In a unanimous decision, the California Supreme Court has ruled distressed homeowners that engaged in lender-approved short sales prior to 2010 — when the state enacted an anti-deficiency law for short sales — are entitled to anti-deficiency protection and cannot waive that protection.
The case — Coker v. JP Morgan Chase — involved condo owner Carol Coker, who purchased her San Diego area condo in 2004 with a $452,000 loan from JP Morgan Chase. Several years later, Coker defaulted on her loan and Chase began foreclosure proceedings in March 2010. The bank agreed to allow Coker to sell the condo for $400,000 in a short sale if she remitted all proceeds to Chase and agreed to be responsible for any deficiency. After she sold the condo and paid Chase, the bank demanded she pay the balance remaining on her loan, a total of $116,686.
California’s anti-deficiency law (Cal. C.C.P. § 580b) did not address short sales when Coker’s condo was sold. Anti-deficiency protection was extended to short sales in 2010 (Cal. C.C.P. § 580e). Chase argued that the anti-deficiency statute did not apply here because short sales are not involuntary like a foreclosure.
However, the state high court disagreed, finding that the anti-deficiency statute applies to all sales of property acquired with a purchase money mortgage. In addition, the court held that anti-deficiency protection could not be waived.
“For more than half a century, this court has understood the statute to limit a lender’s recovery on a standard purchase-money loan to the value of the security,” the court said, noting that a short sale, “like a foreclosure sale, allowed Chase to realize and exhaust its security” in the property.
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