Credit Reporting by Mortgage Companies After Short Sales
In recent years, thousands of California homeowners sold their homes in short sales. In a short sale, the borrower sells the home to a third party for an amount that falls short of the outstanding loan balance. An open question has been whether the bank or mortgage company may collect the balance of the account from the borrower (absent an agreement to waive the balance). On January 21, 2016, the California Supreme Court held that no deficiency results after a short sale of an owner occupied property of four units or less. Coker v. JPMorgan Chase Bank, 197 Cal Rptr 3d 131. Given that the mortgage company has no right to a deficiency, it follows that the mortgage company cannot legally report to the credit bureaus that the consumer owes the mortgage company for the deficiency. Last year in Kuns v. Ocwen Loan Servicing, LLC, 611 Fed. Appx. 398, the 9th Circuit held that Ocwen had no right to report a balance due on a loan subject to California’s anti-deficiency laws. The upshot is that mortgage companies should not now be reporting consumers owe deficiency balances following a short sale. If they are doing so, the homeowner should send dispute letters to Experian, Equifax and Trans Union asking them to change their reports to reflect a zero balance and nothing past due on the mortgage account. If the dispute process fails, please contact this office about the filing a lawsuit seeking damages and correction of his or her credit reports.