S & G Inv. Inc. v. Home Federal Sav. and Loan Ass'n, 72-1625

• Decision Date: 03 October 1974
• Docket Number: No. 72-1625,72-1625
• Citation: 164 U.S. App. D.C. 263,505 F.2d 370
• Parties: S & G INVESTMENT INC. et al., Appellants, v. HOME FEDERAL SAVINGS AND LOAN ASSOCIATION et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 370

505 F.2d 370

164 U.S.App.D.C. 263

S & G INVESTMENT INC. et al., Appellants, v. HOME FEDERAL SAVINGS AND LOAN ASSOCIATION et al.

No. 72-1625.

United States Court of Appeals, District of Columbia Circuit.

Argued Jan. 29, 1974.

Decided Oct. 3, 1974.

Hershel Shanks, Washington, D.C., with whom Henry H. Glassie, Washington, D.C., was on the brief, for appellants.

David S Scrivener, Washington, D.C., with whom Marshall P. Johnson, Washington, D.C., was on the brief for appellee Home Federal Savings & Loan Assn.

Herman Miller, Washington, D.C., was on the brief, for appellee Scheve.

Jacob C. Lish, Washington, D.C., entered an appearance for appellee Bernstein.

Charles Sumner Brown, Washington, D.C., entered an appearance for appellees Francies.

Before LEVENTHAL, MacKINNON and WILKEY, Circuit Judges.

MacKINNON, Circuit Judge:

Appellants S & G Investment, Inc., a Maryland corporation ¹ (hereafter 'S & G'), brought the instant action as the owner of a residential row brick house at 751-12th Street, S.E., Washington, D.C., which was encumbered by a first deed of trust securing the payment of a note in the original amount of $9,250 held and owned at the time of foreclosure by the Home Federal Savings and Loan Association (hereafter 'Home Federal'). ² The suit is against Home Federal and the trustees named in the deed of trust and charges a breach of trust by the trustees of their fiduciary duties in the conduct of the sale foreclosing the lien securing the note held by Home Federal. The primary request for relief is damages against the trustees but the complaint also seeks to have the foreclosure set aside. A third claim alleges that the due date of the unpaid principal of the note was not properly accelerated and that the trustees erred in applying the proceeds of the foreclosure sale to satisfy the principal amount of the indebtedness secured by the first deed of trust. After a very careful analysis of the facts and the law, we are unable to find controlling merit in any of S & G's contentions and hence affirm the decision and judgment of the District Court. ³

I

On October 26, 1969, appellant S & G, following earlier delinquencies which had been corrected, became three months delinquent in the monthly payments due on a note secured by first deed of trust on the row brick house above referred to. On October 27, 1969, Home Federal, the then owner and holder of the secured note, sent appellant a letter and notice by certified mail, return receipt requested, ⁴ at the Maryland address it had been given by S & G, ⁵ stating that Home Federal intended to foreclose the loan by trustee sale on December 2, 1969. ⁶ The notice of foreclosure sale required by the statute (D.C.Code 45-615(b)) was also sent to the Recorder of Deeds of the District of Columbia ⁷ and a copy of said notice was enclosed in the letter to S & G.

The trustees, pursuant to the power of sale contained in the deed of trust and in conformance with the procedure customary in the District of Columbia, at the request of Home Federal, thereafter advertised the forthcoming foreclosure sale in customary form by due and proper notice in the Washington STAR. The advertisement appeared on five separate days in the editions published on November 20, 22, 25 and 28, and December 1, 1969. It is common knowledge that the STAR has a daily circulation in excess of 400,000 and reaches all areas of the Washington Metropolitan Area. Thus over two million separate notices of the forthcoming foreclosure sale were printed, published and distributed to the public in the Washington area prior to the foreclosure sale.

The foreclosure sale took place as scheduled on December 2, 1969, when the property was sold to an innocent purchaser (Scheve). Thereafter he rehabilitated and repaired the property to a substantial extent ⁸ and later sold it again to another innocent purchaser. Then, just over one year after the foreclosure sale, on December 2, 1970, appellants started this action seeking to set aside the foreclosure sale, or to apply the proceeds of the sale in a different manner, or to obtain a judgment in damages.

Appellants' principal claim is that the trustees under the deed of trust violated their fiduciary duty in not attempting to give personal notice of the foreclosure sale to both the owner of the property (S & G) and the holder of the second trust (Davis Mortgage Company). So far as notice to the owner is concerned, Home Federal fully complied with the statute ⁹ and there is no reason why the trustees should not be permitted to rely upon such compliance.

As for the claim that the trustees, in addition to the published notice in the newspaper, were required to give personal notice of the foreclosure sale to the holder of the second trust, this is unsupportable as a legal matter. Such notice has never before been required in the District of Columbia and the decided cases are generally to the contrary. ¹⁰ While the holder of a second trust in some instances might be a likely bidder at a foreclosure sale under the first trust, the law generally considers that the burden is on the holder of the second trust to keep informed of the status of the first lien. ¹¹ If the holder of the second trust desires notice of a foreclosure sale, he usually so notifies the trustees. This the Davis Mortgage Company, the second lienor, failed to do, even though it was in the investment business and presumably knowledgeable in the field. It also had some indication of the precarious financial condition of S & G as its own note, originally for 90 days, had been frequently extended after payment of interest only, with the last extension being granted on November 13, 1969, while the instant foreclosure was in progress.

Moreover, it is completely erroneous for appellants to argue that notice was not given to the holders of the first and second trusts. Both were given constructive notice by virtue of the publication of the customary form of advertisement of the foreclosure sale in the two million copies of the newspaper printed and distributed by the Washington STAR. Constructive notice is the equivalent of actual notice. ¹² In the District of Columbia, publication of a newspaper advertisement is the usual and customary method of giving notice of a foreclosure sale. Such advertisement satisfies the statute ¹³ and the terms of the deed of trust which provided that the trustees have power

upon such default, and by request of the Association (Home Federal) to sell said realty, or any part thereof, at public auction in such manner, at such time and place, upon such terms and conditions, and after such previous advertisement as the said trustees may deem best for the interests of all concerned . . ..

It would have been better if the owner had actually received the additional personal notice that was properly mailed to S & G, but the failure of S & G to receive it was due partly to its own dereliction and not entirely to Home Federal or to the trustees. Home Federal literally complied with the statutory requirements when it mailed the required letter and notice. In full compliance with the statute, the letter was sent to the last known address, correctly addressed to S & G care of Mike Golob Association, Inc. ¹⁴ The address is in nearby Maryland and the statute required that the notice be mailed to the address indicated on the envelope. The letter was mailed on October 27, a Monday. This was in sufficient time to have been delivered before Saturday, November 1. S & G moved on November 1. However, the letter was returned stamped 'Unclaimed' and a date of 'November 14, 1969' was also stamped on the envelope. Also written on the face of the envelope was 'NC 10/29/6 3192 Whiting.' This notation was not explained.

The reason for the return of the letter is otherwise unexplained and we need not speculate on the reasons since the letter was properly mailed to the proper address as the statute required. S & G had received two prior letters at the same address, the latest on August 1, 1969, calling attention to its delinquency in payments, and S & G had not notified Home Federal of any change of address.

The claim now by S & G that the noteholder (Home Federal) and the trustees were somehow deficient in their duties by not being successful in bringing personal notice to S & G overlooks certain facts. First, S & G never notified Home Federal or the trustee of its change of address. Second, S & G was in serious default in its payments, was in the real estate investment business itself and knew that foreclosure was the ordinary consequence of such default. Third, S & G also was on notice that the statute required the lender to send notice of foreclosure to it at its last known address.

It must be recognized that D.C.Code 45-615(b) requires the noteholder to mail notice of the sale to the owner at his last known address. Such notice was mailed. Appellants contend that, in addition, the trustees must at a minimum satisfy themselves that actual notice was given or that reasonable steps were taken to give personal notice. Such would be an erroneous interpretation of the statute and of District law as it would require both the trustees and the noteholder to be responsible for giving such notice. To require both parties to see that notice is given is an absurd interpretation of the law and it is clear that section 615(b) does not require it. The fact that the statute was enacted at all indicates that Congress considered that prior thereto there was no obligation on any person in the District of Columbia to give personal notice to the owner, much less to junior lienors. Congress would not have enacted a statute to require noteholders to give notice to owners if trustees were already required to give notice.

As to the interpretation of the statute, it was brought out at the congressional hearings preceding its enactment into law in 1968 that:

Under present practice (in the District of...