![]() This rule protects the borrower by requiring that the real estate collateral must be used to offset the debt before the lender can pursue recovery via the borrower’s other assets not put up as collateral (the borrower’s “unpledged assets”). Under the one-action rule, a lender would seem to be able to sue the borrower directly without foreclosing, but the court has interpreted the rule to mean that the borrower must pursue the real property collateral (the “security”) first, before going after any other assets (Walker v. However, it is not always simple to know what does or does not count as an action, which is where the danger to the lender lies. In other words, the lender can only bring one lawsuit to recover one debt. ![]() An “action” is essentially any court proceeding the lender might take in relation to recovering the debt or pursuing damages. Under the California Code of Civil Procedure, a lender cannot bring more than one action to exhaust the security-to recover the debt by taking possession of and selling the collateral (Cal. The law is set out in the California Code of Civil Procedure Section 726. If your creditor cannot account for valuable articles left in your car, you may be entitled to compensation or payment for the value of those lost items.The “One-Action Rule” under California real estate law is actually two rules that work together to protect borrowers from harassment suits by the lender. To reclaim your personal property, you may be required to pay reasonably incurred expenses for inventory and storage of the items. However, the recovery agent may dispose of the personal property after giving you written notice and instructions on how to retrieve your items. Recovery agents are individuals hired to be complete an inventory of the personal property found inside the vehicle. A lender who repossesses the car may be entitled to keep those. These items do not include most improvements you may have made to the car, such as a stereo system or luggage rack. A creditor may not keep or sell any personal property found inside the vehicle, no matter what the creditor decides to do with the auto. Personal property is something you own that does not come with the vehicle and that can be removed from the vehicle, like a backpack, a laptop, or other personal items. If this happens to you, you will have to pay back the lender even after the collateral is no longer in your possession. The lender can sue you in court to obtain a judgment against you, which is called a deficiency judgment. For a mortgage, your collateral is the house and property that you own because of the loan/mortgage.Īfter you sell your collateral to help pay off your loan, any amount you still owe is called a deficiency. If you fail to pay back the loan, the lender has the right to take possession of your collateral, such as your home through mortgage foreclosure or your car through repossession. ![]() Collateral is an asset that can be sold if you are not able to send the lender your loan payments. Collateral can also be property or another asset you offer a lender in exchange for the promise to pay the loan. Once you get a loan, you now have what’s known as “collateral”, which is the home or the car you just bought. Automobile loans and home mortgages are the most common types of loans consumers get from lenders (banks/financial institutions).
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