Coker v. JP Morgan Chase Bank, N.A.

Facts: A homeowner defaults on their purchase-assist mortgage and the mortgage holder records a notice of default (NOD). The mortgage holder consents to a short sale of the property on the condition the homeowner remain liable for any deficiency. The property is sold for an amount less than the outstanding mortgage balance and the mortgage holder sends a collection notice to the owner for the deficiency.

Claim: The homeowner seeks to avoid payment of the deficiency claiming their mortgage is protected by anti-deficiency law since their purchase-assist mortgage is a nonrecourse mortgage which bars the mortgage holder from collecting a deficiency.

Counterclaim: The mortgage holder claims they are not prohibited from collecting the deficiency since the borrower waived their anti-deficiency protections and the statute applies only to foreclosure sales, not short sales.

Holding: The California Supreme Court holds the homeowner is not liable for the deficiency since the homeowner cannot waive their statutory anti-deficiency protections which fully apply to short sales. [Coker v. JPMorgan Chase Bank, N.A. (2016) 62 C4th 667]

Editor’s note — In 2010 at the time of the short sale in this case, state law prohibited mortgage holders from recovering deficiencies due to foreclosure sales, but short sales were not included. The law was amended to include short sales in 2012. The courts have historically focused on the substance rather than the type of transaction when interpreting California’s anti-deficiency protections. The California Supreme Court’s decision to remain bound by precedent, rather than the text of the law, was made in the interest of the greater public good.

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