There are heightened risks for lenders in California who need to act against a borrower who owes payments to them. This risk comes from the California statute known as the one-action rule (also known as the single-action rule). California community associations can bring lawsuits against owners in foreclosure territory, but they need to choose a limited outcome: a judgment or foreclosure.
Understanding California’s one-action rule for owners
A borrower can use the one-action rule in the defense against an association pursuing a non-judicial foreclosure. The rule is meant to protect a property owner who owes mortgage payments or other payments on secured loans from being confronted with an overwhelming variety of actions filed by the lender. When a California community association uses a lien to secure a delinquent owner’s obligation, the statute prohibits that association from suing the owner after enacting a non-judicial foreclosure.
The nuances in the law
For lenders attempting to recover debts or enforce a right secured by a mortgage on California real property, the law presents many severe penalties for improper procedures. If the lender doesn’t comply with the rule, it could risk forfeiture of its liens on real properties. The One-Action Rule produces the following restrictions to lenders attempting to collect a debt for the following scenarios:
- If the judicial foreclosure was limited to a specific portion of the real property that secured the debt
- If the lender attempts to recover a monetary judgment on a debt simultaneously with the foreclosure
- A creditor must complete foreclosure proceedings and exhaust their real property security before they can obtain a judgment on the debt.
Preventing the consequences of a one-action rule violation
The outcome of violating the one-action rule can mean a devastating impact on an entity’s rights to collateral, even if the violation is inadvertent. For out-of-state lenders and international entities, the limitations associated with financing projects and ventures in California may be less familiar and can result in unintended risks. A lawyer with experience in commercial business litigation and commercial real estate law can guide you through this process and the restrictions to lenders specific to the state of California.