Failure to file default does not bar foreclosure

Where a lender did not record a notice of default and acceleration as provided for in the promissory note, that did not prevent the lender from foreclosing on the property.

Plaintiff refers to the recording requirement as a “precondition to foreclosure” but the deed of trust provides the lender with several options if there is a default.

As a result, plaintiff’s suit for money damages to compensate for lost equity in the foreclosed property is dismissed.

Overview

Plaintiff signed a deed of trust note, secured by the property at issue. The “note went almost immediately into arrears.” The property was sold at a foreclosure sale.

Plaintiff claims to have had no knowledge of the foreclosure until after it occurred. Specifically, plaintiff argues that defendant’s request for admissions establishes that plaintiff’s president received the foreclosure notice.

But, plaintiff asserts, “‘that request for admissions did not seek admission that [the president] opened that mail and read it and therefore, that request for admissions, although not responded to, did not prove that Entrepreneur Dream Team had actual knowledge of the foreclosure before it occurred.’ …

“The deed of trust includes a provision that was not required under the Virginia Code provisions then in effect governing foreclosure sales[.]” The deed of trust provision states that in the event of a default, “‘Lender may, at its option, declare all sums secured hereby immediately due and payable by delivery to Trustee of written declaration of default and demand for sale and of written Notice of Default and of election to cause to be sold said property, which notice Trustee shall cause to be filed for record.’ …

“Defendant did provide a notice of default and acceleration to Plaintiff by letter dated May 11, 2018. This notice, however, was not recorded in the Clerk’s Office of this Court.”

Analysis

“Plaintiff’s counsel confirmed that the sole remaining claim for trial arises out of the failure by the trustee to comply with the deed of trust’s provision requiring recordation of a notice of default and acceleration.

“Plaintiff refers to this requirement throughout its pleadings as a ‘precondition to foreclosure.’ … The Court cannot conclude that the requirement to record the notice of default constitutes a ‘precondition to foreclosure.’

“The Deed of Trust expressly provides several options to Lender ‘upon the occurrence of default.’ One of those available options permits the Trustee to foreclose upon the deed of trust and sell the property at a public sale. …

“If, following the occurrence of default, the Lender elects to sell the property, the Deed of Trust specifies the terms and conditions of that sale and payment of proceeds. Recordation of the notice of default and acceleration is not referenced as a ‘precondition to foreclosure’ or as a term or condition of sale that the Trustee must follow.

“The only stated ‘precondition’ is an ‘occurrence of default.’

“The Deed of Trust did not require that Lender provide the written notice of default and acceleration that forms the basis of Plaintiff’s argument; the Deed of Trust allows Lender to furnish such notice ‘at its option.’

“A trustee’s failure to record a notice that the lender had no obligation to provide but nonetheless did provide, cannot be construed as an unmet condition precedent to foreclosure. The deed of trust does not stipulate that such recordation must happen before sale; presumably the trustee can record it at any point in time, even perhaps after the sale.

“For these reasons, the Court does not conclude that this provision amounts to a condition precedent to foreclosure. It is a contractual provision that, if breached, could form the basis of a cause of action for breach of contract.”

‘Frivolous’ argument

“In the instant case, Plaintiff does not allege that it could have cured its default if the trustee had recorded the notice of default in the Clerk’s Office. Plaintiff alleges instead that it would have come up with the money to prevent the foreclosure ‘if anyone on behalf of the lender had notified Entrepreneur Dream team that a foreclosure was intended for August 14, 2018.’ …

“The Requests for Admissions establish, however, that the lender did notify Plaintiff about the August 14, 2018 foreclosure sale; and Plaintiff did not cure the default.

“Plaintiff’s continued insistence that it did not know about the foreclosure sale because the record does not establish that Mr. Battle opened his mail and read the notice, is frivolous.

“Defendant complied with the notice requirements established both by the deed of trust and by the controlling Virginia statutes.”

The court grants defendant’s motion for summary judgment.

Entrepreneur Dream Team v. Anchor Assets V, LLC and Commonwealth Asset Services, LLC, Case No. CL20- 7895, March 9, 2022, City of Norfolk Circuit Court (Hall). David M Zobel, Henry W. McLaughlin for the parties. VLW 022-8-017, 4 pp.