Maryland intermediate appellate court reaffirms that there is no statute of limitations applicable to the foreclosures of mortgages. 2014 Amendments to statute of limitations confirmed that foreclosure proceedings were not subject to the 12-year limitations period, and was part of a statutory scheme to reduce the limitations period for post-foreclosure deficiency proceedings to three years.
Buyer in a real estate transaction who is duped by fraudulent wiring instructions is not owed a duty by the transferee/recipient bank of the wire transfer: No duty to the sender/buyer to properly verify the identity of the person who opened the recipient bank account, nor a duty to take “preventable steps” before permitting the withdrawal of a large amount of funds from the newly opened bank account.
The U.S. Supreme Court held that “those who engage in only nonjudicial foreclosure proceedings are not debt collectors within the meaning of the [FDCPA],” save for § 1692f(6), which prohibits certain conduct in “effect[ing] dispossession or disablement of property.” On the other hand, the bulk of the FDPCA’s prohibitions, including § 1692g(b)’s verification requirement, did not apply to such foreclosure firm.
The Court of Appeals of Maryland determined that, after a foreclosure sale, commercial real estate brokers could not enforce a covenant to pay renewal leasing commissions against the new owner, because the right to renewal commissions were personal obligations of the Original Owner/Landlord, which did not run with the land.
The Supreme Court of Virginia held that a deed’s legal description referring to a boundary road, includes title to the center line of the road, unless a contrary intent is shown. A description of the square footage of the property that excluded the area of the road did not show a contrary intent, because square footage is the least certain mode of describing land, which must yield to a description by boundaries and distances.
The Supreme Court of Virginia determined that an easement by necessity could be modified as “reasonably necessary” to benefit a landlocked parcel, so long as it did not unreasonably burden the underlying property, i.e., the servient estate. The Court held that as a matter of law, the trial court had the authority to grant the owner of the landlocked parcel the right to widen the established easement without the servient owner's consent.
In Thorsen v. Richmond Society for the Prevention of Cruelty to Animals, the Supreme Court of Virginia held that a named contingent remainder beneficiary to a will has standing to sue an attorney for legal malpractice as an intended third-party beneficiary of the attorney-client relationship created by the contract for legal services between the decedent and the attorney. Specifically, the Court concluded that a contingent remainder beneficiary is an intended beneficiary of the attorney-client relationship between the decedent and the attorney drafting the will. Therefore, the third-party could sue the attorney who drafted a will for legal malpractice arising from a scrivener error that resulted in a smaller bequest, if it was a “clearly and definitely intended beneficiary” of the decedent’s oral agreement with the attorney for legal services. According to the Court, for the third-party to have standing, “one of the primary purposes for the establishment of the attorney-client relationship [must be] to benefit the [third-party]. . . .” Op. at 12. Moreover, the Court held that the statute of limitations did not begin to run until the decedent died.
A copy of the opinion can be found here.
Background
In 2003, Decedent hired Attorney to prepare her will. Decedent instructed that, upon her death, she wanted to convey all of her property to her mother or, if her mother predeceased her, to the Richmond Society for the Prevention of Cruelty to Animals (“Third-Party”) as contingent and residuary beneficiary of the will.
Decedent died five years after Attorney prepared the will, whereupon Attorney notified Third-Party that it was the sole beneficiary of Decedent’s estate. Due to a drafting error, the operative language of the will limited the bequest to Third-Party to only Decedent’s tangible property, rather than the entirety of the estate, which included real property.
Third-Party filed a lawsuit to correct the “scrivener’s error,” based on Decedent’s clear original intent. The trial court rejected the Third-Party’s claim, holding that the will was unambiguous, and determined that the bequest to Third-Party was limited to only tangible property.
Thereafter, Third-Party sued Attorney for legal malpractice, asserting that Attorney and his law firm were liable for breach of the legal services agreement, and claimed to be an intended third-party beneficiary of such agreement. In defense, Attorney filed a demurrer (motion to dismiss), asserting, among other things, that Third-Party was not an intended beneficiary of the legal services agreement, and further plead that a such claim was barred by a three-year statute of limitation applicable to oral agreements, which according to Attorney, began to run upon accrual of the breach of contract cause of action (i.e. when the breach occurred and when the erroneous will was drafted and executed).
The trial court rejected such defenses, and ultimately, judgment was granted in favor of Third-Party. Attorney thereafter noted this appeal.
Discussion
The Supreme Court first determined that under the common law, a third-party could sue upon an oral contract, and that certain statutes authorizing unnamed persons to sue on an instrument, i.e., Va. Code § 55-22, did not alter the common law. Op. at 4-5.
The Court next considered whether Third-Party had standing as a third-party beneficiary in a legal malpractice action under the facts of this case. The Court noted that in Copenhaver v. Rogers, 238 Va. 361, 384 S.E.2d 593 (1989), it previously determined that “[i]n order to proceed on the third-party beneficiary contract theory, the party claiming the benefit must show that the parties to a contract clearly and definitely intended to confer a benefit upon him.” Op. at 7-8. The Court emphasized that the third party must be an intended beneficiary of the contract between the attorney and client, not merely an incidental beneficiary of the estate. Op. at 8-9. Accordingly, the Court stated that to have standing to sue, a nonparty to the contract for legal services must allege facts sufficient to support the conclusion that it was a “clearly and definitely intended beneficiary” of the contract for legal services. Op. at 12.
Under the facts of this case, the Court concluded, the Third-Party sufficiently alleged that it was a “clearly and definitely intended beneficiary” of the attorney-client contract between the Decedent and Attorney. Notably, the Court observed that the Decedent wanted to confer a benefit upon the Third-Party upon her death, and sought Attorney’s professional services to do so. Op. at 13. When Attorney “accepted the contract to prepare Decedent’s will as she specified, the [Third-Party] became not only the intended beneficiary of Decedent’s will but also the intended beneficiary of her contract of employment with [Attorney].” Op. at 13. Therefore, the Court concluded that the Third-Party had standing to allege a cause of action for breach of contract/professional negligence as a third-party beneficiary of the contract between the testator and her attorney. Op. at 14.
Attorney argued that Third-Party, as a contingent, residuary beneficiary, as a matter of law could not qualify as a “clearly and definitely intended” beneficiary of the will because its interest under the will was contingent, as a residuary beneficiary. Op. at 14. The Court rejected such proposition, explaining that whether a residuary beneficiary is a third-party beneficiary of the contract for legal services is a fact intensive inquiry. Op. at 14-17. The Court noted that depending on the facts of a particularly case, both contingent and residual beneficiaries may be considered third-party beneficiaries to an attorney-client contract between the testator and drafting attorney. Op. at 14-17.
Attorney also argued that Third-Party’s claim was barred by the three-year statute of limitations under Virginia Code § 8.01-246 for breach of an oral contract. Op. at 17. Notably, Attorney argued that the three-year limitations period had expired because it began to run at the time of breach (i.e. when the Attorney drafted the will in 2003). Op. at 18. The Court rejected this argument, determining that the three-year period “cannot begin to run as to the testamentary beneficiary until a cause of action accrues, after the death of the testator.” Op. at 19. Acknowledging that under Virginia Code § 8.01-230, a right of action for breach of contract accrues when the breach of contract occurs and not when the resulting damage is discovered, the Court held that for a cause of action to accrue for breach of contract, “some injury or damage, however, slight, is essential to a cause of action.” Op. at 18. In the case of a testamentary beneficiary, the Court concluded, no injury, however slight, can be sustained prior to the testator’s death. Op. at 20. “This is when the attorney’s negligence becomes irremediable and the impact of the injury occurs, . . ; before a testator’s death, the potential beneficiaries possess no recognized legal interest in the estate.” Id. (citations omitted).
Finally, the Court determined that the evidence as to the Decedent’s and Attorney’s intent sufficient to uphold the judgment in favor of Third-Party. The evidence demonstrated that Decedent specifically intended to benefit the Third-Party when she hired Attorney, and that by agreeing to draft a will for Decedent, Attorney impliedly agreed to comply with her specific directives. Op. at 23-24.
Accordingly, the Court affirmed the judgment in favor of Third-Party. Op. at 25.
Dissent
One Justice dissented, concluding that Third-Party lacked standing to sue Attorney because “the common law has long provided that [a legal malpractice action] requires the existence of an attorney-client relationship as a threshold requirement.” Op. at 25-26. Criticizing the opinion, the Dissent warned that “[f]rom this date forward, attorneys will owe a legal duty to nonclients by virtue of legal services agreements with their clients whenever ‘a lawyer knows that a client intends as one of the primary objectives of the representation that the lawyer’s services benefit the nonclient.’” Op. at 32.
The Dissent noted that the determination of whether to abolish the common law strict privity requirement is a policy decision that should be made by the General Assembly, and not the Court. . Op. at 25. The Dissent cited several policy concerns in favor of the strict privity rule, particularly the “preservation of the sanctity of the attorney-client relationship,” protection against “the potential for conflicting duties owed to clients and third parties by the attorney,” and concerns over uncertain or unlimited attorney liability. Op. at 28-30.
In Parrish v. Federal National Mortgage Association, the Supreme Court of Virginia reversed the judgment of the Circuit Court (in an appeal from the General District Court), which granted possession in favor of Fannie Mae in an unlawful detainer case (i.e. an eviction case). Specifically, the Supreme Court held that, where a borrower raises a bona fide question as to the validity of title in a case originally filed in the General District Court (or subsequently appealed to the Circuit Court from the General District Court), the case must be dismissed without prejudice because the General District Court lacks original subject matter jurisdiction to adjudicate the validity of title.
The Court explained that in order to raise a bona fide dispute to title, a borrower is required to raise sufficient facts that would otherwise survive a Demurrer (Motion to Dismiss). The Court noted that the jurisdictional limitations at issue did not apply to unlawful detainer actions originally brought in the Circuit Court pursuant to Virginia Code § 8.01-124, nor does such holding impact prior cases where the homeowner failed to raise such issues.
A copy of the opinion can be found here.
Background
Borrowers owned certain property secured by a deed of trust. Following a foreclosure sale of the property, the trustee conveyed the property to Fannie Mae. Fannie Mae sent the Borrowers a notice to vacate, and later filed a summons for unlawful detainer in the General District Court.
Borrowers filed a response to the Unlawful Detainer Action, which argued that the foreclosure was invalid because the deed of trust incorporated 12 C.F.R. § 1024.41(g), which prohibits foreclosure if a borrower submitted a completed loss mitigation application more than 37 days before the foreclosure sale. Borrowers claimed to have submitted a complete application within such timeframe. Because Fannie Mae (who, according to the Borrowers’ allegations, was also their lender) instigated the foreclosure despite their allegedly timely filed loss mitigation application, Borrowers alleged that Fannie Mae breached their deed of trust.
The General District Court awarded Fannie Mae possession, and the Borrowers filed a de novo appeal to the Circuit Court. In the Circuit Court (which was sitting as an appellate court), Fannie Mae filed a motion for summary judgment, arguing that its trustee’s deed was prima facia evidence of its right of possession. Fannie Mae also moved to exclude evidence of any defense contesting the validity of the trustee’s deed, arguing that the General District Court (and the circuit court sitting as an appellate court) lacked subject matter jurisdiction to adjudicate title in an unlawful detainer proceeding. The Circuit Court agreed, granted Fannie Mae’s motions, and awarded it possession. Borrowers thereafter filed this appeal to the Supreme Court of Virginia.
Discussion
At the outset, the Supreme Court agreed that the General District Court (or in this case the Circuit Court which was hearing an appeal from the General District Court), lacked subject matter jurisdiction to adjudicate title.
In the context of an unlawful detainer case, “[t]he validity of the plaintiff’s right of possession is an issue that, when disputed, must be determined in the adjudication of the of the unlawful detainer action.” Op. at 4. Where a plaintiff (such as a foreclosure purchaser) claims a right of possession acquired after the defendant’s original, lawful entry, the plaintiff must show the validity of its right of possession. See Op. at 4. Consequently, “[w]hen the plaintiff’s after-acquired right of possession is based on a claim of title, the plaintiff may be required to establish the validity of that title.” Op. at 5.
According to the Court, “[i]n most foreclosure cases, a trustee’s deed will satisfy the foreclosure purchaser’s burden to establish that it acquired a right of possession after the homeowner’s original, lawful entry, and the homeowner will have no good-faith basis to contest it. However, in limited circumstances, the homeowner could allege facts sufficient to place the validity of the trustee’s deed in doubt. In such cases, the General District Court’s lack of subject matter jurisdiction to try title supersedes its subject matter jurisdiction to try unlawful detainer and the court must dismiss the case without prejudice.” Op. at 6.
The Court emphasized that “[t]he question of title raised by the homeowner’s allegations must be legitimate. . . . Because a court always has jurisdiction to determine whether it has subject matter jurisdiction, the court has the authority to explore the allegations to determine whether, if proven, they are sufficient to state a bona fide claim that the foreclosure sale and trustee’s deed could be set aside in equity. Stated differently, the allegations must be sufficient to survive a demurrer had the homeowner filed a complaint in circuit court seeking such relief.” Op. at 6 (citations and quotations omitted).
However, the Court noted that “[a] general allegation that the trustee breached the deed of trust is not sufficient. The homeowner’s allegations must (1) identify with specificity the precise requirements in the deed of trust that he or she asserts constitute conditions precedent to foreclosure, (2) allege facts indicating that the trustee failed to substantially comply with them so that the power to foreclose did not accrue, and (3) allege that the foreclosure purchaser knew or should have known of the defect.” Op. at 7, n. 5.
In this case, the Court determined that the Borrowers raised a bona fide question of title in the underlying unlawful detainer proceeding. The Court observed that the Borrowers alleged that 12 C.F.R. § 1024.41(g) was incorporated in their deed of trust as a condition precedent, that they submitted a complete loss mitigation application, and that none of the exceptions applied. Op. at 8-9. The Court also inferred that Fannie Mae, as foreclosure purchaser, was aware of the alleged violation of the deed of trust “because it was the lender that allegedly committed the violation.” Op. at 9. Consequently, the Supreme Court concluded that these allegations were sufficient, and if proved, could satisfy a court of equity to set aside the foreclosure.” The Court therefore vacated the judgment in favor of Fannie Mae, and dismissed the summons for unlawful retainer.
