security first rule in California

2016It is beyond peradventure that section 726 operates as an affirmative defense where, as here, a secured lender sues on the debt without first proceeding against the security. (§ 726, subd. (a); Walker, supra, 10 Cal.3d at p. 734 .) It follows that section 726 operates as a complete defense where, as here, the lender’s entire complaint is barred by the security first rule.

2016It is beyond peradventure that section 726 operates as an affirmative defense where, as here, a secured lender sues on the debt without first proceeding against the security. (§ 726, subd. (a); Walker, supra, 10 Cal.3d at p. 734 .) It follows that section 726 operates as a complete defense where, as here, the lender’s entire complaint is barred by the security first rule.

2025(Security Pacific, supra, 51 Cal.3d at p. 999 .) An offset “is analogous to an action against property of the debtor . . . which has resulted in [the property’s] seizure and transfer” to the creditor’s possession. 9 (Kirkpatrick v. Westamerica Bank (1998) 65 Cal.App.4th 982, 989 , italics omitted.) Security Pacific explained that, because the security-first rule prohibits “a bank from bringing a judicial action before foreclosing the security, the rule must equally prohibit a bank’s extrajudicial appropriation of the debtor’s assets before foreclosure.” (Security Pacific, at p. 999, italics om

2015A debtor can raise it as an affirmative defense in an action on the promissory note, forcing the creditor to proceed against the security, or he may invoke it as a sanction against the creditor on the basis that the creditor, by not foreclosing first on the security, has waived his right to do so. ( Wozab, supra, at p. 997 .) Downtown Sunnyvale has not provided any evidence that would demonstrate a probability of prevailing on its claims that Wells Fargo violated section 726 either by breaching the one form of action rule or the security first rule.

2014Second, if the omitted security is no longer available, the creditor will not be able to include (i.e., exhaust) that security in the judicial foreclosure action.10 This inability to comply with the security first principle is not an absolute bar to a deficiency judgment, since a creditor might to able to obtain a deficiency by showing that the debtor waived its 10 This is what occurred in this case because Bank cannot include the Shafter Property in its judicial foreclosure action. protections under section 726. ( Schwenke, supra, 189 Cal.App.3d at pp. 142-143.) The most common type of debtor

2014Conclusion Based on the text of section 726, the conceptual foundation for the security first principle, Walker v. Community Bank, supra, 10 Cal.3d 729 , which is mentioned in part II.B.4, ante, and Schwenke, supra, 189 Cal.App.3d 134 , we conclude that Bank was required to include both parcels of real property security in its judicial foreclosure action unless Bank can show that all of the debtors consented to the release of the Shafter Property as security for the loan.

2014(E.g., Paykar Construction, Inc. v. Spilat Construction Corp. 12 The dissent’s position that Bank complied with the security first principle is contrary to the Supreme Court’s interpretation of how section 726 applies to debt secured by multiple parcels. (2001) 92 Cal.App.4th 488, 496 [Second App. Dist.]; Bank of America v. Graves (1996) 51 Cal.App.4th 607, 614 [Fourth App. Dist.]; First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, 1668 [Sixth App. Dist.]; see also National Enterprises, Inc. v. Woods (2001) 94 Cal.App.4th 1217, 1238 [Third App. Dist. stated that a comaker of a note

2014(E.g., Paykar Construction, Inc. v. Spilat Construction Corp. (2001) 92 Cal.App.4th 488, 496 [Second App. Dist.]; Bank of America v. Graves (1996) 51 Cal.App.4th 607, 614 [Fourth App. Dist.]; First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, 1668 [Sixth App. Dist.]; see also National Enterprises, Inc. v. 12 The dissent’s position that Bank complied with the security first principle is contrary to the Supreme Court’s interpretation of how section 726 applies to debt secured by multiple parcels.

2014(E.g., Paykar Construction, Inc. v. Spilat Construction Corp. 12 The dissent’s position that Bank complied with the security first principle is contrary to the Supreme Court’s interpretation of how section 726 applies to debt secured by multiple parcels. (2001) 92 Cal.App.4th 488, 496 [Second App. Dist.]; Bank of America v. Graves (1996) 51 Cal.App.4th 607, 614 [Fourth App. Dist.]; First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, 1668 [Sixth App. Dist.]; see also National Enterprises, Inc. v. Woods (2001) 94 Cal.App.4th 1217, 1238 [Third App. Dist. stated that a comaker of a note

2014(E.g., Paykar Construction, Inc. v. Spilat Construction Corp. (2001) 92 Cal.App.4th 488, 496 [Second App. Dist.]; Bank of America v. Graves (1996) 51 Cal.App.4th 607, 614 [Fourth App. Dist.]; First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, 1668 [Sixth App. Dist.]; see also National Enterprises, Inc. v. 12 The dissent’s position that Bank complied with the security first principle is contrary to the Supreme Court’s interpretation of how section 726 applies to debt secured by multiple parcels.

2014(E.g., Paykar Construction, Inc. v. Spilat Construction Corp. 12 The dissent’s position that Bank complied with the security first principle is contrary to the Supreme Court’s interpretation of how section 726 applies to debt secured by multiple parcels. (2001) 92 Cal.App.4th 488, 496 [Second App. Dist.]; Bank of America v. Graves (1996) 51 Cal.App.4th 607, 614 [Fourth App. Dist.]; First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, 1668 [Sixth App. Dist.]; see also National Enterprises, Inc. v. Woods (2001) 94 Cal.App.4th 1217, 1238 [Third App. Dist. stated that a comaker of a note

2014Woods (2001) 94 Cal.App.4th 1217, 1238 [Third App. Dist. stated that a comaker of a note is entitled to protection of the one form of action rule, but did not mention the consent requirement]; 4 Witkin, Summary of Cal. Law, supra, § 135, p. 934 [summarizing Schwenke].) Lastly, Bank suggests the absence of cases involving loans with multiple debtors secured by more than one parcel of real property demonstrates the reasoning in Schwenke is unreliable.

2014(See In re S.B. (2004) 32 Cal.4th 1287, 1293, fn. 2 [accurate definition of waiver is an ‘““intentional relinquishment or abandonment of a known right””’].) Instead, section 726(b)’s use of “waived” includes the forfeiture or loss of any right to a deficiency that results by operation of law when a creditor, regardless of its actual intent, acts in a way that violates the security first principle.

2014(See In re S.B. (2004) 32 Cal.4th 1287, 1293, fn. 2 [accurate definition of waiver is an ‘““intentional relinquishment or abandonment of a known right””’].) Instead, section 726(b)’s use of “waived” includes the forfeiture or loss of any right to a deficiency that results by operation of law when a creditor, regardless of its actual intent, acts in a way that violates the security first principle.

2014(E.g., Paykar Construction, Inc. v. Spilat Construction Corp. 12 The dissent’s position that Bank complied with the security first principle is contrary to the Supreme Court’s interpretation of how section 726 applies to debt secured by multiple parcels. (2001) 92 Cal.App.4th 488, 496 [Second App. Dist.]; Bank of America v. Graves (1996) 51 Cal.App.4th 607, 614 [Fourth App. Dist.]; First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, 1668 [Sixth App. Dist.]; see also National Enterprises, Inc. v. Woods (2001) 94 Cal.App.4th 1217, 1238 [Third App. Dist. stated that a comaker of a note

2014(E.g., Paykar Construction, Inc. v. Spilat Construction Corp. (2001) 92 Cal.App.4th 488, 496 [Second App. Dist.]; Bank of America v. Graves (1996) 51 Cal.App.4th 607, 614 [Fourth App. Dist.]; First Nationwide Savings v. Perry (1992) 11 Cal.App.4th 1657, 1668 [Sixth App. Dist.]; see also National Enterprises, Inc. v. 12 The dissent’s position that Bank complied with the security first principle is contrary to the Supreme Court’s interpretation of how section 726 applies to debt secured by multiple parcels.

2016(Scalese v. Wong, supra, at p. 870 [debtors “did not assert section 726 as a defense to the complaint” or “demand that the security be exhausted”].) Roth does not offer any authority for the proposition that section 726 cannot serve as a complete defense where, as here, the lender’s entire complaint is barred by the security first rule, and our own research has uncovered none.

2013Only after the amicus brief attributed this argument to Chase Bank did Chase Bank explain its position in reply. 14 law in California and warrants no extended discussion." (Security Pacific National Bank v. Wozab (1990) 51 Cal.3d 991, 999 .) Relying on Scalese v. Wong (2000) 84 Cal.App.4th 863 (Scalese), Chase Bank asserts Coker was required to invoke the security first rule of section 726 and had to insist that Chase Bank foreclose on her home before the protections of section 580b applied.

1990Bank of Corona v. Coplen (1919) 39 Cal. App. 619, 620 [ 179 P. 708 ]; Woodruff v. California Republic Bank (1977) 75 Cal. App.3d 108, 110 [ 141 Cal. Rptr. 915 ]; Bank of America v. Daily, supra, 152 Cal. App.3d 767, 771 .) The bank contends we should overrule McKean, supra, 118 Cal. 334 , and its progeny.

1987A beneficiary seeking relief must go after the security before it looks to the trustor.” (Cal. Mortgage and Deed of Trust Practice, supra, One-Action and Antideficiency Rules, § 4.4, p. 141.) But “[notwithstanding this apparently clear and unambiguous language, California courts have interpreted this provision as giving the secured creditor entitled to a deficiency judgment an election of remedies.” (Bank of America v. Daily (1984) 152 Cal.App.3d 767, 770 [ 199 Cal.Rptr. 557 ].) Thus the California Supreme Court has held that “since under section 726 ‘[t]here can be but one form of action for

2025(Security Pacific, supra, 51 Cal.3d at p. 999 [security-first rule prohibits “a bank’s extrajudicial appropriation of the debtor’s assets before foreclosure”], second italics added.) By its own terms, Code of Civil Procedure section 726 requires instituting a civil foreclosure action for recovering the amount named in a deed of trust or mortgage rather than liquidating “those assets to pay restitution to victims.” (People v. Shah, supra, 96 Cal.App.5th at p. 887; Code Civ.

2025(Dakota Payphone, LLC v. Alcaraz (2011) 192 Cal.App.4th 493, 501 [“A judgment entered nunc pro tunc gives effect to the ruling retroactively from the date cited in the nunc pro tunc order”].) But we express no opinion as to whether such an order was properly entered, as that issue is not before us. 3 Implementing the security-first rule requires the creditor to “elect his course.” (O’Neil, supra, 4 Cal.App.4th at p. 603 .) “In a judicial foreclosure, if the property is sold for less than the amount of the outstanding indebtedness, 11 at pp. 603, 597.) That statute is intended “to prevent multi

2025(Id., subd. (h)(2), italics added; Kirkpatrick v. Westamerica Bank, supra, 65 Cal.App.4th at p. 989 [the security-first rule is an election of remedies doctrine].) Here, the prior lenders issued a notice of default in September 2019 and claimed an outstanding balance of past due loan payments as well as the full loan principal amount before transferring their security interest in the property to Selene.

2025(Security Pacific, supra, 51 Cal.3d at p. 999 .) An offset “is analogous to an action against property of the debtor . . . which has resulted in [the property’s] seizure and transfer” to the creditor’s possession. 9 (Kirkpatrick v. Westamerica Bank (1998) 65 Cal.App.4th 982, 989 , italics omitted.) Security Pacific explained that, because the security-first rule prohibits “a bank from bringing a judicial action before foreclosing the security, the rule must equally prohibit a bank’s extrajudicial appropriation of the debtor’s assets before foreclosure.” (Security Pacific, at p. 999, italics om

2016(See Hartman v. Smith (1963) 219 Cal.App.2d 415, 417 [applying section 726 as a complete defense in secured creditor’s action to enforce assumption agreement].) Indeed, Roth’s own lawyer, Garner, acknowledged as much at the hearing on the motion for summary judgment.

1995(See Passanisi v. Merit-McBride Realtors, Inc. (1987) 190 Cal.App.3d 1496, 1506-1507 [ 236 Cal.Rptr. 59 ].) The trial court correctly granted summary judgment on this cause of action. m Expungement of Lis Pendens Under section 405.32, the court shall order that a notice of lis pendens “be expunged if the court finds that the claimant has not established by a preponderance of the evidence the probable validity of the real property *332 claim.” The only portion of this case which affected the title to real property was borrower’s claim that lender had waived its right to foreclose by violating t

1995(See Passanisi v. Merit-McBride Realtors, Inc. (1987) 190 Cal.App.3d 1496, 1506-1507 [ 236 Cal.Rptr. 59 ].) The trial court correctly granted summary judgment on this cause of action. m Expungement of Lis Pendens Under section 405.32, the court shall order that a notice of lis pendens “be expunged if the court finds that the claimant has not established by a preponderance of the evidence the probable validity of the real property *332 claim.” The only portion of this case which affected the title to real property was borrower’s claim that lender had waived its right to foreclose by violating t

1990Bank of Corona v. Coplen (1919) 39 Cal. App. 619, 620 [ 179 P. 708 ]; Woodruff v. California Republic Bank (1977) 75 Cal. App.3d 108, 110 [ 141 Cal. Rptr. 915 ]; Bank of America v. Daily, supra, 152 Cal. App.3d 767, 771 .) The bank contends we should overrule McKean, supra, 118 Cal. 334 , and its progeny.

1990Bank of Corona v. Coplen (1919) 39 Cal. App. 619, 620 [ 179 P. 708 ]; Woodruff v. California Republic Bank (1977) 75 Cal. App.3d 108, 110 [ 141 Cal. Rptr. 915 ]; Bank of America v. Daily, supra, 152 Cal. App.3d 767, 771 .) The bank contends we should overrule McKean, supra, 118 Cal. 334 , and its progeny.

1990It reasoned that, because the security-first rule prohibited a bank from bringing a judicial action before foreclosing the security, the rule must equally prohibit a bank's extrajudicial appropriation of the debtor's assets before foreclosure. ( Id., at pp. 340-341.) Subsequent decisions without exception have followed McKean in construing bank setoffs to be subject to section 726. ( Gnarini v. Swiss American Bank (1912) 162 Cal. 181, 184 [ 121 P. 726 ]; First Nat.

1990It reasoned that, because the security-first rule prohibited a bank from bringing a judicial action before foreclosing the security, the rule must equally prohibit a bank's extrajudicial appropriation of the debtor's assets before foreclosure. ( Id., at pp. 340-341.) Subsequent decisions without exception have followed McKean in construing bank setoffs to be subject to section 726. ( Gnarini v. Swiss American Bank (1912) 162 Cal. 181, 184 [ 121 P. 726 ]; First Nat.

1990Bank of Corona v. Coplen (1919) 39 Cal. App. 619, 620 [ 179 P. 708 ]; Woodruff v. California Republic Bank (1977) 75 Cal. App.3d 108, 110 [ 141 Cal. Rptr. 915 ]; Bank of America v. Daily, supra, 152 Cal. App.3d 767, 771 .) The bank contends we should overrule McKean, supra, 118 Cal. 334 , and its progeny.

1990Bank of Corona v. Coplen (1919) 39 Cal. App. 619, 620 [ 179 P. 708 ]; Woodruff v. California Republic Bank (1977) 75 Cal. App.3d 108, 110 [ 141 Cal. Rptr. 915 ]; Bank of America v. Daily, supra, 152 Cal. App.3d 767, 771 .) The bank contends we should overrule McKean, supra, 118 Cal. 334 , and its progeny.