TL;DR: What is CCP §726?
CCP §726, known as the “One Form of Action” rule, is a critical shield for California borrowers. It forces a lender to look to the real estate security (the house) first before they can ever try to collect against your personal assets. If they sue you personally without foreclosing on the property first, they may lose their right to the security entirely.
California Code of Civil Procedure §726
Statute Text:
§ 726. One form of action for recovery of debt or enforcement of right secured by mortgage upon real property
(a) 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, which action shall be in accordance with the provisions of this chapter. In the action, the court may, by its judgment, direct the sale of the encumbered real property (or so much thereof as may be necessary), and the application of the proceeds of the sale to the payment of the costs of court, the expenses of sale, and the amount due the plaintiff. The judgment shall also determine the personal liability of any defendant for the payment of any deficiency remaining after the sale of the encumbered real property.
(b) If the plaintiff recovers a money judgment against the defendant in the action, the judgment shall be enforceable only in the manner provided in this chapter. Except as otherwise provided by law, the plaintiff shall not be entitled to a deficiency judgment if the real property has been sold pursuant to a power of sale contained in a mortgage or deed of trust.
(c) The provisions of this section shall not apply to a case in which the mortgage or deed of trust secures the payment of bonds or other evidences of indebtedness authorized or permitted to be issued under any law of this state.
(d) The provisions of this section shall not apply to a case in which the mortgage or deed of trust secures the payment of a loan or other obligation made or incurred by a public utility subject to regulation by the Public Utilities Commission.
Important Note: You definitely want to talk with an attorney because an attorney might be able to recharacterize cash out refinance money as non-recourse. This specific legal maneuver would make the debt only a capital gains problem rather than a personal liability issue.
Real-World Examples of CCP 726 in Action
Key Doctrinal Takeaways:
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The One-Action Rule is CCP §726.
It requires a secured lender to pursue one form of action for recovery of the debt, and that action must generally be foreclosure first, before suing on the note. -
CCP §580d is an anti-deficiency statute, not the one-action rule.
It bars a lender from obtaining a deficiency judgment after a non-judicial foreclosure by that same lender. -
When the senior lender forecloses non-judicially, §580d only protects the borrower from that foreclosing lender.
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The junior lender, whose lien is wiped out by the senior foreclosure, is no longer secured.
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As a sold-out junior, the second lender is not barred by §580d and is also no longer constrained by §726 because it has no security left to foreclose on.
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Result: the junior may sue directly on the note if it is a recourse loan.
Summary:
§580d limits the foreclosing lender; §726 limits secured remedies but once the junior loses its security, neither statute prevents a personal action on a recourse second.
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