In a published opinion that should be advantageous to foreclosing parties, the Supreme Court of Virginia found that if a borrower cannot plead that he or she could have cured a mortgage loan default, then a foreclosure sale is “inevitable” and alleged defects in a notice of default cannot support a claim for rescission of the foreclosure sale.
In Young-Allen v. Bank of America, there was no dispute that borrower Tamara E. Young-Allen was in default under the payment terms of her promissory note and deed of trust. A non-judicial foreclosure sale was scheduled for February 2, 2018. On February 1, 2018 – the day before the sale – Young-Allen filed a complaint and recorded a lis pendens in the local land records. The complaint alleged a breach of contract claim against the lender for failing to give the required notice of default letter (also known as a “pre-acceleration letter” or “cure notice”) and failing to provide a reinstatement quote upon request. Claims also were alleged against the foreclosing trustee for declining to cancel the foreclosure sale after being informed of Young-Allen’s allegations against the lender. Young-Allen sought, among other relief, an equitable rescission of the foreclosure sale.
Despite Young-Allen’s court filings, the foreclosure sale went forward as scheduled. The property was sold at public auction to a third-party buyer. After the sale, the lender and trustee each responded to Young-Allen’s complaint, and a subsequent amended complaint, by moving to dismiss the lawsuit for failure to state a claim. The trial court dismissed the borrower’s lawsuit with prejudice.
After the trial court dismissed the lawsuit, Young-Allen appealed. The Supreme Court of Virginia agreed that Young-Allen’s amended complaint did not allege any injury caused by the lender – an essential element of any breach of contract claim.
What was missing, the Court explained, was some allegation that the borrower could have cured the loan default, but for alleged acts and omissions of the lender. Without that allegation, any alleged failure to give the borrower notice and opportunity to cure the default was immaterial and did not cause the borrower to sustain any injury or damages arising from foreclosure. In other words, if the borrower did not have the funds to cure the default anyway, then it did not really matter whether the lender perfectly gave the notice or not – the outcome would have been the same either way.
The dismissal of the claims against the foreclosing trustee also were affirmed on appeal. Like the claim against the lender, because Young-Allen never told the trustee that she could cure the default, “the foreclosure appeared to be inevitable.” As such, the trustee did not breach a duty of impartiality by declining to cancel the sale.
Young-Allen is remarkably similar to a recent decision by the United States Court of Appeals for the Fifth Circuit, construing Texas law. In both cases, the appellate courts recognized that only material breaches of a mortgage or deed of trust might warrant setting aside an otherwise valid foreclosure – technical, but ultimately inconsequential breaches are not enough. Further, both courts agree that if a borrower has no ability to cure the default in the first place, he or she cannot plausibly show that a defective notice of default affected his or her rights in any meaningful way.
In Young-Allen, the Supreme Court of Virginia resolved a legal question that had been debated since the Great Recession of 2008-2009—may a borrower maintain a lawsuit to set aside a sale without alleging that he or she can cure the default if the sale ultimately was set aside? While Virginia federal court decisions suggested that the borrower must plead more than a breach of a condition precedent, the Supreme Court of Virginia had not spoken. As a result, an allegation of a breach of contract often was sufficient to allow a case to go through costly discovery, which might ultimately have confirmed that the borrower had no means to cure the default even if a second foreclosure had been done in strict compliance of all of the applicable terms of the mortgage and applicable law. Young-Allen presents a strong argument that lenders can use to oppose technical – yet ultimately immaterial – challenges to foreclosure.