Legal Question in Real Estate Law in California

There won't be a double recovery. It is commonplace in both California state and federal court to assert alternate theories of recovery through multiple causes of action -- sometimes more than a dozen -- but the court will not enter judgment that allows a plaintiff to recover more than the damages the plaintiff is able to establish. That is to say, no double recovery.

I respectfully disagree with Mr. Whipple. I think he misread the context of your question.

Unlike an unsecured loan, a secured loan contains two parts: a promissory note; and a security instrument. The security instrument can be composed of a mortgage or a deed of trust. In California, the security instrument of choice is a deed of trust.

A secured loan is a hypothecation. A hypothecation is an express agreement between the parties that something will be security for the obligation. The security instrument clearly identifies the property that is to be security. In the absence of a secured agreement, a creditor can obtain a money judgment on the underlying contract, and attach and levy on any and all property owned by the judgment debtor. The security agreement changes this, because it specifies the property that is to be the security looked at to satisfy the debt. This was discussed in passing by the California Supreme Court. "In the absence of a statute to the contrary, a creditor secured by a trust deed or mortgage on real property may recover the full amount of the debt upon default. He may realize the security or sue on the obligation or both; the obligation is an independent undertaking by the debtor to pay. ... In most states now, however, the creditor's right to enforce such a debt is restricted by statute. Thus, in California the creditor must rely upon his security before enforcing the debt. (Code Civ. Proc., �� 580a, 725a, 726.) If the security is insufficient, his right to a judgment against the debtor for the deficiency may be limited or barred by sections 580a, 580b, 580d, or 726 of the Code of Civil Procedure." (Roseleaf v. Chierighino (1963) 59 Cal.2d 35, 39.)

As the Supreme Court points out in the Roseleaf case, the creditor's right to sue on the obligation is restricted by statute. That statute is Code of Civil Procedure section 726. The statute is clear: "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 or an estate for years therein, which action shall be in accordance with the provisions of this chapter." (Code of Civ. Proc. sect. 726 subd. (a).) By statute and case law, that provision has been extended to deeds of trust.

�The purpose of the one action rule is to prevent a secured creditor from enforcing its rights by seeking recourse to more than one remedy, such as by obtaining both a money judgment on the mortgage debt and by foreclosing on the mortgage.� (CJA Corp. v. Transaction Financial Corp. (1st Dist. 2001) 86 Cal.App.4th 664, 668-669.)

The California Supreme Court has pointed out that section 726 has two applications. "In the last mentioned situation, section 726 is susceptible of a dual application � it may be interposed by the debtor as an affirmative defense or it may become operative as a sanction. If the debtor successfully raises the section as an affirmative defense, the creditor will be forced to exhaust the security before he may obtain a money judgment against the debtor for any deficiency. �If the debtor does not raise the section as an affirmative defense, he may still invoke it as a sanction against the creditor on the basis that the latter by not foreclosing on the security in the action brought to enforce the debt, has made an election of remedies and waived the security." (Walker v. Community Bank (1974) 10 Cal.3d 729, 724.)(Internal citations omitted.)

As pointed out in Walker, it is the debtors decision to raise section 726, not the creditor's decision to ignore it. It is clear that the creditor and the judge do not get to make the decision whether to sue on the note, and get a money judgment without foreclosing. �The plaintiff cannot waive the security and sue on the indebtedness, but must bring his action of foreclosure. The statute is imperative.� (Western Fuel Co. v. S.G. Lewald Co. (1922) 190 Cal. 25, 27.)

If the judge didn't grant your motion, then the rhetorical question arises as to how is the debtor going to be able to force the creditor to exhaust the security? Obviously under your judge's ruling, it is the creditor's choice, but that is legally erroneous.

Additionally, section 726 contains a detailed procedure for a debtor to raise Code of Civil Procedure section 580b as a defense (called the puchase money deficiency prohibition) and the fair value limitations. A creditor who is allowed to sue you on the promissory note at the creditor's election, would be allowed to evade section 726's determination of any entitlement to section 580b as a defense, and would evade the fair value limitations of section 726.

I don't think the appellate courts would condone your judge's interpretation, especially in light of the current economic situation.