Winter 2012 • Issue 42, page 17

Violation of the One Form of Action Rule

By Davidson, Peter*

Q:Someone warned me that I had to be careful in getting a receiver appointed to collect rents because the appointment might violate the “one form of action rule.” What is that and do I need to worry?

A: The “one form of action rule” is embodied in California Code of Civil Procedure § 726 which states, in summary, that there can be but one form of action for the recovery of any debt or the enforcement of any rights secured by a mortgage on real property. If someone violates the one form of action rule, they can lose their right to their security interest in the real property. While the one form of action rule was an issue during the last foreclosure crises in the late 1990s, it is no longer a problem, at least with regard to having a receiver appointed. In order to resolve any lingering issues about the applicability of the one form of action rule when a receiver is appointed to collect rents under a deed of trust (among other reasons), the legislature adopted a new California Civil Code § 2938 in 1997 which, among other things, provides that a written assignment of an interest in leases, rents, issues or profits of real property made in connection with an obligation secured by real property, irrespective of whether the assignment is called an absolute assignment, absolute conditional upon default, additional security, or otherwise, is effective to create a present security interest in existing and future leases, rents, issues or profits of that real property. If there is a default by the assignor under the obligation secured by the leases, rents, issues or profits, the assignee (secured party) can do a number of things to collect, including seeking the appointment of a receiver. The statute goes on to provide that an enforcement action, including having a receiver appointed, will not constitute a violation of §726 (the one form of action rule). Cal. Civ. Code § 2938 (e)(2). Therefore, you need not be worried. An application to have a receiver appointed to enforce the terms of a deed of trust or other agreement related to a real property, or the receiver’s appointment, will not constitute a violation of the one form of action rule.

*Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP a Beverly Hills Law Firm. His practice includes representing Receivers and acting as a Receiver in State and Federal Court.