California Supreme Court in the case Coker v JP Morgan Chase, S213137 held that anti-deficiency provision applies not only to a foreclosure sale but also to a short sale.

Chase approved a short sale of the borrower’s property, received the proceeds, released security interest and initiated a collection action for the deficiency – difference between accepted short sale amount and full loan amount. Surprisingly, San Diego County Superior Court agreed with Chase’s position and crated dangerous precedent for thousand borrowers who entered into a short sale agreement with their respective mortgage lenders.

Court of Appeal reversed, holding that any effort by Chase to recover the deficiency would be barred by California Code of Civil Procedure section 580b and that borrower’s agreement to pay the deficiency balance was an unenforceable waiver of the statute’s protections. In so holding, the court explained that section 580b’s “protections apply after any sale, not just a foreclosure.” The court also rejected Chase’s contention that because Coker waived her rights under section 726, which requires a secured creditor to foreclose on a borrower’s property before seeking a personal judgment, section 580b does not apply. Supreme Court affirmed and borrowers in California received an extra layer of certainty and protection.