Loan Workout Plans and the One Action Rule

This case comes from that “other” sunshine state, California. There the bank loaned money to the borrowers and took a deed of trust on real property as collateral. After a default, the bank subsequently initiated nonjudicial foreclosure proceedings. While these proceedings were pending, the borrowers and the bank negotiated a modification to the existing obligations. This document was entitled “Loan Workout Plan (Step One of Two-Step Documentation Process)” (the “Plan”) and signed by the borrowers, but, not the bank.

The borrowers then defaulted under the covenants of the Plan and the bank resumed the nonjudicial foreclosure proceedings. The borrower then sued for breach of contract, and the bank countered stating there was no contract. Since the contract was not signed by the bank, the court examined part performance as a viable mechanism. However, the contract itself states that there will be no modification unless the borrowers meet all of the conditions imposed. Furthermore, the court found that partial payments during a plan or trial period did not foreclose the bank from pursuing its nonjudicial proceedings as a violation of the one action rule.