The following briefly addresses: (1) the one action rule and its aspects or applications (viz., the security first and sanction aspects), judicially created exceptions to the application of the rule (viz., worthless security, environmentally impaired property and sold out junior) and the consequences of taking an “action” or violating the one action rule, (2) the anti-deficiency protections (viz., the private sale prohibition, the purchase money prohibition, the short sale prohibition and the fair value limitations) and judicially created exceptions to the application of the protections (viz., bad faith waste, fraud and in certain cases sold out junior status), (3) issues relating to enforceability of a borrower's contractual waiver of the one action rule or the anti-deficiency protections and a lender’s unilateral waiver of the one action rule, (4) the interplay of the one action rule and the anti-deficiency protections and (5) the dangers of sham guarantees.One Action Rule (California Code of Civil Procedure Section 726(a))Under the plain language of the statute that embodies the one action or one form of action rule,the rule appears merely to restrict judicial actions on debt or other rights securedin whole or in partby real property to foreclosure actions conducted in accordance with statutory requirements. Judicial glosses on the rule have significantly expanded the scope of the application of the rule.

What is that and do I need to worry?ANSWER: The “one form of action rule” is embodied in California Code of Civil Procedure § 726 which states, in summary, that there can be but one form of action for the recovery of any debt or the enforcement of any rights secured by a mortgage on real property. If someone violates the one form of action rule, they can lose their right to their security interest in the real property.

What is that and do I need to worry?ANSWER: The “one form of action rule” is embodied in California Code of Civil Procedure § 726 which states, in summary, that there can be but one form of action for the recovery of any debt or the enforcement of any rights secured by a mortgage on real property. If someone violates the one form of action rule, they can lose their right to their security interest in the real property.

That’s likely a bad instinct. Taking real property collateral raises other issues, including California’s Anti-deficiency and One Action protections.Cal. Code of Civ. Proc. 726 (One Action) and 580 (Anti-deficiency). Not only does the creditor then stare up at existing deeds of trust and real estate taxes that are senior in priority to the new deed of trust,the creditor’s rights are limited by the procedural requirements of the One Action Rule coupled with the limitations of the Anti-deficiency law.Wise lawyers often counsel their clients not to take real estate collateral, as superficially tempting and easy as it might seem to be, because of these practical and legal limitations.

In a judicial foreclosure, if the real property collateral is sold for less than the amount owed under the secured debt, the lender may sue for a deficiency judgment—the difference between the amount owed and the fair market value of the property. (Cal. Civ. Pro. Code § 726). In a judicial foreclosure, the borrower has a right of redemption.

California law regarding the enforceability of a guaranty agreement that guaranties a commercial loan secured by a deed of trust on real property can get tricky, especially following foreclosure of the deed of trust. The California one form of action rule found in the California Code of Civil Procedure Section 726(a) provides that, once the commercial loan is in default, a secured creditor cannot take any action against the borrower to enforce the loan besides proceeding with foreclosure of the deed of trust. The California anti-deficiency statutes prohibit in most instances a lender from obtaining a deficiency judgment following non-judicial foreclosure of the deed of trust.Neither the one form of action rule nor the anti-deficiency statutes prohibit the enforcement of a guaranty agreement that guaranties a real property secured loan following non-judicial foreclosure, provided that the guaranty agreement is not secured by a deed of trust and the guaranty agreement contains the appropriate waivers.

Deficiency Liability is the Key The UCRERA could be integrated within California’s existing foreclosure law framework fairly seamlesslyif — andONLY IF— the borrower is NOT subjected to deficiency liability following a receiver sale. Taking into account all of the following provisions of UCRERA … a receiver sale is not an “action” within the meaning of CCP §726 (UCRERA §25(a)(6)) there is no post-receiver sale right of redemption (UCRERA §16(c)) the receiver sale can be done privately rather than by public auction (UCRERA §16(e)); and deficiency liability following a receiver sale is governed by existing state law (UCRERA §25(b), … it seems readily apparent that there could be NO deficiency liability following a receiver sale in California.California CCP §726 and well-established interpretive case law make emphatically clear that deficiency liabilityand the post-sale right of redemption go hand in hand, and that theONLY wayfor a lenderto obtain a deficiency judgment is to include all security property in a single “action” for judicial foreclosure, with the sale conducted by public auction, followed by an evidentiary fair value determination. The Wrinkle The only wrinkle here is that the comments toUCRERAsection 25 suggest that if a state has any “fair value” limitations governing deficiency liability, then those would apply following a receiver sale.

California’s one-action rule provides that “[t]here can be but one form of action for the recovery of any debt or the enforcement of any right secured by mortgage upon real property or an estate for years therein . . . .” Cal. Code Civ. Proc. § 726(a). In other words, the one-action rule prescribes that the only process for recovery of a debt secured by a mortgage or deed of trust is to foreclose on the lien.

s, these policies require that the institution: obtain current information regarding the value of the real estate and use that information to determine whether to initiate and whether to abandon a foreclosure after making a decision not to complete a foreclosure, it should determine when to release its lien to minimize potential liability as mortgagee notify state and local government authorities that it has elected not to move forward with the foreclosure and comply with any government requirements applicable to the abandoned foreclosure provide written notice to the borrower (using reasonable means of locating the borrower) that: the foreclosure will not move forward the mortgage lien has/has not been released the borrower has the right to continue to occupy the property until title is transferred the borrower remains financially obligated for the repayment of the loan (in California, the institution's ability to pursue the borrower would remain subject to California Code of Civil Procedure Section 726), real estate taxes, insurance premiums and homeowner association dues the borrower is required to maintain the property in accordance with all applicable laws

California law regarding the enforceability of a guaranty agreement that guaranties a commercial loan secured by a deed of trust on real property can get tricky, especially following foreclosure of the deed of trust. The California one form of action rule found in the California Code of Civil Procedure Section 726(a) provides that, once the commercial loan is in default, a secured creditor cannot take any action against the borrower to enforce the loan besides proceeding with foreclosure of the deed of trust. The California anti-deficiency statutes prohibit in most instances a lender from obtaining a deficiency judgment following non-judicial foreclosure of the deed of trust.Neither the one form of action rule nor the anti-deficiency statutes prohibit the enforcement of a guaranty agreement that guaranties a real property secured loan following non-judicial foreclosure, provided that the guaranty agreement is not secured by a deed of trust and the guaranty agreement contains the appropriate waivers.