Client Alert: From the Scheer Law Group: California Supreme Court Confirms that There are No Rights to a Deficiency After a Short Sale. A Borrower can’t Waive the Protection.

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.

Please call me if you would like to discuss

Spencer Scheer