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Rescission is available remedy to wrongful foreclosure claim.

Byline: Virginia Lawyers Weekly

Where the Virginia Housing Development Authority bought plaintiff's home at a foreclosure sale, he has stated a rescission claim by alleging the VHDA knew or should have known of an alleged deed of trust violation when it bought the home.

Background

The VHDA held the loan on plaintiff Kingsley Azubuike Ononuju's home. Ononuju told the VHDA he would be unable to make his mortgage payments. He missed three consecutive payments, then was jailed on an unrelated matter in March 2018.

On May 2, 2018, Evans & Bryant PLC, hired by the VHDA, informed Ononuju that his mortgage balance had been accelerated based on his default and that the VHDA sought a foreclosure sale. The letter stated that Ononuju could avoid foreclosure by reinstating the loan and advised him to inquire about the amount and payment instructions.

On May 18, Evans informed Ononuju that it had been appointed substitute trustee on the deed of trust securing the promissory note, and that the VHDA had bought his home at a foreclosure sale.

After an unlawful detainer hearing, a district court awarded the VHDA possession. The circuit court denied Ononuju's appeal.

Ononuju's complaint in this court sought damages for breaches of contract and fiduciary duties arising from the "emotional trauma associated with the outcome of the unlawful detainer hearing," which Ononuju says caused him to misplace personal property at the courthouse. He also claimed the allegedly wrongful foreclosure sale cost him $37,000 in equity. He sought $1,000 in damages for the "misleading" May 2 letter, which he claimed violated the Fair Debt Collection Practices Act. He also sought rescission.

The VHDA and Evans demurred. The court held a hearing and now rules on the demurrer.

Contractandfiduciaryclaims

The deed of trust incorporates Housing and Urban Development regulations. The VHDA admits that it did not have a face-to-face meeting with Ononuju "before three full monthly mortgage payments were unpaid as required by 24 CFR 203.604(b)." But the VHDA argues a regulatory exception applies because Ononuju admittedly did not live at the house when the loan was accelerated.

The regulation "does not expressly address the relevant time of non-residency." The court holds that the meeting is not required if the mortgagor is not residing at the property when the face-to-face meeting is required to take place, as opposed to when the loan is accelerated.

Ononuju says he resided in the house when three full payments were not made. As a result, the exception to the meeting requirement does not apply.

Defendants argue that Ononuju's failure to allege that he could have cured his default "is fatal to sufficiently alleging causation. The Court agrees." Without this allegation, he has not shown that VHDA's alleged contractual breach of the deed of trust, by not conducting the face-to-face meeting, caused the damages he claims.

Ononuju claims Evans breached fiduciary duties by foreclosing without ensuring that all conditions precedent, including the face-to-face meeting, were met. When a trustee under a deed of trust acts as a fiduciary for both the creditor and debtor, the trustee owes a duty of impartiality. Ononuju alleges that duty was breached. But, as with the contract claim, there is no allegation that he could have cured the default.

The demurrer as to the claims for breach of contract and fiduciary duties is sustained but leave to amend the complaint is granted.

Further, Ononuju's FDCPA claim does not sufficiently state how the May 2 letter Evans sent to him was misleading. The demurrer is sustained as to this claim but Ononuju can amend his complaint.

Rescission

Defendants claim that rescission is not available because the VHDA was a bona fide purchaser for value. Ononuju argues this is not so because VHDA knew or should have known the conditions precedent to the foreclosure sale had not been met but bought the property anyway.

The court in Parrish v. Fed. Nat'l Mortg. Ass'n, 292 Va. 44 (2016), found that a lender/purchaser with knowledge of a deed of trust violation would not be a bona fide purchaser. "The Court therefore finds for purposes of demurrer that rescission is an available remedy should Ononuju allege sufficient facts to warrant rescission."

Ononuju's claim for rescission based on defendants' alleged "fraud and/or collusion" has not been pleaded with specificity. The demurrer is sustained as to this point but the court grants leave to amend the complaint.

"The Court agrees with Ononuju that a foreclosure sale can be set aside in equity in material breach of the deed of trust."

Mathews v. PHH Mortgage Corp., 283 Va. 723 (2012), is "another case involving a foreclosure sale in non-compliance with the HUD-mandated face-to-face meetings[.]" Mathews held that "a material breach is a failure to do something that is so fundamental to the contract that the failure to perform that obligation defeats an essential purpose of the contract.

"The Mathews court then opined that '[t]he essential purposes of a deed of trust are two-fold: to secure the lender-beneficiary's interest in the parcel it conveys and to protect the borrower from acceleration of the debt and foreclosure on the securing property prior to the fulfillment of the conditions precedent it imposes.'

"Conducting a foreclosure sale without satisfying the required conditions precedent, as specified in the Deed of Trust, therefore is a material breach of the Deed of Trust." Ononuju has adequately stated a claim for rescission on this basis. The demurrer as to this rescission count is overruled.

Ononuju v. Virginia Housing Development Authority, et al. Case No. CL18-7959, Feb. 28, 2019; Norfolk Cir. Ct. (Lannetti). Kingsley Azubuike Ononuju for Plaintiff, Godfrey T. Pinn Jr. for Defendant. VLW 019-8-020, 16 pp.

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Title Annotation:Ononuju v. Virginia Housing Development Authority, Norfolk Circuit Court, Virginia
Publication:Virginia Lawyers Weekly
Date:Mar 8, 2019
Words:953
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