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Lack of privity dooms claim in mortgage case

Virginia Lawyers Weekly//July 28, 2022

Lack of privity dooms claim in mortgage case

Virginia Lawyers Weekly//July 28, 2022//

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Where plaintiff claims that defendant, a mortgage loan servicer, breached a contract, plaintiff’s claim is dismissed because “the Court is unable to determine exactly what [plaintiff] is claiming[.]”


In 2005, Perez, the plaintiff in this case, alleges that she contracted with AccuBanc for a mortgage loan. Perez executed a promissory note secured by a deed of trust. The trust deed lists Garrett as the trustee.

Perez alleges that in 2013, she executed a second deed of trust “under a Home Affordable Modification Agreement. … She alleges that the 2013 Deed of Trust provides that $72,646.53 of the unpaid principal balance was eligible for forgiveness if she did not default on three monthly payments. …

“The principal amount was to be reduced by a third every year, starting in 2014, until it reached a zero balance in 2016. … Perez alleges that she satisfied this requirement and that her balance therefore should have been zero. However, in 2019, Perez had a deferred balance of $48,431.02.”

In March 2019, Perez was behind in her payments. In April, Cenlar Central Loan, the defendant, became the servicer of Perez’s mortgage. Perez asserts she made her June payment to Cenlar but “the check did not clear.”

Perez says she asked about loss mitigation option but was told she could not apply for them. Cenlar refused her request to have excess funds in her escrow account applied toward the balance. Perez asserts that in August 2019, Cenlar “finally told her about possible loss mitigation options. …

“She further alleges that after receiving the loss mitigation package, she promptly submitted an application to Cenlar on August 26, 2019. … Perez claims that her application ultimately ‘was denied because the package was not submitted more than 37 days before a pending foreclosure sale.’ …

“She alleges that the substitute trustee, Equity Trustees, … scheduled a foreclosure sale of the Property for September 24, 2019. … She states that had Cenlar provided the loss mitigation package upon her initial inquiry, she would have had sufficient time to submit the paperwork and prevent the foreclosure sale.”

The suit

Perez sued Cenlar and Equity Trustees on Sept. 19, 2019. In several claims, she has alleged Cenlar breached various contractual obligations and that Cenlar has clogged “the equity of redemption.” She also alleges Equity Trustees lack authority to conduct a foreclosure sale.

Cenlar has demurred. It notes that Perez has not made any mortgage payments since she filed suit and has not moved from the property.

Contract claims

In Count One, Perez alleges that “the promissory note and deed of trust constitute enforceable contracts which contains [sic] the implied covenant obligating Cenlar to treat [Perez] with good faith, and deal fairly.” Perez further alleges that “Cenlar breached the terms of the contract by refusing to apply surplus escrow funds to the outstanding balance of [Perez’s] mortgage loan.” She also claims that the breach will cause her to suffer damages if she loses the Property. …

Under Virginia law, a breach of a promissory note is treated as a breach of contract claim. …

“the Court is unable to determine exactly what Perez is claiming in Count One. She initially identifies both the promissory note and the Deed of Trust, and then alleges that Cenlar breached “the contract” without clarifying to which document she is referring. Perez also asserts that both the promissory note and the Deed of Trust contain an implied covenant of good faith and fair dealing, and then states that “Cenlar breached the terms of the contract by refusing to apply surplus escrow funds to the outstanding balance of [Perez’s] mortgage loan.” It is unclear whether Perez is claiming (1) that the explicit terms of ‘the contract’ require Cenlar to apply surplus escrow funds and that Cenlar breached this provision or (2) that “the contract” does not contain this explicit provision, which constitutes a violation of the implied covenant of good faith and fair dealing. Because the Court is unable to identify Perez’s claim, the Court finds that she has failed to state a viable claim.”

Moreover, the deed of trust contradicts Perez’s allegation that Cenlar was a party to the contract. As to a claim that Cenlar breached the promissory note, Perez has not alleged Cenlar signed the note.

The demurrer is sustained as to Count One.

Equity of redemption

Perez alleges that Cenlar clogged the equity of redemption by failing to release the funds in Perez’s escrow account and credit them toward her balance.

“The equity of redemption is the defaulting mortgagor’s right to ‘recover property before a foreclosure sale by paying the principal, interest, and other costs that are due.’ … A clog on the equity of redemption is defined as ‘[a]n agreement or condition that prevents a defaulting mortgagor from getting back the property free from encumbrance upon paying the debt.’ …

“Here, Perez alleges that the escrow account contained $3,578.36 and that ‘[h]ad this escrow surplus been applied to [her] past due amount, [her] home would not have been put into foreclosure.’ However, she has not alleged that she had the funds to pay the outstanding principal and interest.

“Instead, she alleges that the funds in the escrow account were sufficient and available to cover her past due payments. Of note, the outstanding principal and interest likely exceeded $3,578.36.

“Moreover, Cenlar’s alleged failure to release the escrowed funds does not appear to be part of any agreement or condition that somehow prevented Perez from reclaiming the Property. The Court finds that Cenlar did not take any action that prevented Perez from paying the outstanding principal and interest.”

The demurrer is sustained as to Count Two.

Other claims

Because Perez has not shown that she was in contractual privity with Cenlar, the rest of her contract-based claims are not viable.

These include claims that Cenlar breached an implied covenant of good faith and fair dealing, that Cenlar violated the Real Estate Settlement Procedures Act by failing to offer loss mitigation relief and that Cenlar breached a contract by providing inaccurate balance statements.

Cenlar’s demurrer is sustained as to all counts.

Perez v. Cenlar, LLC, Case No. CL19-10130, April 19, 2022, Norfolk City Circuit Court (Lannetti). Heath J. Thompson, David M. Ashbury for the parties. VLW 022-8-027, 11 pp.

VLW 022-8-027

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