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Judicial Treatment of California’s Anti-Deficiency Legislation Section 580b: Is it Effective? I Cole F. Morgan

Short sales of real property represent approximately a quarter of all homeowner transactions. Recently, short sales passed foreclosures as the preferred method in home sales due to the ease of sale. Coker v. JP Morgan Chase Bank, N.A., has ruled lenders of a purchase-money mortgage may not pursue a deficiency judgment after the short sale of a home. Essentially, this means after the sale is completed and the lender has obtained the proceeds from the sale, if there is a deficiency, they may not personally hold the borrower liable for the remaining debt of the mortgage. The ruling was established under section 580b of California’s anti-deficiency legislation after the court interpreted section 580b to include short sales within its purview. On the surface, the decision affects the large sales transaction section of short sales. However, the decision has further implications, such as the court’s interpretation basis, limiting freedom of contract, and efficacy of anti-deficiency legislation. Anti-deficiency legislation was enacted during the Great Depression, creating strong implications the legislation was created for the purpose of avoiding similar situations. The following will discuss the historical background of anti-deficiency legislation with focus on the court’s treatment of section 580b. Additionally, the Coker opinion will be analyzed to bring out the court’s support for its interpretation of section 580b, which will later be used to discuss the full impact of its decision and if that decision is in line with avoidance of economic downturn.

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