Dual-tracking or double-tracking is the practice of filing multiple actions against an unpaying borrower. Some hard money lenders will use this method to start the recuperation process while giving themselves time to evaluate how to best protect their assets. While most states prohibit following multiple actions to completion, in states with One-Action rules or equivalent stipulations hard money lenders are forbidden from filing multiple actions to pursue a debt.
Lenders should be aware of which actions are considered under the California One-Action rule, as a violation comes with potentially hefty consequences. Foreclosure firms can help with education and resources.
What is the One-Action Rule
California’s One-Action Rule states specifically, in Section 726(a) that: “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.
In California, regarding commercial property recuperation, there are generally three courses of actions. Non-judicial foreclosures are the most popular in California, but do not always come with the benefit of deficiency judgements. Judicial foreclosures take longer and are more expensive, but are better for recuperating deficiencies. Additionally, a lender may choose to forgo foreclosing the physical property in favor of suing the borrower personally on the promissory note for the balance of the debt. The One-Action Rule forces lenders to choose only one judicial course of action, instead of two or more in tandem.
Security First Rule
In states with a Security First Rule, like California, the law goes hand-in-hand with the One-Action Rule. A lender must pursue the real property collateral before suing the borrower personally. If the lender pursues a non-judicial foreclosure, they may get a deficiency judgment, but anti-deficiency laws may limit a lender’s rights in this pursuit.
What Actions are Considered in the One-Action Rule?
It’s important for lenders to note that actions considered under the one-action rule are exclusively judicial actions. It is possible to conduct a non-judicial foreclosure or a U.C.C. sale without invoking the one-action rule.
Actions that will invoke the rule include:
- Pursuing recourse without exhausting all security
- Attaching unsecured property of the borrower without exhausting the collateral for the loan
- A release of security without the debtor’s consent
Keep Your Team Educated About Foreclosure Law
At Total Lender Solutions, we advocate for lenders looking to maximize recoveries on defaulted loans. For over 15 years, our team of highly experienced real estate professionals and legal experts has transformed complicated processes into clear resolutions for institutional and private lenders. We work as a vigorous extension of your team to provide comprehensive solutions and seamless communication, from pre-foreclosure and notice of default to the final sale phase. Our dedication and persistence when it comes to the foreclosure process ensures that our clients feel confident in reaching a successful outcome. Contact us today.
