August 8, 2013

A California appellate court has held that Chase’s attempt to condition approval of a short sale on the homeowner’s agreement to be liable for a deficiency is illegal and will not be enforced. The decision in Coker v. JPMorgan Chase Bank, N.A., California 4th Appellate District (Division One), No. D061720, has been certified for publication. The opinion also states that it answers a question of first impression in California.

Chase had threatened a non-judicial foreclosure. The borrower approached Chase about a short sale, which Chase approved, but as part of the short sale contract, Chase required the borrower to agree to be liable for any deficiency after the short sale. The sale went through, a collection agency for Chase demanded a payment of almost $117,000.00 from the borrower for the claimed deficiency, and the borrower sued, claiming that California’s anti-deficiency statutes precluded the collection effort on the deficiency.

The trial court had dismissed the borrower’s action (termed “sustaining a demurrer” in CA), but the appeals court reversed, finding that the condition imposed by Chase (that the borrower agree to be liable for any deficiency) violated the public policy and purpose behind CA’s anti-deficiency statutes, which were enacted in the time of the Great Depression to prevent an already bad situation from becoming worse.

The clear message here is that the “banks” can no longer, in CA, insert illegal provisions in short-sale contracts such as requiring a borrower to waive statutory anti-deficiency protections. The subtle message, which is derived from the public policy reasoning which begins on page 10 of the opinion, is that the “banks” will not be permitted to take advantage of a situation which they themselves created by over-valuing real estate in the first instance and then attempting to capitalize on it, at the expense of the homeowner, when the inflated market crashes.

Andrew Stilwell, Esq. represented the homeowner. We will forward a copy of the full opinion via e-mail to anyone who requests it from us.

Jeff Barnes, Esq., www.ForeclosureDefenseNationwide.com