How does the one action rule affect my foreclosure?

The One Action Rule

Both real estate and lending are highly-regulated industries.  It should be no surprise that there are a plethora of laws about the ways lender’s seize real estate.  Utah has restricted a lender’s options to recover debt through the one action rule (which is sometimes referred to as the “single-action rule”).

Requirement to Seize Real Estate First

The one action rule states, “There is only one action for the recovery of any debt, or the enforcement of any right, secured solely by mortgage upon real estate and that action shall be in accordance with the provisions of this chapter.”  Utah Code §78B-6-901.  “The purpose of the statute was to eliminate harassment of debtors and multiple litigation which sometimes occurred under the common-law rule which allowed a creditor to foreclose and sell the land and sue on the note.”  Lockhart C. v. Equitable Realty, Inc., 657 P.2d 1333, 1334 (Utah 1983).  “Under this and the following section there is no personal liability on the part of mortgagor until after foreclosure or sale of the security and then only for the deficiency then remaining unpaid."  Id at 1335.

In essence, if a lender is secured solely by real estate, then that lender must foreclose on the real estate first before seeking personal liability from the borrower.  This statute prevents double recovery.  A lender does not have the option of collecting all the money it can from the borrower and then seizing the collateral through a foreclosure. A lender must take what it can get out of the real estate and may only turn to the borrower for recovery if the foreclosed-upon security was not enough to cover the debt.

Limited Applicability

The one action rule states that it only applies to debt “secured solely by mortgage upon real estate[.]”  Utah Code §78B-6-901.  It does not apply to debtors secured all or in part by personal property, but lenders should be aware of the policy behind the one action rule even when personal property is involved.  The one action rule does apply to debts secured by multiple parcels of real estate.

Contracting around the One Action Rule

“No private or special law shall be enacted where a general law can be applicable.” Utah Constitution, Article VI, Section 26.  Though both lenders and borrowers sometimes want to contract around the one-action rule, this option is not available.  If public law did not trump private law, then lenders could regularly contract borrowers out of the protections provided by the law.  If a borrower and lender enter into an agreement to get around the one-action rule, then several interesting legal questions would be raised about waiver, estoppel, and modification.  Neither the lender nor the borrower would likely want to be the legal guinea pig to test out attorneys’ theories on these issues.

            As always, if you have any questions about your situation, you are welcome to contact one of Whiting & Jardine’s real estate lawyers for legal advice.

For more specific information about this particular subject, please call my office at 801-691-7770 for a free consultation or see the following web pages: 

1.                  Whiting & Jardine, LLC Home Page: www.WhitingJardine.com

2.                  Collections: http://whitingjardine.com/practice_areas.php?part=collections

3.                  Liens: http://whitingjardine.com/practice_areas.php?part=liens

Disclaimer: This blog is for general information and educational purposes only.  Nothing in this blog should be construed as legal advice for any particular situation.  The statements in this blog may be generalized, contain speculation, be based on opinion, or be made inaccurate by updates or clarifications to the law.  No attorney-client relationship is created by virtue of this blog.  To receive competent legal advice for your situation, you should seek competent, licensed legal counsel in the appropriate jurisdiction and practice area.