Legal Definitions - one-action rule

The one-action rule is a legal principle, found in some jurisdictions, that governs how a creditor must collect a debt that is secured by real estate. This rule requires that if a loan is backed by real property (like a house or land), the creditor must first take legal action to seize and sell that specific real property collateral (a process typically known as foreclosure) before they can attempt to collect any remaining debt from the debtor's other, unsecured assets, such as bank accounts, personal belongings, or wages.

The purpose of the one-action rule is to protect debtors by ensuring that the primary security for the loan is exhausted before other assets are targeted. It prevents creditors from simultaneously pursuing multiple avenues of collection or from immediately going after a debtor's personal assets when valuable real estate collateral is available.

• Example 1: Home Mortgage Default

  Imagine Sarah takes out a mortgage to buy her home. After a few years, she experiences financial hardship and can no longer make her mortgage payments. The bank, as the creditor, wants to recover the money owed.

  Under the one-action rule, the bank cannot immediately sue Sarah to garnish her wages or seize funds from her savings account. Instead, the bank must first initiate foreclosure proceedings on Sarah's house, which is the real property collateral for the loan. Only after the house has been sold through foreclosure, and if the sale proceeds are insufficient to cover the entire debt, can the bank potentially pursue Sarah for any remaining balance (a "deficiency judgment") from her other assets, depending on local laws.

• Example 2: Commercial Property Loan

  A small business owner, Mark, obtains a loan to expand his operations, using his commercial building as collateral. Due to unforeseen market changes, his business struggles, and he defaults on the loan payments.

  The lender, bound by the one-action rule, cannot immediately attempt to seize Mark's personal car, his business inventory, or his personal bank accounts. The rule dictates that the lender must first foreclose on the commercial building that was pledged as security. If the sale of the building does not cover the full amount of the outstanding debt, the lender may then be able to seek a deficiency judgment against Mark's other assets, but only after the collateralized real property has been addressed.

• Example 3: Land Development Loan

  A property developer, "Green Acres LLC," secures a loan to purchase and develop a parcel of undeveloped land for a new housing project. The land itself serves as the collateral for this development loan. Due to unexpected regulatory delays, the project stalls, and Green Acres LLC defaults on its loan payments.

  The bank that provided the loan cannot immediately go after Green Acres LLC's other corporate assets, such as their office equipment or other unrelated investment properties. The one-action rule requires the bank to first foreclose on the specific parcel of undeveloped land that was pledged as security for the loan. Only after the land has been sold and the proceeds applied to the debt can the bank potentially seek to recover any remaining balance from Green Acres LLC's other assets.