Coker v. JP Morgan Chase Bank, N.A.

Citation159 Cal.Rptr.3d 555
Decision Date20 November 2013
Docket NumberD061720
PartiesCarol COKER, Plaintiff and Appellant, v. JP MORGAN CHASE BANK, N.A., et al., Defendants and Respondents.
CourtCalifornia Court of Appeals

159 Cal.Rptr.3d 555

Carol COKER, Plaintiff and Appellant,
JP MORGAN CHASE BANK, N.A., et al., Defendants and Respondents.


Court of Appeal,
Fourth District, Division 1, California.

Filed July 23, 2013
Review Denied November 20, 2013

See 4 Witkin, Summary of Cal.
Law (10th ed. 2005) Security Transactions in Real Property, § 182 et seq.

APPEAL from a judgment of the Superior Court of San Diego County, Luis R. Vargas, Judge. Reversed and remanded with directions. (Super. Ct. No. 37–2011–00087958–CU–MC–CTL)

Stilwell & Associates and Andrew R. Stilwell, San Diego, for Plaintiff and Appellant.

AlvaradoSmith, Santa Ana, John M. Sorich, S. Christopher Yoo and Jenny L. Merris for Defendants and Respondents.

Housing and Economic Rights Advocates, Elizabeth S. Letcher, Oakland; National Housing Law Project and Kent Qian, San Francisco, as Amici Curiae on behalf of Plaintiff and Appellant.


In this appeal we are asked to determine a question of first impression. Do the anti-deficiency protections in Code of Civil Procedure 1section 580b apply to a borrower after she, with the approval of her lender, sells her residence to a third party for a price that is less than the outstanding balance owed the lender on the borrower's mortgage loan, which was obtained to purchase the residence? We conclude that section 580b's protections do apply in this situation.

Here, we are faced with an all too familiar and unfortunate fact pattern in the wake of the collapse of the residential real estate market in 2008. A borrower obtained a mortgage loan to buy a house. The loan was secured by a deed of trust recorded against the residence. After property values fell and the economy declined, the borrower was no longer able to make payments on her loan, and the mortgage lender began the nonjudicial foreclosure process. To avoid foreclosure, the borrower agreed to sell her house to a third party. However, the sale price was less than the amount the borrower owed on her loan. The mortgage lender agreed to the sale, but, as a condition of approval, stated that the borrower would be responsible for any deficiency, i.e., the difference between the outstanding balance on the loan and the money received by the lender after the sale to the third party.

After the sale, the mortgage lender pursued the borrower for the deficiency. In response, the borrower filed a complaint for declaratory relief seeking a judicial declaration, among other things, that section 580b prohibits the lender from obtaining a deficiency judgment after the sale. The mortgage lender demurred to the complaint, and the superior court sustained the demurrer without leave to amend finding section 580b applies only after a foreclosure. The court subsequently entered judgment dismissing the borrower's complaint with prejudice.

The borrower appeals, arguing that the court incorrectly interpreted section 580b in finding that it does not prevent a lender from seeking a deficiency judgment after a sale of the property to a third party. We agree and thus reverse the judgment and remand this matter to the superior court with directions.


Carol Coker was the owner of certain real property located at 2732 Second Avenue, # D–3, San Diego, California. To purchase the property, she obtained a $452,000 loan memorialized by a promissory note. The note was secured by a deed of trust recorded against the property.

The original lender was Valley Vista Mortgage Corporation, a company that went defunct. Chase Home Finance was the successor in interest to Valley Vista, and the alter ego, subsidiary, successor in interest, or a division of JP Morgan Chase Bank, N.A. (Chase Bank).

Coker stopped paying on the loan and a notice of default and election to sell under the deed of trust was recorded. Coker subsequently negotiated a sale of the property to a third party, but the sale price was less than the outstanding balance under the loan. Thus, Coker asked Chase Bank to agree to the sale.

Chase Bank approved the sale subject to several conditions, one of which stated that the amount of the sale proceeds paid to Chase Bank was for the release of Chase Bank's security interest only, and Coker was still responsible for any deficiency balance remaining on the loan after application of the proceeds received by Chase Bank.

The sale closed and Chase Bank received the agreed upon proceeds from the sale. A grant deed was recorded evidencing the transfer of the property from Coker to the buyer. In addition, Chase Bank executed and recorded a substitution of trustee and full reconveyance of Coker's deed of trust.

After the sale closed, Allied International Credit, Inc., on behalf of Chase Bank, sent Coker a collection letter demanding Coker pay $116,686.89 based on the unsatisfied portion of the loan. In response, Coker filed a complaint for declaratory relief, which she later amended. The first amended complaint listed three causes of action for declaratory relief. These causes of action alleged sections 580b and 580e as well as the common law prohibited Chase Bank from collecting a deficiency based on the loan.

Chase Bank demurred to the first amended complaint. The superior court sustained the demurrer without leave to amend, finding: (1) section 580b only applied after a property was sold by judicial or nonjudicial foreclosure; (2) section 580e was not applicable because it did not apply retroactively; and (3) there was no common law anti-deficiency protections. The court subsequently entered judgment, dismissing the first amended complaint with prejudice as to Chase Bank.

Coker timely appealed.



“ ‘On appeal from [a judgment] of dismissal after an order sustaining a demurrer, our standard of review is de novo, i.e., we exercise our independent judgment about whether the complaint states a cause of action as a matter of law.’ ” (Los Altos El Granada Investors v. City of Capitola (2006) 139 Cal.App.4th 629, 650, 43 Cal.Rptr.3d 434.) In reviewing the complaint, “we must assume the truth of all facts properly pleaded by the plaintiffs, as well as those that are judicially noticeable.” (Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 814, 107 Cal.Rptr.2d 369, 23 P.3d 601.) “A judgment of dismissal after a demurrer has been sustained without leave to amend will be affirmed if proper on any grounds stated in the demurrer, whether or not the court acted on that ground.” (Carman v. Alvord (1982) 31 Cal.3d 318, 324, 182 Cal.Rptr. 506, 644 P.2d 192.)


Coker asserts the superior court erred in sustaining the demurrer without leave to amend because: (1) a demurrer is inappropriate for declaratory relief actions; (2) section 580b does not require a foreclosure; (3) section 580e does not have to be applied retroactively; and (4) she did or could have adequately pled a claim for estoppel.

Here, we focus on Coker's section 580b argument. Coker maintains section 580b does not require a foreclosure and its anti-deficiency protection applies to a sale like the one at issue here. Chase Bank disagrees, contending section 580b only applies after a foreclosure. In making its argument, Chase Bank relies on the text of both sections 580b and 580d. As we explain below, we conclude that section 580b applies to any loan used to purchase residential real property (purchase money loan) regardless of the mode of sale. As such, section 580b's anti-deficiency protections prohibit a deficiency judgment following any sale of the subject real property. Because we conclude the superior court incorrectly interpreted section 580b and sustained the demurrer in error, we do not reach any of the other issues Coker raises.


California recognizes two types of foreclosure. The first and more common is a nonjudicial foreclosure. “In a nonjudicial foreclosure, also known as a ‘trustee's sale,’ the trustee exercises the power of sale given by the deed of trust.” (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1236, 44 Cal.Rptr.2d 352, 900 P.2d 601.) “Nonjudicial foreclosure is less expensive and more quickly concluded than judicial foreclosure, since there is no oversight by a court, ‘[n]either appraisal nor judicial determination of fair value is required,’ and the debtor has no postsale right of redemption.” (Ibid.) The recording of a notice of default begins the nonjudicial foreclosure process, which concludes with the trustee's sale. (See Civ. Code, §§ 2924, subd. (a)(1); 2924g.) The creditor, however, may not seek a deficiency judgment following the trustee's sale. (See § 580b; Roseleaf Corp. v. Chierighino (1963) 59 Cal.2d 35, 43–44, 27 Cal.Rptr. 873, 378 P.2d 97 (Roseleaf ).) This prohibition exists even if the loan was not a purchase money loan. (See § 580d.)

A judicial foreclosure requires the foreclosing party to file a lawsuit. In that action, the plaintiff must establish the subject loan is in default and the amount of default. (Arabia v. BAC Home Loans Servicing, L.P. (2012) 208 Cal.App.4th 462, 470, 145 Cal.Rptr.3d 678.) While a judicial foreclosure typically is more costly and time consuming than a nonjudicial foreclosure and the borrower retains the right of redemption, the plaintiff may seek a deficiency judgment in certain circumstances. (Id. at p. 471, 145 Cal.Rptr.3d 678.) “The amount of the deficiency judgment will be the difference between the fair market value of the property at the time of the foreclosure sale (as determined by the court) and the amount of indebtedness.” (Ibid.) Nevertheless, the plaintiff may not recover a deficiency judgment after judicially foreclosing on a purchase money loan. (See §§ 580b, subd. (a)(3); 726, subd. (b).)

Thus, section 580b prohibits a deficiency judgment following a foreclosure on a purchase money loan. (See Budget Realty, Inc. v. Hunter (1984) 157 Cal.App.3d 511, 513, 204 Cal.Rptr. 48 (Budget Realty ).)...

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2 cases
  • Mastan v. Salamon (In re Salamon)
    • United States
    • U.S. Bankruptcy Appellate Panel, Ninth Circuit
    • April 6, 2015
    ...anti-deficiency rule to all mortgages, not just purchase money mortgages, Coker v. JP Morgan Chase Bank, N.A., 218 Cal.App. 4th 1, 9, 159 Cal.Rptr.3d 555 (2013), it does not apply to a non-foreclosing junior lien, such as the AITD or Fourth Loan. Cadlerock Joint Venture, LP v. Lobel, 206 Ca......
  • Mastan v. Salamon (In re Salamon)
    • United States
    • U.S. Bankruptcy Appellate Panel, Ninth Circuit
    • April 6, 2015

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