580e Short Sale Antideficiency Protections Not Retroactive

  Code of Civil Procedure section 580e provides protection to homeowners from a deficiency judgment when a short sale has been approved by the lender. Originally the section provided protection only from lenders whose notes were secured by a first deed of trust. In July 2011, section 580e was amended to expand antideficiency protection in the event of a short sale to any deed of trust, including junior lienholders, if the holder of said deed of trust consented to the short sale and received proceeds from the sale as agreed.

  In Bank of America v. Roberts the issue was whether the amended protections of section 580e should be applied retroactively to short sales which were completed prior to the effective date of the amendment. Not surprisingly, the Court of Appeals refused to give the amendment retroactive effect holding that it would be unfair to change the legal effect and consequences of a bargained for transaction retroactively where the practical effect would be to extinguish the rights of the lender to seek a deficiency judgment.

  The one-form-of-action rule contained in Code of Civil Procedure section 726 did not apply because the borrower asked for and consented to the short sale arrangement wherein it was agreed that borrower would remain liable for the deficiency. Since borrower sought and obtained consent for the short sale, which required a release of the lenders second deed of trust and contained an agreement from borrower to repay the balance of the loan in return for such consent, borrower cannot complain that the lender did not foreclose. Accordingly, the borrower waived any rights under section 726.

  For a summary of California’s antideficiency statutes, please consult this post: Antideficiency Statutes Summarized.

  I consult with clients and accept cases involving foreclosure, including those involving claims and defenses under California’s antideficiency statutes. For other types of cases I accept, please scroll my “Home” and “My Practice” pages. If you are seeking a legal consultation or representation, please give me a call at 818.971.9409. – Michael Daymude

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