In California A Bank May Not Sue Home Owner for Deficiency If Short Sale Proceeds Not Enough to Repay the Loan

Under Code of Civil Procedure Section 580b, when an individual borrows money from a bank to buy a home and the bank forecloses on the home, the bank can collect proceeds from the foreclosure sale but nothing more. The bank may not obtain a deficiency judgment against the borrower if the sale proceeds are not enough to repay the loan.  In a case decided in January the California Supreme Court stated the statute applies to short sales just as it does to foreclosure sales. At issue in the case was whether the statute’s anti-deficiency protection applies not only when a bank initiates a foreclosure sale, but also when a defaulting borrower arranges a short sale. In a short sale, the borrower sells the home to a third party for an amount that falls short of the outstanding loan balance. The lender agrees to release its lien on the property to facilitate the sale, and the borrower agrees to give all the proceeds to the lender.   (Coker v. JPMorgan Chase Bank, N.A. (Jan. 21, 2016) 62 Cal.4th 667).)

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