VT TENANTS, INC. v. HOUSING FIN. AGENCY

• Decision Date: 08 October 1999
• Docket Number: No. 98-405.,98-405.
• Citation: 742 A.2d 745
• Parties: VERMONT TENANTS, INC., et al. v. VERMONT HOUSING FINANCE AGENCY, et al.
• Court: Vermont Supreme Court

742 A.2d 745

VERMONT TENANTS, INC., et al. v. VERMONT HOUSING FINANCE AGENCY, et al.

No. 98-405.

Supreme Court of Vermont.

October 8, 1999.

Geoffrey Walsh and Stephen Norman, Vermont Legal Aid, Inc., Burlington, for Plaintiffs-Appellants.

Glenn A. Jarrett, Burlington, for Defendant-Appellee Vermont Housing Finance Agency.

John A. Serafino and Elizabeth A. Glynn of Ryan Smith & Carbine, Ltd., Rutland, for Defendant-Appellee First Vermont Bank.

Present AMESTOY, C.J., and DOOLEY, MORSE, JOHNSON and SKOGLUND, JJ.

DOOLEY, J.

This case concerns two residential tenants who had the misfortune of leasing property without knowing it was the subject of strict mortgage foreclosure. At issue is whether Vermont's Residential Rental Agreements Act (RRAA), 1985, No. 175 (Adj.Sess.), codified as amended in relevant part as 9 V.S.A. §§ 4451-4469, prohibits the eviction of such tenants when they have entered into rental agreements after the commencement of foreclosure proceedings but before the expiration of the redemption period. The superior court answered the question in the negative and dismissed their action for failure to state a valid claim under V.R.C.P. 12(b)(6). We agree and affirm.

This action was commenced by Vermont Tenants, Inc., a statewide advocacy organization, and two former tenants, Heather Gross and Aaron Prince, who were evicted by mortgagees who acquired title to the property in which they resided by strict foreclosure.¹ The defendants are the Vermont Housing Finance Agency (VHFA) and First Vermont Bank (FVB), mortgagees of the two properties at issue. The case never moved beyond plaintiffs' complaint, and the motions to dismiss it. Accordingly, for purposes of this appeal, we assume all factual allegations in the complaint are true. See Richards v. Town of Norwich, 169 Vt. ___, ___, 726 A.2d 81, 85 (1999).

Heather Gross was a month-to-month tenant in a mobile home, along with her children, fiancé and the owner of the home. During her tenancy, the mortgagee began foreclosure proceedings because of nonpayment of mortgage payments, but did not serve her. She moved out of the home for a period and moved back in during the Fall of 1997. Thereafter, she learned from her landlord that a strict foreclosure action was pending. She attempted to avert it by payments to the mortgagee, but the mortgagee obtained a foreclosure judgment and served the mortgagor and tenants with a writ of possession on December 2, 1997. Apparently, the eviction has been stayed by agreement pending resolution of this case and a companion case in the United States District Court.

Aaron Prince rented a room in the Alpenhof Lodge in Killington, Vermont on December 1, 1997, paying advance rent of $3500 for a term to end on June 1, 1998. Prince was not aware that the mortgagee of the Alpenhof Lodge had filed a foreclosure action in April 1997 and obtained a strict foreclosure judgment in July 1997. On January 16, 1998, the Rutland County sheriff served on Prince a writ of possession, insisting that he vacate immediately. Prince promptly left the premises.

One other fact is very significant in both cases. Pursuant to 12 V.S.A. § 4523(b), both mortgagees filed copies of their strict foreclosure complaints in the town land records. That section provides:

(b) The plaintiff shall file a copy of the complaint in the town clerk's office in each town where the mortgaged property is located. The clerk of the town shall minute on the margin of the record of the mortgage that a copy of foreclosure proceedings on the mortgage is filed. The filing shall be sufficient notice of the pendency of the action to all persons who acquire any interest or lien on the mortgaged premises between the dates of filing the copy of foreclosure and the recording of the final judgment in the proceedings. Without further notice or service, those persons shall be bound by the judgment entered in the cause and be foreclosed from all rights or equity in the premises as completely as though they had been parties in the original action.

Plaintiffs filed actions in both state and federal courts. The federal action challenged the constitutionality of § 4523(b), alleging that the constructive notice provision denied tenants due process of law. The state action alleged that despite § 4523(b), mortgagees could evict tenants only in compliance with the substantive and procedural requirements of RRAA. The state action did not contain the constitutional challenge contained in the federal action. Defendants filed motions to dismiss in both cases.² In an unpublished decision, the federal court denied the motion to dismiss, holding that the constructive notice provision of § 4523(b) is inadequate to meet the notice requirements of the Due Process Clause of the Fourteenth Amendment.³ The superior court ruled that the mortgagee could evict tenants of the mortgagor without complying with either the procedural or substantive requirements of RRAA, and dismissed the complaint on that basis. Plaintiffs have appealed, arguing the decision is incorrect on the merits.

Plaintiffs apparently concede that, but for RRAA, and putting aside the due process challenge which is not before us, the evictions were entirely lawful. We agree with this assessment. The general law on the mortgagee's rights is as follows:

Where the mortgage precedes the lease the lessee's rights can rise no higher than those of his landlord, the mortgagor.... It follows that if the mortgagee could take possession against the mortgagor, as he can in title states at any time in the absence of agreement to the contrary ... he has the same right against a tenant of the mortgagor. And if such a right is exercised the mortgagee can repudiate the lease and treat the tenant as a trespasser subject to eviction by an action of ejectment.

G. Nelson & D. Whitman, Real Estate Finance Law § 4.22, at 195 (2d ed.1985). This general statement was applicable here if the mortgagee complied with § 4523(b), at least if the foreclosure action preceded the tenant's interest⁴ and at least until the enactment of RRAA. We so held in Green Mountain Bank v. Bruehl, 148 Vt. 567, 568-69, 536 A.2d 554, 556 (1987), a case with facts similar to those before us in this case. Applying § 4523(b), we held:

Tenants ... acquired ... possessory rights in the premises after November 8, 1983, the date of plaintiff's foreclosure filings. The possessory rights tenants acquired after November 8, 1983, clearly fall within the broad ambit of interests encompassed by the statute's "any interest" language.... Therefore, when plaintiff filed copies of the foreclosure complaint in the Winhall land records, tenants were given and became bound by the notice warranted by statute. Once notice is given by filing the complaint in the town clerk's office, the foreclosure action supersedes any after-acquired interest, and the possessors of any such interest are "foreclosed from all rights or equity in the premises as completely as though they had been parties in the original action."

Id. (citations omitted). Bruehl establishes the mortgagee's right to evict the tenant of the mortgagor, but not the procedure. That is established by 12 V.S.A. § 4528, which provides:

§ 4528. Decree foreclosing equity of redemption; writ of possession

If a decree is made foreclosing the right of redemption, the time of redemption shall be six months from the date of the decree unless a shorter time be ordered. If the premises are not redeemed agreeably to the decree, the clerk of the court may issue a writ of possession. Such writ shall have the same force and effect and be executed in the same manner as similar writs issued after judgment by a court of law in ejectment proceedings.

Under § 4528, the mortgagee need not bring a separate ejectment action to evict the tenant. The clerk can issue a writ of possession based on the foreclosure judgment and the failure to redeem, and the writ allows removal of any tenants, as well as the mortgagor. That is exactly what occurred in the Gross and Prince cases.

Plaintiffs argue that the mortgagee's right to evict a tenant of the mortgagor through a writ of possession issued under 12 V.S.A. § 4528 was eliminated by RRAA. To better analyze this argument, we start with an overview of RRAA. Generally, the statute defines the rights of landlords and tenants. It defines a landlord as "the owner, lessor, or where applicable, the sublessor of a residential dwelling unit or the building of which it is a part." 9 V.S.A. § 4451(4). A tenant is "a person entitled under a rental agreement to occupy a residential dwelling unit to the exclusion of others." Id. § 4451(9). As between landlords and tenants, the Act contains a detailed provision governing termination of tenancies. See id. § 4467. At least fourteen days' notice is required when a landlord terminates a tenancy for nonpayment of rent. See id. § 4467(a). Termination for "failure of the tenant to comply with a material term of the rental agreement or with obligations imposed [under the Act]" requires a minimum of thirty days' notice. Id. § 4467(b). When landlord and tenant have no written rental agreement, a landlord may terminate the tenancy for no cause—but must give at least twenty-one days' notice to tenants who pay rent weekly and at least sixty days' notice to tenants who remit on a monthly basis. See id. § 4467(c). Likewise, the absence of a written rental agreement permits a landlord to terminate a tenancy, on at least thirty days' notice when the landlord "has contracted to sell the building." Id. § 4467(d). Finally, if a landlord terminates a tenancy under the terms of a written rental agreement, tenants whose rent is payable monthly are entitled to at least thirty days' notice and tenants who pay weekly must receive at least seven days' notice. See id. § 4467(e). The termination statute does not speak directly to the situation in which a tenancy is terminated by a mortgagee who acquires title...