## Facts

- In 2004, Carol Coker borrowed \$425,000 from Valley Vista Mortgage Corporation to finance her purchase of a condominium; the loan was secured by a deed of trust on the condominium.
- Valley Vista later sold the loan, and JPMorgan Chase Bank, N.A. became the loan holder and beneficiary under the deed of trust.
- After Coker fell behind on payments, Chase notified her of default and began nonjudicial foreclosure proceedings, including recording a notice of default and election to sell (March 2010).
- While foreclosure was pending, Coker found a third-party buyer willing to purchase the condominium for \$400,000, which was less than the remaining loan balance.
- Because the sale would not fully pay off the loan, Coker requested that Chase approve a short sale.
- Chase approved the short sale on conditions that (1) it would receive all sale proceeds in exchange for releasing its lien and (2) Coker would “remain responsible” for any deficiency, with Chase reserving the right to pursue the unpaid balance.
- The short sale closed (July 2010); the property was sold for \$400,000; Chase received the proceeds and released its deed of trust.
- After crediting the proceeds, Chase claimed a remaining unpaid balance of about \$116,687 and later sent a collection demand seeking payment (January 2011).
- Coker filed an action for declaratory relief, seeking a declaration that Code of Civil Procedure § 580b barred Chase from collecting any deficiency and that any agreement requiring her to pay the deficiency was void.
- The trial court sustained Chase’s demurrer without leave to amend and entered judgment for Chase; the Court of Appeal reversed, and the California Supreme Court granted review.

## Issues

1. Whether Code of Civil Procedure § 580b’s purchase-money antideficiency protection applies when the secured residential property is sold through a lender-consented short sale rather than through foreclosure.
2. Whether a borrower may validly agree, as part of a short-sale approval, to remain personally liable for any deficiency notwithstanding § 580b.

## Decision

- The California Supreme Court affirmed the Court of Appeal’s judgment.
- The Court held that § 580b applies to qualifying purchase-money residential loans when the lender consents to a short sale that exhausts the security, just as it applies when the security is exhausted by foreclosure.
- The Court held that Chase could not collect the unpaid balance remaining after the short sale.
- The Court held that Coker’s short-sale agreement term stating she remained responsible for the deficiency, and Chase’s reservation of a right to pursue it, were unenforceable because § 580b’s protection cannot be waived by contract.
- The case proceeded consistent with that ruling, reversing the trial court’s dismissal based on the demurrer.

## Legal Principles

- Code of Civil Procedure § 580b is a purchase-money antideficiency statute that bars personal liability for a deficiency on covered purchase-money loans secured by qualifying residential property when the lender’s recovery is limited to the value of the security.
- Section 580b allocates to the purchase-money lender the risk that the collateral will be worth less than the debt; the statute is applied to carry out that allocation and to discourage lenders from relying on recourse against borrowers for purchase-money residential loans.
- A lender-approved short sale that results in the lender releasing its lien and receiving the sale proceeds is functionally equivalent to foreclosure for § 580b purposes, because the lender has elected to accept the security’s value (via the sale proceeds) in satisfaction of what the security can deliver.
- A lender may not avoid § 580b by conditioning short-sale approval on the borrower’s promise to pay the remaining balance; such terms are an invalid waiver of a statutory protection enacted for a public purpose.
- Later statutes addressing short sales (including Code of Civil Procedure § 580e) do not strip § 580b of effect where § 580b applies by its terms; the statutes are read together without treating later enactments as silently authorizing deficiencies barred by § 580b.

## Conclusion

The California Supreme Court held that Code of Civil Procedure § 580b bars a lender from collecting a deficiency after consenting to and receiving proceeds from a short sale of qualifying purchase-money residential property, and any contractual language requiring the borrower to pay the deficiency is void and unenforceable.


Coker v. JPMorgan Chase Bank, N.A., 62 Cal. 4th 667, 364 P.3d 176 (2016)