Lender Cannot Pursue Borrower For Deficiency Judgment After Short Sale

In a case decided on July 23, 2013, the court of appeal held that a lender cannot pursue a borrower for a deficiency judgment after a short sale.

When a borrower defaulted on her payment obligations under a purchase money note secured by a deed of trust on her residential property, the lender served a notice of default. The borrower was able to negotiate a short sale with a third party prior to the foreclosure sale but the agreed to price was less than the amount outstanding on the loan. The lender consented to the short sale with an agreement that they were only releasing the security, not any deficiency. The borrower then sued the lender after it attempted to collect on the amount of the deficiency it claimed she still owed.

The trial court sided with the lender. On appeal by the borrower the court of appeal held that any lender who either forecloses or agrees to a short sale of residential property secured by a deed of trust cannot pursue the borrower for any deficiency after either a foreclosure sale or a short sale. Coker v. JP Morgan Chase.