With Governor Jerry Brown recently signing into law Senate Bill 2, which increases California’s Renewable Portfolio Standard to 33 percent by 2020, the push to develop and finance renewable energy projects in California is likely to gain further momentum. Financing renewable energy projects in California, however, has re-exposed lenders to the “one-action rule.” The one-action rule places limits on the ability of lenders to enforce and collect debt that is secured by real property located in California. While most states permit secured lenders to freely pursue the foreclosure of real property as well as the underlying debt simultaneously, California essentially requires lenders to exhaust the entirety of their real property security before suing on the underlying debt or before taking other action to collect against any of the debtor’s unpledged assets. Violation of the one action rule leaves lenders vulnerable to sanctions, including the potential loss of their lien on the real property.
Below please find a link to an article that we have recently published on Law360.com, one of the leading legal news web sites, discussing the one action rule. This article is relevant to any entity extending credit secured by real property located in California. The article briefly explains the one-action rule and its ramifications and highlights general steps that can be taken to avoid violating the one-action rule. It also explains why nonjudicial foreclosure, sometimes referred to as a trustee sale, is the most typical method for foreclosing on California real property. Finally, this article provides some practical tips to lenders on how to avoid breaching the one-action rule.