Those considering retaining a Virginia law firm to help stave off a wrongful foreclosure should keep this useful fact in mind: your lawyer’s job will be a lot easier if you take legal action before the bank forecloses on your property. Seek legal advice when you begin to fall behind on your mortgage or when workout negotiations seem to be faltering. Don’t wait until the trustee enforces the deed of trust and kicks you out of the house before going to an attorney, on the assumption that your smart lawyer will be able to “undo” an unfair foreclosure. In the vast majority of cases, Virginia courts will not set the foreclosure aside.
This reality is aptly illustrated by a recent case out of the United States District Court for the Eastern District of Virginia, Horvath v. Bank of New York, (E.D. Va. Jan. 29, 2010). The plaintiff, John Horvath, found himself unable to keep up with his mortgage payments–an unfortunate predicament all too common these days–and the defendants foreclosed on his house. Mr. Horvath admitted he had fallen behind on his mortgage, but asserted a number of different legal theories revolving around the argument that Bank of New York and other companies with an interest in his mortgage acted improperly and did not adhere to the law when servicing his mortgage, foreclosing on his house, and eventually evicting him. The court shot each argument down, one by one, and dismissed the case for failure to state a legally cognizable claim.
The first count was for a declaratory judgment declaring the foreclosure “void.” The court ruled that declaratory relief would serve “no useful purpose” since the foreclosure sale had already taken place. The court noted that declaratory judgments are reserved for “forward looking actions.”
Next, Mr. Horvath argued that the trustee committed a breach of fiduciary duty when he foreclosed on the property without conducting “reasonable due diligence.” The court was not persuaded by that angle either, pointing out that Virginia law does not recognize a duty of due diligence by a trustee on a deed of trust. The duties of the trustee are limited to those specified in the deed of trust.
The next count was one to “quiet title” on the ground that the defendants had no valid interest in the property. The basis for the allegation was that Mr. Horvath’s original lenders had sold and assigned the promissory notes to other parties, resulting in splitting the deed of trust from the note and rendering the deed of trust unenforceable. The court flatly rejected this argument as wrong under Virginia law. The deed of trust was not affected by the assignment of the note.
Mr. Horvath also argued that the foreclosure violated the Fair Debt Collection Practices Act and that certain defendants committed fraud by misrepresenting their authority to conduct a foreclosure. These theories were also summarily dismissed because the Complaint failed to allege sufficient facts to make the claims plausible under Virginia law.
When wrongful foreclosure is being threatened (such as when, for example, the bank miscalculates the interest due or acts in violation of a forbearance agreement), the time to talk to an attorney is as soon as the threat is made apparent, not after the foreclosure sale has taken place.