Facts: A borrower obtained a home equity loan secured by a second trust deed on their property. The borrower defaulted on their first loan and the first lender initiated foreclosure. The borrower sought to dispose of the property through a short sale and located a buyer. The first loan was paid in full and the home equity lender consented to a short payoff on the condition the borrower agree to repay the remaining balance of the home equity loan. The short sale closed and the borrower later defaulted on home equity loan.
Claim: The home equity lender sought repayment of the remaining loan balance, claiming it was entitled to a deficiency judgment against the borrower since the borrower agreed to repay the remaining balance of the loan in exchange for the home equity lender’s consent to the short sale.
Counter claim: The borrower sought to bar the home equity lender from obtaining a deficiency judgment, claiming the home equity lender was required to pursue judicial foreclosure in order to collect the debt secured by a second trust deed on the real estate.
Holding: A California Court of Appeals held the home equity lender may obtain a deficiency judgment against the borrower as the home equity lender was not required to pursue judicial foreclosure to collect the secured debt since the borrower agreed to repay the remaining balance in exchange for the home equity lender’s consent to the short sale. [Bank of America, N.A v. Roberts (2013) __ CA 5th__]