Understanding the One Action Rule in Home Foreclosure Situations
Foreclosure is a stressful and complex process for any homeowner, and navigating the legal landscape only adds to the challenge. One often misunderstood but critically important legal principle involved in foreclosure proceedings—especially in states like California—is the One Action Rule. This rule can significantly impact the rights and options of both borrowers and lenders during foreclosure. In this post, we’ll explain what the One Action Rule is, how it applies to home foreclosures, and what it means for homeowners facing the possibility of losing their property.
What Is the One Action Rule?
The One Action Rule is a legal doctrine designed to protect borrowers from facing multiple lawsuits related to the same mortgage debt. Most commonly associated with California law (California Code of Civil Procedure Section 726), this rule essentially mandates that a lender must choose one legal action to enforce a mortgage debt secured by real property.
In the context of a mortgage or deed of trust, the lender typically has two general options if the borrower defaults:
- Judicial Foreclosure – Filing a lawsuit in court to foreclose on the property.
- Nonjudicial Foreclosure – Using a trustee sale process (out-of-court) to foreclose under the power-of-sale clause in the deed of trust.
The One Action Rule means that the lender cannot pursue both options or sue the borrower separately for the debt and also foreclose on the property. They have to choose one.
The Purpose of the One Action Rule
The rule is rooted in fairness. Mortgages and deeds of trust are secured debts, meaning the property backs the loan. The One Action Rule is designed to prevent lenders from double-dipping—first repossessing the property through foreclosure and then suing the borrower for the remaining loan balance (called a deficiency judgment).
By forcing lenders to make a strategic choice, the law ensures that borrowers are not over-penalized and that lenders treat foreclosure as a last resort rather than a starting point.
How It Works in a Home Foreclosure Scenario
Let’s consider a scenario to see how the One Action Rule might apply:
Example:
John takes out a $500,000 mortgage to buy a home in California. A few years later, due to job loss, he falls behind on payments, and the home is now worth only $400,000. The lender decides to foreclose.
Here’s how the One Action Rule limits the lender:
- If the lender opts for nonjudicial foreclosure, which is faster and cheaper, they can proceed with selling the home through a trustee sale. However, because they chose this path, they are barred from later suing John for the $100,000 difference between the loan balance and the home’s sale price. This is part of the anti-deficiency laws that work alongside the One Action Rule in California.
- If the lender instead files a judicial foreclosure, they may preserve the right to seek a deficiency judgment, but they must complete the court process, which is lengthy and expensive. Even then, California law still limits their ability to collect deficiencies on loans used to purchase a home (called purchase-money mortgages).
Why This Matters to Homeowners
If you’re a homeowner facing foreclosure, understanding the One Action Rule can offer some important protections:
1. Protection from Multiple Lawsuits
Once the lender decides on a foreclosure route—especially if it’s nonjudicial—you cannot be sued separately for the unpaid mortgage balance. That’s a huge financial relief for many homeowners already facing hardship.
2. Strategic Defense Tool
If a lender improperly tries to pursue both foreclosure and a lawsuit to recover the debt, you or your attorney can raise the One Action Rule as a defense. Courts take violations of this rule seriously, and an improper action by the lender can result in dismissal or penalties.
3. Helps You Evaluate Your Options
Knowing that the lender must choose one course of action allows you to assess your next steps. For instance, if the lender has initiated nonjudicial foreclosure, you may focus on short sale negotiation, loan modification, or planning a dignified exit strategy, knowing you won’t face a lawsuit for a deficiency.
Lender Workarounds and Exceptions
While the One Action Rule offers protections, there are exceptions and nuances that homeowners should be aware of.
A. Unsecured Debts or Fraud Claims
If part of the debt is unsecured or if there was fraud involved (e.g., lying on a loan application), the lender may still have a valid claim outside the foreclosure action.
B. Guarantors
If there is a third-party guarantor (like in some commercial loans), the lender might go after the guarantor separately. The One Action Rule does not always apply to them.
C. Mixed-Collateral Loans
Sometimes, loans are secured by both real property and personal property (like equipment or inventory). Lenders may have broader options in these cases, though they still must follow specific legal procedures.
D. Borrower Waivers
In some cases, borrowers unknowingly sign agreements waiving certain defenses, including aspects of the One Action Rule. It’s always wise to have an attorney review your loan documents.
What Should Homeowners Do?
If you’re in or approaching foreclosure, here’s what you should consider:
1. Talk to a Foreclosure Attorney
State laws vary, and so do interpretations of the One Action Rule. An experienced attorney can help you understand your rights, evaluate the lender’s actions, and potentially stop improper legal moves.
2. Document Lender Activity
Keep track of any notices, letters, or lawsuits filed by your lender. If they try to pursue multiple actions at once, that may be a violation.
3. Explore Foreclosure Alternatives
Understanding that lenders must choose one remedy might give you leverage in negotiating alternatives like:
- Loan modification
- Forbearance agreements
- Short sale
- Deed in lieu of foreclosure
The One Action Rule: Conclusion
The One Action Rule is a powerful but often overlooked protection for homeowners facing foreclosure. By requiring lenders to commit to a single path of enforcement, the rule helps prevent overreach and provides borrowers with a clearer set of options and defenses. If you’re facing foreclosure, make sure you understand how this rule may affect your case and seek legal counsel if needed. In a challenging time, knowledge is a powerful tool—and in this case, it may help save your home or reduce your financial burden.