If you fall behind in your mortgage payments, 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.
Read on to learn more about the one action rule, how it relates to California’s “security first” rule, and what happens in the case of junior mortgages and HELOCs.
(For more articles on foreclosure in California, including programs to help homeowners avoid foreclosure, visit our California Foreclosure Law Center.)
Most residential foreclosures in California are nonjudicial, which means the lender does not have to go through state court to get one. However, sometimes California foreclosures are judicial and go through the state court system. (To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)
Read more about the California foreclosure process.
California’s One Action Rule
California law restricts a lender with a secured interest in real property (for example, the lender on your home mortgage) to taking only one action to enforce the debt. The one action rule states “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.
Ultimately, this rule limits a lender to bringing only one foreclosure proceeding or court action against a borrower who falls behind in mortgage payments.
Relationship to California’s Security First Rule
From the face of the statute, the one action rule appears to allow the lender to sue the borrower personally based on the promissory note and skip foreclosure altogether. However, California courts have interpreted the rule to mean that a lender must pursue the real estate before suing the borrower personally (Walker v. Community Bank, 10 Cal. 3d 729 (1974)). This is known as the “security first rule.” The goal of this rule is to prevent a secured lender from suing the defaulting borrower on the debt itself before foreclosing on the security interest.
This means that a mortgage lender (whether its loan is a first mortgage, second, or HELOC) must foreclose the security (your home) rather than suing you directly on the underlying promissory note. (Cal. Code Civ. Proc. § 726(a)). As a result of the one action and security first rules, the lender’s options are significantly limited when a borrower defaults on a mortgage.
(To learn more, see The California Security First Rule & Foreclosure.)
Second Mortgages, HELOCs, and Other Junior Lienholders
If the first mortgage lender forecloses and you have a second or third mortgage, or a HELOC, in certain circumstances you may face a lawsuit from one of those lenders.
Sold-out junior lienholders. If a senior lienholder forecloses, any junior liens (such as second mortgages and HELOCs, among others) are also foreclosed and those junior lienholders lose their security interest in the real estate. (This is referred to as a “sold-out junior lienholder.”) A sold-out junior lienholder can sue the borrower personally on the promissory note because it has not had its “one action” yet and it is not limited by the security first rule (since the property has already been foreclosed). So, if your house is underwater (where the equity in your home doesn’t cover all of the outstanding debt including second and third mortgages), you may face lawsuits from those lenders to collect the balance of the loans.
Situations where a sold-out junior lienholder cannot get a personal judgment against you. If the lender that foreclosed the first mortgage is the same lender on the junior loan, that lender cannot sue you personally on the note for the junior loan after foreclosing the senior loan. Also, under California law, the lender cannot try to get a personal judgment against you if the loan was:
- a purchase-money loan (a loan that is used to buy the property)
- a refinance of a purchase-money loan (for example, a refinance of your original mortgage), or
- a seller-financed loan (a loan you take out from the person or entity selling the property to you).
(Learn more in Nolo's article Deficiency Judgments After Foreclosure in California.)
Find out more about California Foreclosure Laws and Procedures.