
The California Supreme Court has finalized the issue of whether you can obtain a deficiency (either by a judgment or by a voluntary agreement of the borrower to pay) after a short sale. The short answer is that you can’t. The following explains why. Lenders must be careful to ensure that they do not seek to enforce post-short sale agreements to make the borrower pay the difference, even if the short sale agreement provides otherwise
The California Supreme Court has extended anti-deficiency protections. In Coker v. JPMorgan Chase Bank, N.A., No. S213137, 2016 WL 240901 (Cal. Jan. 21, 2016), the Court confirmed that the state’s anti-deficiency statute (CCP §580b) prohibits a deficiency in short sale transactions as well as after the completion of a non-judicial foreclosure, on covered loans, and that a borrower cannot waive such protections. The facts were: Short sale, with lender reserving the right to collect the balance of the loan and the borrower agreeing in the short sale documents.
Note: The lender tried to differentiate its case conceding that statutory language in Section 580b was changed to support the limitations on deficiency judgments on a short sale transaction in 2012, but that any short sales finalized prior to the 2012 change should not be covered, thus preserving all deficiency rights in pre-2012 short sales (and there were many of them) from the ruling. The court did not agree.
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