Enforcing Remedies Under California's One-Action Rule: Foreclosure, Deficiency Claims, Debtor Defenses

Description

California's One-Action Rule requires a lender to foreclose on the real property securing its debt before enforcing other available remedies against a defaulting debtor. Lender's counsel must have a thorough understanding of the One-Action Rule when documenting or enforcing a real estate secured loan in California.

California's One-Action Rule includes two general limitations on a lender's ability to recover debt secured by real property collateral. The first limitation, the security first rule, prohibits a lender from collecting against any of the debtor's unpledged assets unless the lender seeks, as part of its action, an order for judicial foreclosure of its mortgage or deed of trust. The second limitation restricts a lender from bringing more than one "action" against a debtor to exhaust the security. Simply put, a lender must enforce all of its security in a single action (i.e., a lender cannot file multiple lawsuits against a debtor on a single debt).

If a lender violates the One-Action Rule by commencing an action for damages against the debtor personally without first exhausting the real property collateral, the debtor can require the lender to proceed against the real property collateral. In California, the debtor may also seek sanctions against the lender, which could result in the lender forfeiting its security interest in the real property collateral.

Listen as our authoritative panel discusses the nuances of the One-Action Rule in California, including what constitutes an "action" for purposes of the One-Action Rule, the unenforceability of certain waivers of the One-Action Rule, and the consequences of a violation.