The One-Action Rule & Foreclosure in California and Utah

If you fall behind in your mortgage loan payments, California's "one-action rule" says that your 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.

Utah has a similar rule. Here's how the rules work.

The One-Action Rule in California

Most residential foreclosures in California are nonjudicial, which means the lender does not have to go through state court to foreclose. Though, sometimes, California foreclosures are judicial and go through the state court system.

California law restricts a lender with a secured interest in real property—for example, the lender that made your home loan—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)).

So, a lender is allowed to do only 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

The one-action rule in California appears to allow the lender to sue the borrower personally based on the promissory note and skip foreclosure altogether. But California courts have interpreted the rule to mean that a lender must pursue the real estate before suing the borrower personally. (See Walker v. Community Bank, 10 Cal. 3d 729 (1974)). This concept 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.

So, a mortgage lender (or the current loan holder) 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 loan.

Second Mortgages, HELOCs, and Other Junior Lienholders

If the first-mortgage lender forecloses and you have a second or third mortgage, or a HELOC, you might face a lawsuit from one of those lenders in certain circumstances.

What happens to junior lienholders in a foreclosure. When a senior lienholder forecloses, any junior liens (like second mortgages and HELOCs, among others) are also foreclosed, and those junior lienholders lose their security interest in the real estate. A foreclosed lienholder is then usually referred to as a "sold-out junior lienholder."

A sold-out junior lienholder can generally 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 because the property has already been foreclosed. So, if your house is underwater, you might face lawsuits from those lenders to collect the balance of the loans.

Anti-deficiency law. But under California law, a lender can't get a personal judgment (a deficiency judgment) against you if the loan was:

• a purchase money loan (a loan that is used to buy the property)
• a refinanced purchase money loan that was executed on or after January 1, 2013, except to the extent that new principal was advanced which is not applied to the purchase money loan (fees, costs, or related expenses of the refinance are also not covered by the anti-deficiency protection), or
• a seller-financed loan (a loan you take out from the person or entity selling the property to you).

Utah's One-Action Rule

Utah foreclosures are typically nonjudicial, but judicial foreclosures are also possible. Utah has a "one-action" rule which states that there can be only "one action for the recovery of any debt, or the enforcement of any right, secured solely by mortgage [or deed of trust] upon real estate." (Utah Code Ann. § 78B-6-901). Basically, this statute limits the lender to one civil (court) action to collect the debt.

Based on the statute's wording, Utah's one-action rule appears to permit the lender to sue the borrower personally on the promissory note for a money judgment and skip foreclosure altogether.

But the Utah Supreme Court has interpreted this law to mean that a lender must first foreclose on the real estate before suing the borrower for a money judgment if and when the proceeds from the foreclosure sale are insufficient to pay off the debt. This concept is known as a "security-first" approach. The purpose of the security-first approach is to stop a mortgage lender from going after the defaulting borrower's other assets before foreclosing on the real property to satisfy the debt.

Relationship to Utah's Law on Deficiency Judgments

Under Utah law, the lender may file a deficiency action within three months after a nonjudicial foreclosure sale. (Utah Code Ann. § 57-1-32). This action then counts as the lender's one civil action. If the lender chooses to foreclose judicially, it may include a claim for a deficiency judgment in the foreclosure suit, which counts as its one action.

Second Mortgages, Home Equity Lines of Credit (HELOCs), and Other Junior Lienholders

After the first-mortgage lender forecloses, if your outstanding mortgage debt, including second and third mortgages, is more than your home is worth, you might face lawsuits from those other lenders to collect the balance of the loans.

Talk to an Attorney

If you're facing a foreclosure in California or Utah and want to learn more about the process, consider talking to a foreclosure attorney.