Setoff Against Unsecured Deficiency of Debt Owed by Creditor Contravenes Policy Underlying Antideficiency Laws

Setoff Against Unsecured Deficiency of Debt Owed by Creditor Contravenes Policy Underlying Antideficiency Laws: "Section 726 of the California Code of Civil Procedure embodies the 'one form of action' rule. In pertinent part, section 726(a) provides:

There 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 or an estate for years therein, which action shall be in accordance with the provisions of this chapter.

Section 22 of the Code of Civil Procedure defines 'action' as follows: 'An action is an ordinary proceeding in a court of justice by which one party prosecutes another for the declaration, enforcement, or protection of a right, the redress or prevention of a wrong, or the punishment of a public offense.'

The court recognized that a nonjudicial foreclosure is not an 'action' within the meaning of sections 22 or 726; hence, a nonjudicial foreclosure does not violate the one form of action rule embodied in section 726. Nevertheless, the court found that the setoff contravened the 'economic policy considerations' underlying the antideficiency statutes.

The court looked to the policy considerations underlying section 580b of the Code of Civil Procedure. Section 580b precludes a deficiency judgment after foreclosure, judicial or nonjudicial, under a purchase money deed of trust given to the sell"