(a) Notwithstanding any other provision of law, a secured lender may bring an action for breach of contract against a borrower for breach of any environmental provision made by the borrower relating to the real property security, for the recovery of damages, and for the enforcement of the environmental provision, and that action or failure to foreclose first against collateral shall not constitute an action within the meaning of subdivision (a) of Section 726, or constitute a money judgment for a deficiency or a deficiency judgment within the meaning of Section 580a, 580b, or 580d, or subdivision (b) of Section 726. No injunction for the enforcement of an environmental provision may be issued after (1) the obligation secured by the real property security has been fully satisfied, or (2) all of the borrower's rights, title, and interest in and to the real property security has been transferred in a bona fide transaction to an unaffiliated third party for fair value.
§ 736.Action By Secured Lender For Breach of Environmental Provision By Borrower
Title 10. Actions In Particular Cases · Chapter 2. Actions for Nuisance, Waste, and Willful Trespass, in Certain Cases, on Real Property · Last amended 2014 · Last verified July 28, 2026
In one sentenceSection 736 lets a secured lender sue a borrower for breach of an environmental provision in the loan documents without that suit counting as an election under § 726 or a deficiency judgment, but caps recoverable damages to cleanup costs, agency-ordered expenditures, third-party indemnification, and attorney's fees, subject to dollar and knowledge-based exceptions.
Full Text of § 736
(b) The damages a secured lender may recover pursuant to subdivision (a) shall be limited to reimbursement or indemnification of the following:
(1) If not pursuant to an order of any federal, state, or local governmental agency relating to the cleanup, remediation, or other response action required by applicable law, those costs relating to a reasonable and good faith cleanup, remediation, or other response action concerning a release or threatened release of hazardous substances which is anticipated by the environmental provision.
(2) If pursuant to an order of any federal, state, or local governmental agency relating to the cleanup, remediation, or other response action required by applicable law which is anticipated by the environmental provision, all amounts reasonably advanced in good faith by the secured lender in connection therewith, provided that the secured lender negotiated, or attempted to negotiate, in good faith to minimize the amounts it was required to advance under the order.
(3) Indemnification against all liabilities of the secured lender to any third party relating to the breach and not arising from acts, omissions, or other conduct which occur after the borrower is no longer an owner or operator of the real property security, and provided the secured lender is not responsible for the environmentally impaired condition of the real property security in accordance with the standards set forth in subdivision (d) of Section 726.5. For purposes of this paragraph, the term "owner or operator" means those persons described in Section 101(20)(A) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Sec.9601, et seq.).
(4) Attorneys' fees and costs incurred by the secured lender relating to the breach. The damages a secured lender may recover pursuant to subdivision (a) shall not include (i) any part of the principal amount or accrued interest of the secured obligation, except for any amounts advanced by the secured lender to cure or mitigate the breach of the environmental provision that are added to the principal amount, and contractual interest thereon, or (ii) amounts which relate to a release which was knowingly permitted, caused, or contributed to by the secured lender or any affiliate or agent of the secured lender.
(c) A secured lender may not recover damages against a borrower pursuant to subdivision (a) for amounts advanced or obligations incurred for the cleanup or other remediation of real property security, and related attorneys' fees and costs, if all of the following are true:
(1) The original principal amount of, or commitment for, the loan or other obligation secured by the real property security did not exceed two hundred thousand dollars ($200,000).
(2) In conjunction with the secured lender's acceptance of the environmental provision, the secured lender agreed in writing to accept the real property security on the basis of a completed environmental site assessment and other relevant information from the borrower.
(3) The borrower did not permit, cause, or contribute to the release or threatened release.
(4) The deed of trust or mortgage covering the real property security has not been discharged, reconveyed, or foreclosed upon.
(d) This section is not intended to establish, abrogate, modify, limit, or otherwise affect any cause of action other than that provided by subdivision (a) that a secured lender may have against a borrower under an environmental provision.
(e) This section shall apply only to environmental provisions contracted in conjunction with loans, extensions of credit, guaranties, or other obligations made, renewed, or modified on or after January 1, 1992. Notwithstanding the foregoing, this section shall not be construed to validate, invalidate, or otherwise affect in any manner the rights and obligations of the parties to, or the enforcement of, environmental provisions contracted before January 1, 1992.
(f) For purposes of this section:
(1) "Borrower" means the trustor under a deed of trust, or a mortgagor under a mortgage, where the deed of trust or mortgage encumbers real property security and secures the performance of the trustor or mortgagor under a loan, extension of credit, guaranty, or other obligation. The term includes any successor-in-interest of the trustor or mortgagor to the real property security before the deed of trust or mortgage has been discharged, reconveyed, or foreclosed upon.
(2) "Environmental provision" means any written representation, warranty, indemnity, promise, or covenant relating to the existence, location, nature, use, generation, manufacture, storage, disposal, handling, or past, present, or future release or threatened release, of any hazardous substance into, onto, beneath, or from the real property security, or to past, present, or future compliance with any law relating thereto, made by a borrower in conjunction with the making, renewal, or modification of a loan, extension of credit, guaranty, or other obligation involving the borrower, whether or not the representation, warranty, indemnity, promise, or covenant is or was contained in or secured by the deed of trust or mortgage, and whether or not the deed of trust or mortgage has been discharged, reconveyed, or foreclosed upon.
(3) "Hazardous substance" means any of the following:
(A) Any "hazardous substance" as defined in subdivision (h) of Section 25281 of the Health and Safety Code.
(B) Any "waste" as defined in subdivision (d) of Section 13050 of the Water Code.
(C) Petroleum, including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel, or any mixture thereof.
(4) "Real property security" means any real property and improvements, other than a separate interest and any related interest in the common area of a residential common interest development, as the terms "separate interest," "common area," and "common interest development" are defined in Sections 4095, 4100, and 4185 of the Civil Code, or real property which contains only 1 to 15 dwelling units, which in either case (A) is solely used (i) for residential purposes, or (ii) if reasonably contemplated by the parties to the deed of trust or mortgage, for residential purposes as well as limited agricultural or commercial purposes incidental thereto, and (B) is the subject of an issued certificate of occupancy unless the dwelling is to be owned and occupied by the borrower.
(5) "Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the environment, including continuing migration, of hazardous substances into, onto, or through soil, surface water, or groundwater. The term does not include actions directly relating to the incorporation in a lawful manner of building materials into a permanent improvement to the real property security.
(6) "Secured lender" means the beneficiary under a deed of trust against the real property security, or the mortgagee under a mortgage against the real property security, and any successor-in-interest of the beneficiary or mortgagee to the deed of trust or mortgage.
Plain-English Summary
Environmental promises in loan documents don't fit neatly into the one-action rule, and § 736 says they don't have to. A secured lender can sue a borrower for breach of contract over any environmental provision relating to the real property security, seeking damages and enforcement of the provision, without that action — or a decision to skip foreclosing on other collateral first — counting as the one action under § 726(a) or as a deficiency judgment under §§ 580a, 580b, 580d, or § 726(b). An injunction to enforce the provision, though, can't issue once the secured debt is fully paid or the property has been transferred in good faith to an unaffiliated third party.
Subdivision (b) limits what the lender can recover to specific categories: reasonable cleanup costs not already covered by a government cleanup order, amounts advanced under such an order if the lender negotiated in good faith to minimize them, indemnification for third-party liabilities tied to the breach (excluding conduct after the borrower stops owning or operating the property), and attorney's fees and costs tied to the breach. What the lender can't recover is any part of the loan's principal or accrued interest, except amounts advanced to cure the breach and added to principal, or amounts relating to a release the lender itself knowingly caused.
Subdivision (c) blocks recovery entirely for small loans — those originally $200,000 or less — where the lender agreed in writing to accept the property based on a completed environmental assessment, the borrower didn't cause the contamination, and the deed of trust or mortgage hasn't yet been discharged, reconveyed, or foreclosed upon. The remaining subdivisions define terms and limit the section to environmental provisions made in connection with loans from January 1, 1992 onward.
Frequently Asked Questions
Can a lender sue a borrower for breaching environmental promises without triggering the one-action rule?
What damages can the lender recover in this action?
Reasonable cleanup costs, government-ordered remediation expenses reasonably negotiated, indemnification for related third-party liabilities, and attorney's fees — but not loan principal or accrued interest, with limited exceptions.
Is there a size threshold below which this remedy doesn't apply?
Yes. Section 736(c) bars recovery when the original loan amount was $200,000 or less, the lender agreed in writing to accept the property based on a completed environmental assessment, the borrower didn't cause the contamination, and the security hasn't been discharged, reconveyed, or foreclosed upon.
When can an injunction to enforce an environmental provision no longer be sought?
Once the secured obligation is fully satisfied, or once the property has been transferred in a bona fide transaction to an unaffiliated third party for fair value.
Amendment History
Amended by Stats 2012 ch 181 (AB 806),s 47, eff. 1/1/2013, op. 1/1/2014. Amended by Stats 2002 ch 999 (AB 2481),s 5, eff. 1/1/2003. Previously Amended July 6, 1999 (Bill Number: SB 328) (Chapter 60).
Source & verification. Section text is reproduced verbatim from
the Deering's California Codes Annotated / vLex. Enacted by the California Legislature.
Last verified July 28, 2026.
· Official source
Also known as: environmental provision breach lender lawsuit californiasecured lender environmental cleanup damages