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Ray
Ray, Lawyer
Category: Real Estate Law
Satisfied Customers: 36994
Experience:  Texas Attorney for 30 years dealing in real estate
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What is the law name and # that is commonly referred to as

Customer Question

What is the law name and # ***** is commonly referred to as the "one action rule" (in regards ***** *****)?
Submitted: 1 year ago.
Category: Real Estate Law
Expert:  Ray replied 1 year ago.

Hi and welcome to JA. I am Ray and will be the expert helping you tonight.

California’s “one action rule” says that your mortgage lender can only take one action against you, whether it is to conduct a trustee’s sale, sue on the promissory note for the balance of the debt, or judicially foreclose.

“There 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” (Cal. Code Civ. Proc. § 726(a)). This means that a mortgage lender is only allowed to do one of the following:

  • foreclose nonjudicially (conduct a trustee’s sale)
  • foreclose judicially, or
  • sue the borrower personally on the promissory note for the balance of the debt.

Here is more information about the second lien and whether they can pursue you for a second lien.

http://www.nolo.com/legal-encyclopedia/the-california-one-action-rule-foreclosure.html

I appreciate the chance to help you tonight.Please let me know if you have more follow up.Thanks again.

Expert:  Ray replied 1 year ago.

More..

While this section appears to give a lender a choice of how to proceed to collect the debt, it has been interpreted to mean that a lender must pursue the secured real estate first (“security first rule”). (Walker v. Community Bank, 10 Cal. 3d 729 (1974).) In other words, suing on the note as the first collection method is not allowed (unless the lender is a sold-out junior, as discussed below).

2. No deficiency judgment is allowed by the foreclosing lender following a non-judicial foreclosure (i.e., trustee's sale), regardless of the type of property foreclosed. (CCP § 580d).

There are two types of foreclosures in California: the first type is “judicial,” in which a lender goes to court, gets an order to foreclose and then seeks to be awarded a judgment for the deficiency, if no waiver or prohibition applies. This process is considered “one action” so it does not violate CCP § 726(a). In addition to this complicated, expensive and slow judicial process, there is period of redemption following the judicial foreclosure for the borrower: three months if sales proceeds sufficiently satisfied indebtedness or one year if sales proceeds were insufficient. (CCP § 790.030). For all these reasons, judicial foreclosures are rare, and subsequent deficiency judgments following such foreclosures are as well.

The second is “non-judicial,” meaning no court action is required. The property is sold by exercise of power of sale as written into a deed of trust. This is also referred to as a trustee’s sale. Due to the lack of judicial involvement, this method is cheaper and faster than its judicial counterpart. Because CCP § 580b prohibits deficiency judgments for owner-occupied purchase money and seller carry-back loans - foreclosing lenders are dis-incentivized to pursue judicial foreclosures in those cases.

Due to this disincentive, cheaper cost and faster pace, trustee’s sales constitute the vast majority of foreclosures in California. And when there is a trustee’s sale, no deficiency judgment shall be rendered. (CCP § 580d).

The key to this rule is that it applies to a trustee’s sale and doesn’t depend on the type of loan or the type of property being foreclosed. For example, for a vacant land property with a refinanced senior loan, if a lender forecloses at a trustee’s sale, then that lender will not be able to claim a deficiency judgment. It simply doesn’t matter what kind of loan it was or what kind of property it is.

There are two things to keep in mind with this rule:

first, it only applies to a foreclosing lender. If there are two loans on the property, and a second (i.e., junior) lienholder forecloses first, it is only that second lender which is affected by this rule.

second, if a junior lender loses its security as a result of a senior lienholder foreclosing first, then any junior lienholder is considered as a “sold-out” junior. The sold-out junior has yet to exercise its one action against the borrower per CCP 726(a) but the security is gone. Only then is the sold-out junior allowed to collect on its now unsecured note by suing on the note.

Expert:  Ray replied 1 year ago.

Thanks again.

Customer: replied 1 year ago.
Thank you. I was asking this question for Washington state. I apologize for any confusion.
Expert:  Ray replied 1 year ago.

The principal is the same let me get you some more information.

Expert:  Ray replied 1 year ago.

RCW 61.12.120

Concurrent actions prohibited.

The plaintiff shall not proceed to foreclose his or her mortgage while he or she is prosecuting any other action for the same debt or matter which is secured by the mortgage, or while he or she is seeking to obtain execution of any judgment in such other action; nor shall he or she prosecute any other action for the same matter while he or she is foreclosing his or her mortgage or prosecuting a judgment of foreclosure.

[2012 c 117 § 164; Code 1881 § 614; 1877 p 128 § 619; 1869 p 146 § 568; 1854 p 208 § 413; RRS § 1125.]

Expert:  Ray replied 1 year ago.

Recent case here..

http://www.lexology.com/library/detail.aspx?g=078dceee-f3de-4cdb-a556-87bd78351555

Limits the first lien holder to non judicial foreclosure and no deficiency or judicial foreclosure.Also if the lender has the second lien this usually protects owner from them pursuing the second lien.If it is a different lender for the second you may not have protection under the law from deficiency judgment/foreclosure by the second lien holder...Thanks for letting me clarify here.

Customer: replied 1 year ago.
Thank you. This just states that they can't pursue the debt and property at the same time, correct? I believe there is law that states they cannot pursue any remaining debt after a property has been foreclosed non-judicially?
Expert:  Ray replied 1 year ago.

They almost always do a non judicial foreclosure with deed of trust.Then the original lender cannot pursue you.If there is a second or third here from a different lender they can pursue it.Unlimited protection here against the first lender.Conditional protection against the second lender depending on whether it is a different lender.It is very rare that the second lender pursues you but it is possible if it is a different lender.

You really want to do a second lien here from your original lender because of the law.

Expert:  Ray replied 1 year ago.

Here is a great reference--judges use it here covers everything you ever waned to know about foreclosures..

https://s3.amazonaws.com/law-media/uploads/39/5303/original/Foreclosure_Manual_for_Judges.pdf?1375468492

Customer: replied 1 year ago.
Thank you, ***** ***** unfortunately do not have the time to wade through these resources. Are you able to tell me the specific law that bars the lender from coming after me for the deficiency following a non-judicial foreclosure?
Expert:  Ray replied 1 year ago.

In the state of Washington, the most common debt instrument for a real property purchase money loan or other form of loan secured by real property is a trust deed. A trust deed is composed of a promissory note which agrees to pay the debt and a security agreement which attaches the note to specific property as security. Washington law also permits mortgages to serve as liens upon real property, but mortgages must be judicially foreclosed, i.e. by a lawsuit in a court, whereas a deed of trust may be foreclosed either by a suit in court or by private advertisement and sale without a lawsuit or the intervention of a judge, at the election of the creditor. A mortgage foreclosure or a judicial foreclosure of a trust deed is initiated by the filing of a lawsuit by the creditor and results in a public auction by the sheriff. In the non-judicial foreclosure of a trust deed, the advertisement and sale is by the Trustee or the beneficiary’s (creditor’s) counsel under a deed of trust.

Here this would be a concurrent action under the statute..

RCW 61.12.120

Concurrent actions prohibited.

The plaintiff shall not proceed to foreclose his or her mortgage while he or she is prosecuting any other action for the same debt or matter which is secured by the mortgage, or while he or she is seeking to obtain execution of any judgment in such other action; nor shall he or she prosecute any other action for the same matter while he or she is foreclosing his or her mortgage or prosecuting a judgment of foreclosure.

You raise it as a defense.

Expert:  Ray replied 1 year ago.

Generally a deficiency judgment may not be obtained using the non-judicial foreclosure process when a property in foreclosure is sold at a public sale for less than the loan amount that the underlying mortgage or deed of trust secures. A deficiency judgment can be obtained in a judicial sale, unless the property is abandoned for the preceding six (6) months prior to the foreclosure judgment or decree in which event that abandonment would preclude any deficiency.

Expert:  Ray replied 1 year ago.

You would raise the statute here and claim they are violating the statue.

Expert:  Ray replied 1 year ago.

Thanks again for the chance to help tonight.