By | Shafeek Seddiq
No doubt, COVID-19 has hit every sector of our economy, including real estate. Economists predict a recession is more likely to happen resulting in widespread unemployment and loss of national income. Some economists predict the economic impact on the real estate market, particularly in Virginia, will not be as severe as the 2008 recession for a variety of reasons, including stricter lending regulations and low interest rates. This unique situation has given rise to both challenges and opportunities.
But for those who have lost their jobs or businesses, it is hard to predict how they will be able to save their homes from foreclosure if we are unable to reopen the economy soon. For now, we can take guidance from the opinions of the Virginia Supreme Court to prepare for saving our homes from foreclosure.
On April 2, 2020, the Supreme Court of Virginia in Young-Allen v. Bank of America may have made it easier for lenders to foreclose, but have also provided a hint to homeowners to prove that you can cure the default and the foreclosure sale may be rescinded. Otherwise, you are out of luck.
Foreclosure and Trial Court
Tamara Young-Allen borrowed money from Bank of America and secured that loan with a deed of trust to the property, stating that in the event the borrower defaults on the mortgage, the bank through a trustee has the right to sell.
Unfortunately, a time came when Young-Allen was not able to pay the mortgage and so she defaulted. Bank of America asked its trustee, Equity Trustees, LLC (“Equity”), to start foreclosure proceedings. Equity sent a notice of foreclosure to Young-Allen informing her when the sale will take place. A day after the notice, she emailed Bank of America requesting “reinstatement of Loan quote” or “reinstatement figures” pursuant to the terms of the deed.
Bank of America did not respond to her email. Meanwhile, Young-Allen advised Equity (the trustee) to cancel or postpone the scheduled foreclosure sale because Bank of America breached the terms of the deed. That is Bank of America did not provide “reinstatement figures” and “time for her to cure the default.” Equity also did not comply with this advice and request.
Young-Allen filed a complaint against Bank of America and Equity. She also filed lis pendens — a notice that litigation is pending on this property. In her complaint she alleged that:
- Bank of America breached the terms of the deed of trust by failing to provide the requested reinstatement figure (to pay an amount that will bring you current on the loan) or notice to cure the default; and
- Equity breached its fiduciary duty by not canceling or postponing the scheduled foreclosure sale.
She asked the court to declare that Bank of America and Equity did not have the authority to conduct foreclosure sale, and rescind any foreclosure sale that might happen during the pending litigation.
Meanwhile, Equity sold the house to an investment company despite the pending litigation.
Bank of America filed a demurrer (failure to state a cause of action) arguing that Young-Allen failed to allege injury or damage as a result of the alleged breach of the deed of trust. In other words, even if Bank of America did not provide the figures she requested, so what? How did Bank of America not providing the information she requested harm her or injure her? The court agreed with Bank of America and asked Young-Allen to amend the complaint.
Young-Allen filed the amended complaint and this time she asked the court for:
- Equitable rescission (as a remedy to undue the sale of the property to the investment company) of the foreclosure sale because Bank of America breached the terms of the deed of trust, and its failure to satisfy conditions precedent to foreclosure; and
- Again, claimed that Equity breached its fiduciary duty.
Bank of America and Equity demurred, stating that Young-Allen failed again to state a valid claim for equitable rescission, and Equity argued that she failed to allege sufficient facts to support how the fiduciary duty was breached when it conducted the foreclosure sale. The court agreed again with Bank of America and dismissed the case with prejudice. Young-Allen appealed to the Supreme Court of Virginia.
The Supreme Court’s Reasoning
The Supreme Court agreed with the Circuit Court and affirmed its decision. The court said to Young-Allen that her case is based on contract law. And to rescind — a remedy, or undue — the sale of her home, she must make a claim of breach of that contract accordingly.
The Supreme Court outlined the “elements of a breach of contract action are (1) a legally enforceable obligation of a defendant to a plaintiff; (2) the defendant’s violation or breach of that obligation; and (3) injury or damage to the plaintiff caused by the breach of obligation. Thus, the present claim requesting the remedy of equitable rescission presupposes a breach of contract that has caused the plaintiff some form of harm.”
The Court reasoned that Young-Allen failed to allege the third element of the breach of contract. The third element requires the non-breaching party, Young-Allen, to show that she suffered harm because the breaching party, Bank of America, did not provide her the notice to cure default as required by the Deed of Trust. If the bank had given her a notice, she might not have sustained the injury. In this case, the harm, the Court said, was her ability to show that she could cure the default. And because Young-Allen did not allege anywhere that she had the ability to cure the default, Bank of America’s failure to give her notice did not cause her harm. Furthermore, the court said even if Bank of America provided the notice, it would not have made any difference because Young-Allen did not allege that she can cure that default. In a footnote the court explained:
We note that the complaint also failed to allege that Young-
Allen could avoid another foreclosure sale if she obtained the
remedy of rescission. Therefore, the remedy requested by
Young-Allen may has ultimately been futile.
Takeaway for Homeowners
The uncertainty containing Corona-virus has paralyzed the economy and our ability to make mortgage payments. The Young-Allen decision can guide us how to plan in the event we are faced with a foreclosure notice or post-foreclosure fight. Because this case deals with the most difficult remedy of equitable rescission, the burden to prove the three elements is higher. The idea is to take every step of the foreclosure proceeding seriously and prepare accordingly. That means replying to notice, per-foreclosure notices and post-foreclosure planning. And finally, if the home is foreclosed, make sure to show harm by showing that you can pay the amount in default.