Plaintiff and Cross-Defendant Brian Sarvak’s Demurrer to the second through sixth causes of action of Defendants and Cross-Complainants’ First Amended Cross-Complaint, is overruled.

The One Form of Action Rule does not affect stating a cause of action. When there has been an election of remedies, the One Form of Action Rule will become effective.

Code of Civil Procedure section 726, subdivision (a) provides that “[t]here can be but one form of action for the recovery of any debt or the enforcement of any right secured by mortgage upon real property ….” (Nat’l Enterprises, Inc. v. Woods (2001) 94 Cal.App.4th 1217, 1232 [footnote omitted].)  “The purpose of the rule is to limit a secured creditor to a single suit to enforce its security interest and collect its debt and to compel the exhaustion of all security before a monetary deficiency judgment may be obtained against the debtor.”  (Id. at p. 1221.)  “Pursuant to this statutory scheme, there is only ‘one form of action’ for the recovery of any debt or the enforcement of any right secured by a mortgage or deed of trust. That action is foreclosure, which may be either judicial or nonjudicial.” (Alliance Mortg. Co. v. Rothwell (1995) 10 Cal.4th 1226, 1236.)

Sustaining a demurrer is not a remedy for violating the One Form of Action Rule. “Section 726 does not prescribe a sanction for violation of the one form of action rule.  Rather, the courts have fashioned common law remedies to advance its purposes. . . . Three such purposes have been identified: (1) prevention of a multiplicity of suits, (2) compelling competitive bidding to test the value of all security for the debt, and (3) forcing the creditor to look to the security as the primary fund for payment of the debt before looking to the debtor.” (Kirkpatrick v. Westamerica Bank (1998) 65 Cal.App.4th 982, 986–987.)  “If the conduct of the creditor in prosecuting an action within the meaning Code of Civil Procedure section 22 amounts to an election of a remedy other than foreclosure or if other conduct is analogous to such an election of a remedy, the sanction of loss of security may apply.” (Id. at p. 982.) “When a secured creditor violates section 726(a) by obtaining judgment on the debt before foreclosing the security, he is deemed to have waived the security.” (Sec. Pac. Nat’l Bank v. Wozab (1990) 51 Cal.3d 991, 1001.)

The application of this rule occurs when there has been an election of remedies. “CCP section 726 is susceptible of a dual application – it may be interposed by the debtor as an affirmative defense or it may become operative as a sanction. If the debtor successfully raises the section as an affirmative defense, the creditor will be forced to exhaust the security before he may obtain a money judgment against the debtor for any deficiency. . . . If the debtor does not raise the section as an affirmative defense, he may still invoke it as a sanction against the creditor on the basis that the latter by not foreclosing on the security in the action brought to enforce the debt, has made an election of remedies and waived the security.” (Walker v. Community Bank (1974) 10 Cal.3d 729, 734.)

The Supreme Court has permitted a cause of action for fraud in addition to a foreclosure action.  “The antideficiency statutes have been broadly interpreted to protect the debtor. It is settled, however, and defendants here concede, that the antideficiency statutes do not preclude an action against a borrower for fraud in the inducement of a loan.” (Alliance Mortg. Co. v. Rothwell, supra, 10 Cal.4th at p. 1237.) “There are several reasons for this exception. First, ‘[a] suit for fraud obviously does not involve an attempt to recover on a debt or note. As such, it stands separate and apart from any action which the antideficiency legislation seeks to preclude.’. . . ‘Furthermore, the antideficiency laws were not intended to immunize wrongdoers from the consequences of their fraudulent acts. Finally, assuming that the court applies a proper measure of damages, fraud suits do not frustrate the antideficiency policies because there should be no double recovery for the beneficiary.’” (Id. at pp. 1237–1238.)

Within 15 days, Plaintiff and Cross-Defendant Brian Sarvak shall file an answer to the First Amended Cross-Complaint and serve it pursuant to the Code of Civil Procedure.

Cross-Complainants shall give notice of the ruling.