[authors: Alejandro Moreno and Shannon Petersen]

In Nungaray v. Litton Loan Servicing, LP (2011) 200 Cal.App.4th 1499, the California Court of Appeal held that (i) a Loan Workout Plan is not an enforceable agreement to modify a loan and (ii) a bank does not violate the "one-form-of-action" rule by accepting payments under such a Plan, then proceeding with foreclosure.

The Nungarays refinanced their home in 2006, then later defaulted on their loan. The bank initiated non-judicial foreclosure proceedings. In response, the Nungarays negotiated a Loan Workout Plan pending consideration for a permanent loan modification. The Plan required the Nungarays to make monthly payments from August to November 2009 and also called for the Nungarays to provide certain financial records to the defendants necessary to determine whether the loan should be permanently modified. The Nungarays made the necessary payments but failed to provide the financial information required. The bank denied their request for modification and sold the property following foreclosure.

The Nungarays then filed suit arguing that the Plan was an enforceable loan modification and that the defendants violated the "one-form-of-action." The trial court granted summary judgment in favor of the defendants and the Nungarays appealed.

The Court of Appeal rejected the Nungarays' arguments. The Court found that that there was no enforceable agreement to modify the loan because the Plan expressly stated that it was "not a modification" and that a modification would not be granted unless the Nungarays met all conditions required, which they failed to do. Equitable estoppel did not apply because the Nungarays were not led to believe that a permanent modification would be forthcoming. The Court also rejected the Nungarays "one-form-of-action" argument, holding that banks can negotiate and receive payments pursuant to loan workout plans without forfeiting their right to foreclose on the property due to default.