Joyce Squire v. Va. Hous. Dev. Auth.

• Decision Date: 17 April 2014
• Docket Number: Record No. 130494.
• Citation: 287 Va. 507,758 S.E.2d 55
• Court: Virginia Supreme Court
• Parties: Joyce SQUIRE, Administrator of the Estate of Kim Squire King, et al. v. VIRGINIA HOUSING DEVELOPMENT AUTHORITY, et al.

287 Va. 507

758 S.E.2d 55

Joyce SQUIRE, Administrator of the Estate of Kim Squire King, et al.

v.VIRGINIA HOUSING DEVELOPMENT AUTHORITY, et al.

Record No. 130494.

Supreme Court of Virginia.

April 17, 2014.

Drew D. Sarrett; Lenard Myers, II (Henry W. McLaughlin; McLaughlin Law; Fortress Proprietas, on brief), for appellants.

Thomas S. Carnes (Roy, Larsen, Carnes & Romm, on brief), for appellee A.J. Potter Investments, LLC.

Godfrey T. Pinn, Jr. (Harrell & Chambliss, on brief), for appellee Virginia Housing Development Authority and Evans & Bryant PLC.

No brief filed by appellee Monarch Bank.

PRESENT: KINSER, C.J., LEMONS, MILLETTE, MIMS, McCLANAHAN, and POWELL, JJ., and KOONTZ, S.J.

Opinion by Justice CLEO E. POWELL.

In this appeal, we must decide whether the trial court properly sustained the defendants' demurrers in a suit filed by Kim Squire King ¹ after the foreclosure sale of her home. We hold that the trial court erred in sustaining the demurrers as to King's claims of breach of contract (deed of trust) against Virginia Housing Development Authority (“VHDA”) and breach of fiduciary duty against Evans & Bryant, PLC (“Evans”) as substitute trustee, for failure to hold a face-to-face meeting prior to foreclosure. The trial court did not, however, err in sustaining demurrers against King's allegation of breach of contract (forbearance agreement) and her requests for declaratory judgment, rescission, and to quiet title.

I. FACTS AND PROCEEDINGS

On August 15, 2002, King purchased property at 513 Fauquier Street in Norfolk, Virginia for $101,500. To purchase the parcel, King executed a promissory note to VHDA in the amount of $86,939. The note was secured by a deed of trust.

In 2008, King lost her full-time job and was forced to work multiple part-time jobs as replacements. A year later, King began to lose hours at her part-time jobs and by March 2010, she had fallen behind in payments due under the note.

King contacted VHDA in June 2010 and arranged for a special forbearance agreement through August 30, 2010, in which it was agreed that King was $4,114.35 in arrears. The agreement deemed these unpaid delinquent payments from March 1 through August 2010 to be “suspended.” In this agreement, VHDA also agreed to reevaluate King's loan in August 2010 “with the expectation the loan will be reinstated by paying the delinquent amount due in full or utilizing other loss mitigation programs to bring the account current.” The agreement placed the responsibility upon King “to contact VHDA when the forbearance ends or if [her] current financial circumstances change[d].” The agreement also provided that “[u]pon the breach of any provision of this agreement, VHDA may terminate this agreement and, at the option of VHDA, institute foreclosure proceedings according to the terms of the note and security instrument without regard to this instrument.”

In September 2010, King contacted VHDA to make a payment and learned that VHDA would be foreclosing upon her home. VHDA appointed Evans as substitute trustee under the deed of trust on November 8, 2010. King then filed for Chapter 13 bankruptcy in November 2010. On February 17, 2011, the bankruptcy court, at King's request, dismissed her petition without prejudice. In February, March and April 2011, King paid her monthly payments to VHDA. In May 2011, King made another payment, which VHDA returned and informed her that her loan was in foreclosure. She was instructed to contact Evans for reinstatement.

On October 24, 2011, an agent of A.J. Potter Investments, LLC (“Potter”), the subsequent buyer of her foreclosed home, came to King's home to inspect it. King informed the agent that the situation was “in litigation.”

Four days later, Evans conducted the foreclosure sale of King's home. Her home, which the city of Norfolk had assessed at $223,000, was purchased by Potter for $115,200.

Following the sale of her home, King filed a complaint against VHDA, Evans, and Potter. She alleged that paragraphs 9 and 18 of her deed of trust required the lender to comply with certain federal regulations to accelerate the debt and foreclose on King's home. She alleged that these regulations prevented VHDA from foreclosing until (a) she was three months in arrears and (b) it had, or made reasonable efforts to arrange, a face-to-face meeting with her. She alleged that VHDA breached the deed of trust by foreclosing before it fulfilled these requirements. Similarly, King alleged that Evans breached its fiduciary duty by foreclosing when neither of the requirements had been met. In addition, King alleged that VHDA breached the terms of the forbearance agreement by not accepting her attempts to repay the delinquent amount and by not implementing another loss mitigation program because “she was not employed on a full-time basis.” King alleged that these breaches resulted in the foreclosure sale of her home and caused her to incur other monetary damages.

King also contended that because VHDA did not comply with the federal requirements, Evans was not authorized to sell the home and therefore the October 28, 2011 sale of the property was not a valid sale. She also sought a declaratory judgment that Potter was not a bona fide purchaser. King sought to rescind the foreclosure sale and quiet title in her favor.

In response to these claims, VHDA, Evans and Potter filed demurrers. In a September 6, 2012 letter opinion, the trial court held that King's pleading demonstrated that she was more than three months in arrears and that the pleadings demonstrated that no litigation was pending at the time of the foreclosure sale. The trial court further held that “the failure to conduct or arrange for the face-to-face meeting, although perhaps a sufficient ground to enjoin a foreclosure sale, for the imposition of a regulatory sanction, or for an award of nominal damages, is not a sufficient ground to award compensatory damages or to set aside a completed foreclosure sale to a stranger to the deed of trust withoutany notice or defect in the sale, especially when the plaintiff has not alleged she was ever ready and able to redeem the property or cure the default before the sale.”

King obtained leave and subsequently filed a second amended complaint in which King added Monarch Bank, Potter's lender, as a defendant. The defendants again filed demurrers. As to King's allegations that VHDA breached the deed of trust and Evans breached its fiduciary duty, the trial court held that King's second amended complaint showed that she was at least five months in arrears and she failed to plead when and how she tendered a lump sum to bring her account current. The trial court granted the demurrer on the breach of contract (forbearance agreement) claim because the court ruled that King failed to plead that she paid the delinquent amount in full in compliance with the agreement or used other mitigation procedures. In response to her claims for equitable relief, the trial court reaffirmed its September 6, 2012, letter opinion. This appeal followed.

II. ANALYSIS

“A trial court's decision sustaining a demurrer presents a question of law which we review de novo.” Harris v. Kreutzer, 271 Va. 188, 196, 624 S.E.2d 24, 28 (2006). It is well established that “[a] demurrer accepts as true all facts properly pled, as well as reasonable inferences from those facts.” Steward v. Holland Family Props., LLC, 284 Va. 282, 286, 726 S.E.2d 251, 253–54 (2012).

At the demurrer stage, it is not the function of the trial court to decide the merits of the allegations set forth in a complaint, but only to determine whether the factual allegations pled and the reasonable inferences drawn therefrom are sufficient to state a cause of action. Riverview Farm Assocs. Va. Gen. P'ship v. Bd. of Supervisors of Charles County, 259 Va. 419, 427, 528 S.E.2d 99, 103 (2000). To survive a challenge by demurrer, a pleading must be made with “sufficient definiteness to enable the court to find the existence of a legal basis for its judgment.” Eagle Harbor, L.L.C. v. Isle of Wight County, 271 Va. 603, 611, 628 S.E.2d 298, 302 (2006) (internal quotation marks omitted).

Friends of the Rappahannock v. Caroline County Bd. of Supervisors, 286 Va. 38, 44, 743 S.E.2d 132, 135 (2013).

Three Months in Arrears

Squire argues that the trial court erred in sustaining the demurrer because the foreclosure was improper as King was not three months in arrears. However, she admitted in her complaint that she did not make payments in May, June, July and August of 2010 and did not bring this delinquency current or arrange for alternative financing before the expiration of the forbearance agreement. Thus, these facts, taken as pled by King, were sufficient to prove that she was more than three months in arrears on her mortgage. Therefore, the trial court did not err in so ruling.

Ability to Pay Amount in Arrears

Squire contends that King averred in her second amended complaint that she had the ability to cure the arrearage in full. King's complaint averred that she offered to pay the delinquent amount in September 2010. The trial court held that she did not state a claim because the agreement required her to pay the amount in arrears in full by August 2010 or “utiliz[e] other loss mitigation programs to bring the account current.” King's attempts to bring her loan current were taken beginning in September 2010, after the forbearance agreement expired. Furthermore, the trial court found that the deed of trust allowed a borrower to tender a lump sum to bring her account current, but King did not plead that she tendered a lump sum amount for all payments alleged to be owed. Thus, this holding by the trial court is not in error.

Face-to-face Meeting

Squire also argues that the trial court erred in sustaining the demurrer because VHDA and Evans did not have the authority to foreclose without first conducting the face-to-face meeting, which they failed to do.

“A trustee's power to foreclose is...