In Young-Allen v. Bank of America, N.A., et. al., the Supreme Court of Virginia upheld the dismissal of a post-foreclosure-sale challenge by a Borrower who asserted that the Lender failed to provide her reinstatement figures, holding that the Borrower failed to articulate an injury, since she failed to claim that she had the ability to cure the default. The absence of such allegations or injury therefore warranted the dismissal of Borrower’s equitable rescission claims challenging the sale, as well as dismissal of claims of breach of fiduciary duty against the foreclosure Trustee.
A copy of the opinion is available here.
Background
Borrower defaulted on her mortgage after she failed to make payments, and a foreclosure sale was scheduled. Borrower requested that the foreclosing Lender provide her with a “reinstatement figure” or “reinstatement of loan quote”. After Lender did not respond, Borrower filed a complaint against the Lender alleging that it failed to provide her reinstatement figures, filed a lis pendens (notice of litigation) in the land records, and demanded that the Trustee under the deed of trust securing the loan cancel or postpone the foreclosure sale. No injunction was sought.
Nevertheless, the Trustee proceeded with the foreclosure sale. Borrower then filed an amended complaint seeking “equitable rescission” of the sale on the ground that Lender’s failure to provide reinstatement figures constituted a breach of the deed of trust and a failure to satisfy a condition precedent to foreclosure. She also complained that the Trustee breached its fiduciary duty of impartiality by conducting the foreclosure sale after being aware of pending claim against Lender. The trial court determined that the complaint failed to allege sufficient facts to establish injury to support either equitable rescission or a breach of fiduciary duty claim, and dismissed the lawsuit. Borrower appealed, and the Supreme Court of Virginia affirmed.
Discussion
The Supreme Court explained that equitable rescission is a “remedy which calls for the highest and most drastic exercise of the power of a court of chancery—to annul and set at naught the solemn contracts of parties.” Op. at 4 (citations omitted). Consequently, if a borrower seeks equitable rescission as a remedy for an alleged breach of a deed of trust, “there must be first a sufficient averment of facts showing the plaintiff [is] entitled in equity to the relief which he seeks.” Op. at 5. The Court indicated that generally completed foreclosure sale would not be rescinded (absent a showing of fraud, collusion with the purchaser, or a foreclosure sale price that is grossly inadequate), but noted that in certain circumstances, a “substantial” or “material” breach of a deed of trust could constitute grounds for the remedy of equitable rescission. Op. at 6. However, the requirement of a “substantial” or “material” breach required that the breach of contract underlying a rescission claim cause some type of injury or harm to the non-breaching party. Id.
However, the remedy is not available if the plaintiff “fails to plead that he or she incurred any damages or suffered any harm caused by an alleged breach of a deed of trust.” Op. at 5. “Rescission based upon a breach of contract is not a cause of action in itself, but rather a remedy. . . Remedies do not exist in the abstract, rather, they flow from and are the consequence of some wrong” Id. (Internal citations omitted). If breach of a deed of trust or contract is the underlying cause of action, then damages and/or harm suffered from such breach are a requisite showing at the pleading stage.
Although Borrower claimed that Lender failed to provide notices of her right to cure and the amount needed to cure, the amended complaint “failed to allege that [Borrower] could have cured her default and prevented the foreclosure sale if she received the notices at issue. Thus, [Borrower] failed to plead facts to establish that [Lender]’s failure to plead facts to support the drastic remedy of equitable rescission.” Op. at 7.
The absence of the ability to cure the default also warranted dismissal of the breach of fiduciary duty claim against Trustee. Borrower claimed that the Trustee breached its implied fiduciary duty of impartiality by proceeding with the foreclosure sale, despite having notice of her claims against he Lender, including the lis pendens regarding the underlying litigation prior to the sale. The Court clarified that a notice of lis pendens is merely notice of a pending suit, but is not an injunction, and standing alone did not prevent [Trustee] from conducting the scheduled foreclosure sale. Op. at 8. Nor did Borrower seek an injunction against the sale.
The Court further determined that the “[Trustee] was not required to postpose or cancel the foreclosure sale based solely on the alleged breach of the deed of trust, especially when Borrower failed to plead that she could cure her default and prevent the foreclosure sale from occurring. Op. at 8. “[Borrower]’s amended complaint did not contest the fact that she was in default, and it expressly admitted that she ‘fell behind on her payments.’” Consequently, “[Trustee] did not breach any fiduciary duty that it owed to Borrower when it proceeded with the foreclosure sale.
Accordingly, the Supreme Court affirmed the dismissal of Borrower’s lawsuit.