Court Opinion

ID: 1037302
Source: CourtListenerOpinion
Date Created: 2013-08-12 16:06:05.11591+00
Date Added: 2024-06-11T12:04:05.354952
License: Public Domain

Filed 7/23/13

                            CERTIFIED FOR PUBLICATION

                COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                      DIVISION ONE

                                   STATE OF CALIFORNIA

CAROL COKER,                                      D061720

        Plaintiff and Appellant,

        v.                                        (Super. Ct. No. 37-2011-00087958-
                                                   CU-MC-CTL)
JP MORGAN CHASE BANK, N.A., et al.,

        Defendants and Respondents.

        APPEAL from a judgment of the Superior Court of San Diego County, Luis R.

Vargas, Judge. Reversed and remanded with directions.

        Stilwell & Associates and Andrew R. Stilwell for Plaintiff and Appellant.

        AlvaradoSmith, John M. Sorich, S. Christopher Yoo and Jenny L. Merris for

Defendants and Respondents.

        Housing and Economic Rights Advocates, Elizabeth S. Letcher; National Housing

Law Project and Kent Qian 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 Procedure1 section 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

1      Statutory references are to the Code of Civil Procedure unless otherwise specified.
                                               2
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.

                  FACTUAL2 AND PROCEDURAL BACKGROUND

       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

2      Because we are reviewing a judgment of dismissal following an order sustaining a
demurrer, we assume the facts alleged in the first amended complaint are true if they are
not contrary to law or to a fact of which we may take judicial notice. (See Terminals
Equipment Co. v. City and County of San Francisco (1990) 221 Cal.App.3d 234, 238.)
                                                3
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.

                                             4
       Coker timely appealed.

                                       DISCUSSION

                                              I

                                 STANDARD OF REVIEW

       " '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.) 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.) "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.)

                                              II

                                  COKER'S ASSERTIONS

       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

                                              5
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.

                                              III

         FORECLOSURES, SHORT SALES, AND DEFICIENCY JUDGMENTS

       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.) "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 (Roseleaf).) This prohibition exists even if the loan was not a

purchase money loan. (See § 580d.)

                                              6
       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.) 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.) "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 (Budget Realty).) Section 580d further extends this anti-deficiency protection to

include any loan secured by a deed of trust recorded against residential real property after

a nonjudicial foreclosure. (National Enterprises, Inc. v. Woods (2001) 94 Cal.App.4th

1217, 1226.) However, here, it is undisputed that there was no foreclosure, either judicial

or nonjudicial. Instead, Coker sold the property to a third party, with Chase Bank's

consent, for less than what Coker owed on the loan. This is what is commonly known as

a "short sale" because the sale price is less than the balance of the outstanding debt

secured by the deed of trust. (See 1 Bernhardt, Mortgages, Deeds of Trust, and

Foreclosure Litigation (Cont. Ed. Bar 4th ed. 2011) Debtor Strategies, § 7.21A, p. 532.)

                                              7
       In California, short sales are becoming increasingly more common, increasing

from a few thousand in 2008 to approximately 90,000 in 2009. (See Com. on Judiciary,

Analysis on Sen. Bill 931 (2009-2010 Reg. Sess.) as amended March 25, 2010, p. 1.)

Because short sales have only recently become prevalent in California, it is not surprising

that there is no reported California case determining if section 580b's anti-deficiency

protections extend to a short sale involving real property secured by a deed of trust based

on a purchase money loan. We therefore must answer this novel question.

                                                IV

                                        SECTION 580B

                                  A. Statutory Interpretation

       In construing statutes, we determine and effectuate legislative intent. (People v.

Woodhead (1987) 43 Cal.3d 1002, 1007; People ex rel. Younger v. Superior Court (1976)

16 Cal.3d 30, 40.) To ascertain intent, we look first to the words of the statutes. (Dyna-

Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1386-1387;

Woodhead, supra, at p. 1007.) "Words must be construed in context, and statutes must

be harmonized, both internally and with each other, to the extent possible." (California

Mfrs. Assn. v. Public Utilities Com. (1979) 24 Cal.3d 836, 844.)

                            B. The Interpretation of Section 580b

       Section 580b is part of a collection of anti-deficiency statutes created by the

Legislature during the Great Depression. Section 580b states in relevant part: "No

deficiency judgment shall lie in any event . . . [¶] [a]fter a sale of real property . . . for

failure of the purchaser to complete his or her contract of sale. . . . [¶] . . . [¶] [u]nder a

                                                8
deed of trust or mortgage on a dwelling . . . given to a lender to secure repayment of a

loan which was in fact used to pay all or part of the purchase price of that dwelling." It

was amended in 1963 to add, among other things, a clause extending section 580b to the

kind of real property at issue in this case, namely "a dwelling for not more than four

families given to a lender to secure repayment of a loan which was in fact used to pay all

or part of the purchase price of that dwelling, occupied entirely or in part by the

purchaser." (See Barash v. Wood (1969) 3 Cal.App.3d 248, 251; Stats. 1963, ch. 2158,

§ 1, p. 4500.)

       Section 580b addresses purchase money loans and establishes that they are non-

recourse loans under California law. "In a nonrecourse loan . . . , the borrower has no

personal liability and the lender's sole recourse is against the security for the obligation."

(Aozora Bank, Ltd. v. 1333 North California Boulevard (2004) 119 Cal.App.4th 1291,

1295.) "Section 580b prohibits a deficiency judgment after any sale of real property

under a deed of trust or mortgage given to the vendor to secure payment of the balance of

the purchase price. Thus in the event of a default in payment under a purchase money

debt owed to the vendor and secured by the property purchased, the vendor can only look

to the security for the recovery of the debt." (Budget Realty, supra, 157 Cal.App.3d at

p. 513, fn. omitted.)

       In interpreting section 580b, we recognize that it, like other components of the

anti-deficiency statutes, "has been liberally construed to effectuate the specific legislative

purpose behind it. . . . '[T]he courts have exhibited a very hospitable attitude toward the

legislative policy underlying the anti-deficiency legislation and have given it a broad and

                                               9
liberal construction that often goes beyond the narrow bounds of the statutory

language.' " (Prunty v. Bank of America (1974) 37 Cal.App.3d 430, 436.) Indeed, our

high court has consistently rejected any interpretations that undermine the purpose of the

statute. (See e.g., DeBerard Properties v. Lim (1999) 20 Cal.4th 659, 663 (DeBerard)

[rejecting interpretation that would allow creditor to "circumvent" section 580b and thus

"flout" its "purpose"].)

       The Legislature passed section 580b for "two reasons": (1) to "stabilize[] purchase

money secured land sales [prices] by [preventing] overvaluing the property"; and (2)

ensure "purchasers as a class are harmed less than they might otherwise be during a time

of economic decline" because "if property values drop . . . , the purchaser's loss is limited

to the land that he or she used as security in the transaction." (DeBerard, supra, 20

Cal.4th at p. 663.)

       These two public policy goals are achieved by shifting the risk of falling property

values to the lender. As our Supreme Court explained: "Section 580b places the risk of

inadequate security on the purchase money mortgagee. A vendor is thus discouraged

from overvaluing the security. Precarious land promotion schemes are discouraged, for

the security value of the land gives purchasers a clue as to its true market value.

[Citation.] If inadequacy of the security results, not from overvaluing, but from a decline

in property values during a general or local depression, section 580b prevents the

aggravation of the downturn that would result if defaulting purchasers were burdened

with large personal liability. Section 580b thus serves as a stabilizing factor in land

sales." (Roseleaf, supra, 59 Cal.2d at p. 42.)

                                             10
       With the text and purpose of section 580b in mind, we see nothing in section 580b

that leads us to believe it only applies after a foreclosure sale as Chase Bank urges.

Section 580b's plain language does not limit the mode of sale: "No deficiency judgment

shall lie in any event . . . after a sale of real property." (§ 580b.) There is no language

modifying the term "sale." Moreover, the use of the phrase "in any event" further

indicates that the Legislature intended section 580b to apply to all sales. Put differently,

section 580b does not address a specific mode of sale. Instead, it focuses on a particular

type of loan: the purchase money loan. (See Prunty v. Bank of America, supra, 37

Cal.App.3d at p. 435; Budget Realty, supra, 157 Cal.App.3d at p. 513; § 580b.) The

plain language of section 580b therefore supports an interpretation that its protections

apply after any sale, not just a foreclosure.

       While no California court has specifically addressed whether section 580b applies

to a short sale involving a purchase money loan, courts have consistently held that a

foreclosure is not a prerequisite to trigger section 580b's protections. (See Frangipani v.

Boeker (1998) 64 Cal.App.4th 860, 862-865 [holding that § 580b barred beneficiary of

"junior purchase money trust deed" from collecting deficiency where property was "not

foreclosed" because beneficiary "cancel[ed] the notice of foreclosure"]; Venable v.

Harmon (1965) 233 Cal.App.2d 297, 302 [holding that § 580b applied to prevent a

deficiency judgment after the defendants tendered the property to the plaintiffs and "the

fact that there has not been a prior sale is of no moment"].)

       Our interpretation that section 580b applies to all sales of property encumbered by

a deed of trust securing a purchase money loan is further buttressed by California's

                                                11
newest anti-deficiency statute: section 580e.3 Section 580e bars deficiencies where

there is a "deed of trust or mortgage for a dwelling of not more than four units" if "the

trustor or mortgagor sells the dwelling for a sale price less than the remaining amount of

the indebtedness outstanding at the time of sale, in accordance with the written consent of

the holder of the deed of trust or mortgage . . . ." (§ 580e, subds. (a)(1).)4 Section 580e

expands the anti-deficiency protection found in section 580b by prohibiting a deficiency

judgment arising out of a short sale approved by the creditor of any mortgage loan, not

just purchase money loans. Unlike section 580b, however, section 580e only applies to a

specific mode of sale: the short sale. (See § 580e.)

       Moreover, the legislative history of section 580e (introduced as Senate Bill No.

931) shows the Legislature knew section 580b applied to short sales. For example, the

section of the Senate Floor Analyses devoted to "[e]xisting law" states that section 580b

"provide[s] protection to a purchase money note that becomes the subject of a . . . short

sale." (Sen. Rules Com., Off. of Sen. Floor Analyses, Unfinished Business of Sen. Bill

No. 931 (2009-2010 Reg. Sess.) as amended June 1, 2010, p. 2.)

       In addition, the legislative history of section 580e reveals that it was enacted to

extend anti-deficiency protections beyond the purchase money loans covered by section

580b to include nonpurchase money loans. As the Assembly Floor Analysis expressly

3      The Legislature passed section 580e in 2010 and amended it in 2011. (See Stats.
2010, ch. 701 (Sen. Bill No. 931) § 1, p. 4069; Stats. 2011, ch. 82 (Sen. Bill No. 458) § 1,
pp. 1954-1955.)

4      Section 580e also has several other provisions not relevant here.
                                             12
states: "According to the author . . . [t]he purpose of this proposed legislation is primarily

to protect distressed homeowners who have non-purchase money recourse loans on

residential property. . . ." (Assem. Floor Analysis, 3d reading of Sen. Bill No. 931 (2009-

2010 Reg. Sess.) as amended June 1, 2010 (Assem. Floor Analysis), p. 2.) The

Legislature further made clear that Senate Bill No. 931 "seeks to clear up any legal

confusion between purchase money and non-purchase money loans in regards to short

sales . . . ." (Assem. Floor Analysis, supra, p. 3.)

       We are not persuaded by Chase Bank's argument that section 580d5 somehow

supports its contention that section 580b only applies after a foreclosure. The phrase "in

any event after a sale" in section 580b stands in stark contrast to section 580d, which

applies only where the real property "has been sold by the mortgagee or trustee under

power of sale contained in the mortgage or deed of trust." (See § 580d; Western Security

Bank v. Superior Court (1997) 15 Cal.4th 232, 237 [section 580d "precludes a judgment

for any loan balance left unpaid after the lender's nonjudicial foreclosure under a power

of sale in a deed of trust . . . on real property."].) Put differently, section 580d clearly

states that it applies only after a trustee's sale, but section 580b contains no similar

limiting language.

5       Section 580d provides in relevant part: "No judgment shall be rendered for any
deficiency upon a note secured by a deed of trust or mortgage upon real property or an
estate for years therein hereafter executed in any case in which the real property or estate
for years therein has been sold by the mortgagee or trustee under power of sale contained
in the mortgage or deed of trust."
                                               13
       In summary, we conclude the plain language of section 580b, its purpose (as

consistently determined by California courts), and the language of other anti-deficiency

statutes makes clear that section 580b applies to the short sale here.

                                C. The Security First Rule

       In reply to Housing and Economic Rights Advocates and National Housing Law

Project's amicus curiae brief,6 Chase Bank argues that section 580b does not apply when

a borrower acquiesces in a lender's relinquishment of its security interest.7 In other

words, if a borrower waives the "security first rule" of section 726, section 580b is not

applicable.

       Section 726 and the statutory scheme of which it is part require a secured creditor

to proceed against the security before enforcing the underlying debt. (Walker v.

Community Bank (1974) 10 Cal.3d 729, 733-734.) This security first rule "is hornbook

6      Housing and Economic Rights Advocates and National Housing Law Project
requested this court to take judicial notice of Chase Bank's petition for a writ of mandate
in JP Morgan Chase Bank, N.A. v. Superior Court (Mar. 20, 2013, A137471). They
request judicial notice of this petition because Chase Bank admits the interpretation of
section 580b is of "great importance to California's loan mortgage lenders, investors, and
borrowers." We are aware of the importance of this issue without reading Chase Bank's
petition for writ of mandate in an unrelated case that was denied by our colleagues in the
First District. Housing and Economic Rights Advocates and National Housing Law
Project also request we take judicial notice of portions of the legislative history of
sections 580b and 580e. We can consider the legislative history of statutes without
taking judicial notice of that legislative history. (Cf. Coalition of Concerned
Communities, Inc. v. City of Los Angeles (2004) 34 Cal.4th 733, 737.) We therefore deny
the request to take judicial notice.

7      Chase Bank did not make any such argument in its respondent's brief. Only after
the amicus brief attributed this argument to Chase Bank did Chase Bank explain its
position in reply.
                                             14
law in California and warrants no extended discussion." (Security Pacific National Bank

v. Wozab (1990) 51 Cal.3d 991, 999.)

       Relying on Scalese v. Wong (2000) 84 Cal.App.4th 863 (Scalese), Chase Bank

asserts Coker was required to invoke the security first rule of section 726 and had to insist

that Chase Bank foreclose on her home before the protections of section 580b applied. In

Scalese, the appellants purchased a five-unit apartment building (apartment) and assumed

a note and a deed of trust securing that note. The note was for a purchase money loan.

(Id. at pp. 865-866.) The appellants made payments on the note, but then wanted to pay

the note off early. The respondent would not accept a pay off and the appellants refused

to make monthly payments. Ultimately, the respondents brought suit for specific

performance and judicial foreclosure. In their answer, the appellants did not raise an

affirmative defense under section 726. (Id. at pp. 866-867.)

       The trial court found that the intent of the original parties to the note was that there

was no right to prepayment and the appellants were bound by that intent. Next, the court

required the respondent to select between its remedies, either to have a judgment for

damages under the cause of action for specific performance or a judicial foreclosure.

(Scalese, supra, 84 Cal.App.4th at pp. 866-867.) The respondent opted for specific

performance. The appellants did not object, nor did they demand that respondent be

forced to exhaust the security under section 726. The court awarded judgment in favor of

the respondent for all accumulated monthly installments, plus interest and attorney fees

and costs. (Scalese, supra, at p. 867.)

                                              15
       On appeal, the appellants argued that the respondent's sole remedy was under

section 580b and the award for damages was incorrect. The court disagreed, noting that

the appellants could have raised section 726 as a defense many times (requiring the

respondent to foreclose), but neglected to do so. The court further determined that the

respondent waived its right to have the apartment serve as security for the note while the

appellants gave up their right to have the security exhausted before becoming personally

liable for any shortfall. Under the facts presented, the court concluded section 580b

"never [came] into play." (Scalese, supra, 84 Cal.App.4th at p. 870.) The court

emphasized that the results were equitable and its affirmance of the trial court placed the

parties where they would have been absent the appellants' breach of contract. (Id. at pp.

870-871.)

       In arguing Scalese, supra, 84 Cal.App.4th 863 is applicable here, Chase Bank

overlooks several critical distinctions. Scalese did not involve a short sale. Instead, the

Court of Appeal properly characterized the dispute in Scalese as a breach of contract

caused by the parties' disagreement regarding whether the note allowed an early pay off.

(Id. at pp. 870-871.) Because the appellants refused to pay on the note, the respondent

brought suit seeking a judicial foreclosure, or in the alternative, specific performance.

Although the appellants could have invoked the security first rule, they neglected to do so

at any time during the litigation. The Court of Appeal therefore affirmed the trial court's

award of damages based on the missed payments under the note.

       In contrast, there was no analogous judicial process here. Chase Bank was

pursuing a nonjudicial foreclosure when Coker approached the bank about the possibility

                                             16
of a short sale. After the short sale was completed, Coker brought suit to prevent Chase

Bank for recovering the deficiency. There was no similar deficiency at issue in Scalese,

supra, 84 Cal.App.4th 863. Indeed, the damages awarded to the respondent could not be

characterized as a deficiency.

       In addition, the appellants retained ownership of the apartment in Scalese, supra,

84 Cal.App.4th 863. Thus, if the Court of Appeal determined that section 580b applied,

the appellants would have received a windfall. They would have owned the apartment

free and clear without any liability on the note. In holding section 580b was not

applicable, the court was reaching an equitable result where the appellants owned the

apartment but were personally liable for the missed payments on the note, and the

respondent had given up its security interest in the apartment. (Scalese, supra, 84

Cal.App.4th at pp. 870-871.) Here, Coker no longer owns her residence having sold the

property to a third party with Chase Bank receiving the proceeds of that sale.

       Chase Bank also overemphasizes the importance of section 726 in connection with

section 580b beyond the facts in Scalese, supra, 84 Cal.App.4th 863. Section 580b only

applies after a sale of the subject property. (See § 580b.) In Scalese, the only possible

sale would have occurred if the respondent proceeded with the judicial foreclosure. If the

appellants had invoked section 726, they could have forced a sale of the property and the

protections of section 580b would have been triggered. As such, the appellants' waiver of

section 726 became critical to the court's analysis of whether section 580b protections

applied. Under the facts in Scalese, section 726 was the only mechanism by which a sale

could occur. By not raising the affirmative defense of section 726, the appellants assured

                                            17
there would be no sale. Without a sale, section 580b's protections did not apply in

Scalese. Here, there is no such impediment to the application of section 580b because a

short sale occurred.8

       Finally, we are aware that Chase Bank's reliance on Scalese, supra, 84

Cal.App.4th 863 is simply another variant of its argument that section 580b only applies

after a foreclosure. We therefore reject Chase Bank's argument for the reasons discussed

in section IVB above.

                                          D. Waiver

       Chase Bank additionally contends that section 580b does not apply because Chase

Bank required Coker agree to be liable for any deficiency after the short sale as a

condition of approving the sale. However, because we determine that section 580b

applies to the short sale at issue here, the parties could not agree to waive the anti-

deficiency protection. (See Lawler v. Jacobs (2000) 83 Cal.App.4th 723, 736-737

["Appellants' waiver of antideficiency protection and coterminous promise to remain

personally liable on the note are void as contrary to [section] 580b and public policy."];

Palm v. Schilling (1988) 199 Cal.App.3d 63, 76 ["[T]here never can be a 'subsequent'

contractual waiver of section 580b."].)

8       Similarly, Chase Bank's reliance on In re Prestige Limited Partnership-Concord
(2000) 234 F.3d 1108 is misplaced. In that case, the Ninth Circuit stated that in a
"situation, where the security has been lost due to a violation of [section] 726 and,
consequently, there has not been and can never be a sale of the property, [section] 580b
does not apply." (Prestige, supra, at p. 1117.) Here, it is undisputed that a sale occurred
and the loan that existed at the time of the sale was a purchase money loan.
                                              18
                                       E. Conclusion

       "The explicit language of section 580b brooks no interpretation other than that

deficiency judgments are prohibited by a purchase money mortgagee so long as a

purchase money mortgage or deed of trust is in effect on the original real property."

(Palm v. Schilling, supra, 199 Cal.App.3d at p. 76.) There is no dispute that the loan in

place at the time of the short sale was a purchase money loan. Section 580b applies after

a sale of the property, and there is no requirement in the statute that a foreclosure must

occur to trigger its protections. Further, those protections cannot be waived. (See Lawler

v. Jacobs, supra, 83 Cal.App.4th at pp. 736-737.)

       Simply, section 580b applies to the short sale that the lender approved here.9 As

such, the superior court erred when it sustained Chase Bank's demurrer without leave to

amend.

9       Although we have used the term "lender" throughout this opinion to refer to the
entity that owns the security interest at issue (here, the promissory note secured by the
deed of trust) and has the ultimate authority to consent to the short sale, we are mindful
that a variety of terms might be used to describe the appropriate entity (e.g., owner of the
promissory note, investor, trustee of a trust comprised of pooled or securitized loans).
Our holding here applies equally to any entity that has the authority to approve a short
sale of a "dwelling for not more than four families given to a lender to secure repayment
of a loan which was in fact used to pay all or part of the purchase price of that dwelling,
occupied entirely or in part by the purchaser."
                                             19
                                     DISPOSITION

      The judgment is reversed. This matter is remanded to the superior court with

instructions to enter an order overruling Chase Bank's demurrer to the first amended

complaint. Coker is to recover her costs of appeal.

                                                                          HUFFMAN, J.

WE CONCUR:

             BENKE, Acting P. J.

                        IRION, J.

                                           20