Foreclosure buyer had notice of bank’s right to payment

Where plaintiff bought a commercial property at a foreclosure sale and the prior owner had assigned all income and rights to secure a loan from defendant bank, plaintiff is not entitled to a $450,000 payment a tenant made to the prior owner’s agent to restore leased space to its original condition.

Leases and assignments

U.S. Bank is the owner and holder of a loan made to Silver Oak, secured by property at 5900 Lake Wright Drive. The property lien was perfected in January 2007, along with an additional assignment of leases and rents related to the property.

“The Assignment, in pertinent part, conveyed to the lender ‘all of the right, title and interest … in and to … all deposits (whether for security or otherwise), rents, issues, profits, revenues, royalties, accounts, rights, benefits and income of every nature of and from the Property.’”

At issue is a $450,000 payment – the demolition payment – that a building tenant made to Silver Oak’s agent “to restore or remove any improvements and fixtures made to the Property by Virginia Oncology.”

Silver defaulted. U.S. Bank, as a successor in interest, foreclosed and sold the property on September 23, 2021. Plaintiff Lake Wright purchased the property and claims entitlement to the demolition payment and rents paid in September and October 2001.

U.S. Bank refused to turn over the rents and demolition payment. Lake Wright sued for conversion and unjust enrichment. The parties have filed cross motions for summary judgment.

Plain language

“The plain language of the Assignment is broad, with Silver conveying to U.S. Bank ‘all of the right, title and interest[] in and to … all deposits (whether for security or otherwise), rents, issues, profits, revenues, royalties, accounts, rights, benefits and income of every nature of and from the Property.’ …

“Despite Lake Wright’s assertion that the Assignment does not cover the Demolition Payment, the contract’s plain language indicates otherwise. Furthermore, the Assignment specifies that the list of enumerated payments conveyed to U.S. Bank is ‘without limitation.’ …

“The Court must give words ‘their usual, ordinary, and popular meaning’ and, as such, the Court holds that the Assignment contemplates U.S. Bank obtaining ‘all deposits[,] … benefits and income of every nature of and from the Property … without limitation.’ …(emphasis added).

“In sum, the Court holds that the Assignment contemplates inclusion of the Demolition Payment. Hence, U.S. Bank was entitled to apply the Demolition Payment to the outstanding loan balance. …

“The Assignment was recorded in 2007 in the Norfolk Circuit Court Clerk’s Office. This predated when Virginia Oncology conveyed the Demolition Payment, the date of the foreclosure sale, and the foreclosure sale closing date. Therefore, Lake Wright had constructive notice of the interest conveyed to U.S. Bank by the Assignment. …

“Because the Assignment conveyed all interest in the leases to U.S. Bank, the Assignment was recorded, and there is no evidence suggesting that U.S. Bank ever assigned the Assignment to Lake Wright, U.S. Bank’s interest in the Demolition Payment clearly is superior to that of Lake Wright. As such, U.S. Bank had a legal right to apply the Demolition Payment toward the outstanding loan balance.”

U.S. Bank is granted summary judgment.

5900 Lake Wright Drive v. U.S. Bank, Record No. CL22-2659, Nov. 23, 2022. City of Norfolk Circuit Court (Lannetti). Gregory A. Giordano, R. Andrew Hutchinson for the parties. VLW 022-8-076, 11 pp.