Money & Finance › Commercial real estate lending › Recourse vs. non-recourse loans: is the owner personally liable?
California's one-action and anti-deficiency rules
One-action 1872; anti-deficiency 1930s· Law or rule
Fact, law or dataA rule, statute, definition or measured number.
California rules that make a property lender pursue the real estate first and often bar it from collecting any shortfall afterward.
See it on the Money & Finance map →How it works
One-action rule (Code of Civil Procedure 726, from 1872): a lender secured by real estate gets one lawsuit and must exhaust the property first. Section 580d (1940): after a nonjudicial trustee's sale, the usual route, no deficiency against the borrower. Judicial foreclosure allows one, capped at the debt minus the property's fair value, but is slow and lets the borrower redeem. Sections 580a and 580b (1933) add fair-value limits and protect seller carry-back and owner-occupied home loans.
Why it matters
After a trustee's sale, a California borrower LLC's exposure is mostly the building, so lenders lean on guarantors who waive these protections.
Facts, rules and data
California Code of Civil Procedure 580a, 580b, 580d and 726; Civil Code 2856 on guarantor waivers; and cases such as Union Bank v. Gradsky (1968).
Debates and risks
Courts keep testing the 'sham guaranty' defense, which can void a guaranty signed by someone who is really the borrower in disguise.
Connections (3)
▸Personal guarantees: full, limited and burn-off are a lender's way around California's one-action and anti-deficiency rulesFact, law or data
The connection
California law shields the borrowing LLC from a deficiency after a trustee's sale. Lenders get around it by having owners sign separate guarantees that waive anti-deficiency and suretyship defenses, as Civil Code 2856 allows. After foreclosure, the lender can then sue the guarantor for the shortfall.
When and why
California lending practice since Union Bank v. Gradsky (1968), which made such waivers essential; now expressly allowed by Civil Code 2856.
How we know
Standard California guaranty forms include 'Gradsky' and Section 2856 waivers, and appellate courts regularly enforce them.
Debates and risks
Courts still test whether a guarantor is really the borrower in disguise, a 'sham guaranty' that loses the waivers' force.
▸California's one-action and anti-deficiency rules bar a deficiency after a nonjudicial Commercial foreclosure: trustee's sales and judicial foreclosureFact, law or data
The connection
A California lender chooses: a nonjudicial trustee's sale, about four months at the fastest, which under Section 580d ends its claim against the borrower; or judicial foreclosure, a year or more with borrower redemption rights, which can yield a deficiency judgment. Most lenders choose the trustee's sale.
When and why
California commercial and residential foreclosures; Section 580d dates from 1940.
How we know
California Code of Civil Procedure 580d and 726, and county foreclosure records in which trustee's sales dominate.
Debates and risks
How many lenders now go judicial against well-off office borrowers, trading speed for a deficiency claim, is not tracked publicly.
▸California's one-action and anti-deficiency rules were largely shaped by The 1929 crash and the Great DepressionFact, law or data
The connection
As values collapsed in the early 1930s, lenders bought foreclosed property cheaply at their own sales, then sued borrowers for large deficiencies. California's legislature responded in 1933 with fair-value limits (580a) and a purchase-money ban (580b), and in 1940 with 580d, as other states passed foreclosure moratoriums.
When and why
California, 1933–1940; a Minnesota moratorium was upheld by the US Supreme Court in Home Building & Loan v. Blaisdell (1934).
How we know
The statutes' enactment history and California Supreme Court opinions describing their Depression-era purpose.
Debates and risks
Whether these protections lower borrowers' overall costs or simply shift risk onto guarantors and higher rates is debated by economists.