Squire v. VHDA ( 2014 )

PRESENT: Kinser, C.J., Lemons, Millette, Mims, McClanahan, and
Powell, JJ., and Koontz, S.J.
JOYCE SQUIRE, ADMINISTRATOR OF THE
ESTATE OF KIM SQUIRE KING, ET AL.
OPINION BY
v. Record No. 130494 JUSTICE CLEO E. POWELL
April 17, 2014
VIRGINIA HOUSING DEVELOPMENT
AUTHORITY, ET AL.
FROM THE CIRCUIT COURT OF THE CITY OF NORFOLK
Everett A. Martin, Jr., Judge
In this appeal, we must decide whether the trial court
properly sustained the defendants’ demurrers in a suit filed by
Kim Squire King 1 after the foreclosure sale of her home. We hold
that the trial court erred in sustaining the demurrers as to
King’s claims of breach of contract (deed of trust) against
Virginia Housing Development Authority (“VHDA”) and breach of
fiduciary duty against Evans & Bryant, PLC (“Evans”) as
substitute trustee, for failure to hold a face-to-face meeting
prior to foreclosure. The trial court did not, however, err in
sustaining demurrers against King’s allegation of breach of
contract (forbearance agreement) and her requests for
declaratory judgment, rescission, and to quiet title.
I. FACTS AND PROCEEDINGS
On August 15, 2002, King purchased property at 513 Fauquier
1
We granted a motion by Joyce Squire, Administrator of the
Estate of Kim Squire King, Kenesha Felton and Kaziah Anderson to
be substituted for Kim Squire King.
1
Street in Norfolk, Virginia for $101,500. To purchase the
parcel, King executed a promissory note to VHDA in the amount of
$86,939. The note was secured by a deed of trust.
In 2008, King lost her full-time job and was forced to work
multiple part-time jobs as replacements. A year later, King
began to lose hours at her part-time jobs and by March 2010, she
had fallen behind in payments due under the note.
King contacted VHDA in June 2010 and arranged for a special
forbearance agreement through August 30, 2010, in which it was
agreed that King was $4,114.35 in arrears. The agreement deemed
these unpaid delinquent payments from March 1 through August
2010 to be “suspended.” In this agreement, VHDA also agreed to
reevaluate King’s loan in August 2010 “with the expectation the
loan will be reinstated by paying the delinquent amount due in
full or utilizing other loss mitigation programs to bring the
account current.” The agreement placed the responsibility upon
King “to contact VHDA when the forbearance ends or if [her]
current financial circumstances change[d].” The agreement also
provided that “[u]pon the breach of any provision of this
agreement, VHDA may terminate this agreement and, at the option
of VHDA, institute foreclosure proceedings according to the
terms of the note and security instrument without regard to this
instrument.”
In September 2010, King contacted VHDA to make a payment
2
and learned that VHDA would be foreclosing upon her home. VHDA
appointed Evans as substitute trustee under the deed of trust on
November 8, 2010. King then filed for Chapter 13 bankruptcy in
November 2010. On February 17, 2011, the bankruptcy court, at
King’s request, dismissed her petition without prejudice. In
February, March and April 2011, King paid her monthly payments
to VHDA. In May 2011, King made another payment, which VHDA
returned and informed her that her loan was in foreclosure. She
was instructed to contact Evans for reinstatement.
On October 24, 2011, an agent of A.J. Potter Investments,
LLC (“Potter”), the subsequent buyer of her foreclosed home,
came to King’s home to inspect it. King informed the agent that
the situation was “in litigation.”
Four days later, Evans conducted the foreclosure sale of
King’s home. Her home, which the city of Norfolk had assessed
at $223,000, was purchased by Potter for $115,200.
Following the sale of her home, King filed a complaint
against VHDA, Evans, and Potter. She alleged that paragraphs 9
and 18 of her deed of trust required the lender to comply with
certain federal regulations to accelerate the debt and foreclose
on King’s home. She alleged that these regulations prevented
VHDA from foreclosing until (a) she was three months in arrears
and (b) it had, or made reasonable efforts to arrange, a face-
to-face meeting with her. She alleged that VHDA breached the
3
deed of trust by foreclosing before it fulfilled these
requirements. Similarly, King alleged that Evans breached its
fiduciary duty by foreclosing when neither of the requirements
had been met. In addition, King alleged that VHDA breached the
terms of the forbearance agreement by not accepting her attempts
to repay the delinquent amount and by not implementing another
loss mitigation program because “she was not employed on a full-
time basis.” King alleged that these breaches resulted in the
foreclosure sale of her home and caused her to incur other
monetary damages.
King also contended that because VHDA did not comply with
the federal requirements, Evans was not authorized to sell the
home and therefore the October 28, 2011 sale of the property was
not a valid sale. She also sought a declaratory judgment that
Potter was not a bona fide purchaser. King sought to rescind
the foreclosure sale and quiet title in her favor.
In response to these claims, VHDA, Evans and Potter filed
demurrers. In a September 6, 2012 letter opinion, the trial
court held that King’s pleading demonstrated that she was more
than three months in arrears and that the pleadings demonstrated
that no litigation was pending at the time of the foreclosure
sale. The trial court further held that “the failure to conduct
or arrange for the face-to-face meeting, although perhaps a
sufficient ground to enjoin a foreclosure sale, for the
4
imposition of a regulatory sanction, or for an award of nominal
damages, is not a sufficient ground to award compensatory
damages or to set aside a completed foreclosure sale to a
stranger to the deed of trust without any notice or defect in
the sale, especially when the plaintiff has not alleged she was
ever ready and able to redeem the property or cure the default
before the sale.”
King obtained leave and subsequently filed a second amended
complaint in which King added Monarch Bank, Potter’s lender, as
a defendant. The defendants again filed demurrers. As to
King’s allegations that VHDA breached the deed of trust and
Evans breached its fiduciary duty, the trial court held that
King’s second amended complaint showed that she was at least
five months in arrears and she failed to plead when and how she
tendered a lump sum to bring her account current. The trial
court granted the demurrer on the breach of contract
(forbearance agreement) claim because the court ruled that King
failed to plead that she paid the delinquent amount in full in
compliance with the agreement or used other mitigation
procedures. In response to her claims for equitable relief, the
trial court reaffirmed its September 6, 2012, letter opinion.
This appeal followed.
5
II. ANALYSIS
“A trial court’s decision sustaining a demurrer presents a
question of law which we review de novo.” Harris v. Kreutzer,
271 Va. 188, 196, 624 S.E.2d 24, 28 (2006). It is well
established that “[a] demurrer accepts as true all facts
properly pled, as well as reasonable inferences from those
facts.” Steward v. Holland Family Props., LLC, 284 Va. 282,
286, 726 S.E.2d 251, 253-54 (2012).
At the demurrer stage, it is not the
function of the trial court to decide the
merits of the allegations set forth in a
complaint, but only to determine whether the
factual allegations pled and the reasonable
inferences drawn therefrom are sufficient to
state a cause of action. Riverview Farm
Assocs. Va. Gen. P’ship v. Bd. of
Supervisors of Charles County, 259 Va. 419,
427, 528 S.E.2d 99, 103 (2000). To survive
a challenge by demurrer, a pleading must be
made with “sufficient definiteness to enable
the court to find the existence of a legal
basis for its judgment.” Eagle Harbor,
L.L.C. v. Isle of Wight County, 271 Va. 603,
611, 628 S.E.2d 298, 302 (2006) (internal
quotation marks omitted).
Friends of the Rappahannock v. Caroline County Bd. of
Supervisors, 286 Va. 38, 44, 743 S.E.2d 132, 135 (2013).
Three Months in Arrears
Squire argues that the trial court erred in sustaining the
demurrer because the foreclosure was improper as King was not
three months in arrears. However, she admitted in her complaint
that she did not make payments in May, June, July and August of
6
2010 and did not bring this delinquency current or arrange for
alternative financing before the expiration of the forbearance
agreement. Thus, these facts, taken as pled by King, were
sufficient to prove that she was more than three months in
arrears on her mortgage. Therefore, the trial court did not err
in so ruling.
Ability to Pay Amount in Arrears
Squire contends that King averred in her second amended
complaint that she had the ability to cure the arrearage in
full. King’s complaint averred that she offered to pay the
delinquent amount in September 2010. The trial court held that
she did not state a claim because the agreement required her to
pay the amount in arrears in full by August 2010 or “utiliz[e]
other loss mitigation programs to bring the account current.”
King’s attempts to bring her loan current were taken beginning
in September 2010, after the forbearance agreement expired.
Furthermore, the trial court found that the deed of trust
allowed a borrower to tender a lump sum to bring her account
current, but King did not plead that she tendered a lump sum
amount for all payments alleged to be owed. Thus, this holding
by the trial court is not in error.
Face-to-face Meeting
Squire also argues that the trial court erred in sustaining
the demurrer because VHDA and Evans did not have the authority
7
to foreclose without first conducting the face-to-face meeting,
which they failed to do.
“A trustee’s power to foreclose is conferred by the deed of
trust. That power does not accrue until its conditions
precedent have been fulfilled. The fact that a borrower is in
arrears does not allow the trustee to circumvent the conditions
precedent.” Mathews v. PHH Mortgage Corp., 283 Va. 723, 731,
724 S.E.2d 196, 199 (2012) (citations omitted).
A deed of trust is construed as a contract
under Virginia law, see, e.g., Virginia
Hous. Dev. Auth. v. Fox Run Ltd. P’ship, 255
Va. 356, 365, 497 S.E.2d 747, 753 (1998),
and we “consider the words of [a] contract
within the four corners of the instrument
itself.” Uniwest Constr., Inc. v. Amtech
Elevator Servs., 280 Va. 428, 440, 699
S.E.2d 223, 229 (2010) (quoting Eure v.
Norfolk Shipbuilding & Drydock Corp., 263
Va. 624, 631, 561 S.E.2d 663, 667 (2002)).
Id. at 733, 724 S.E.2d at 200-01. We
construe [it] as written, without adding
terms that were not included by the parties.
When the terms in a contract are clear and
unambiguous, the contract is construed
according to its plain meaning. Words that
the parties used are normally given their
usual, ordinary, and popular meaning. No
word or clause in the contract will be
treated as meaningless if a reasonable
meaning can be given to it, and there is a
presumption that the parties have not used
words needlessly.
Uniwest Constr., 280 Va. at 440, 699 S.E.2d at 229 (quoting PMA
Capital Ins. Co. v. US Airways, Inc., 271 Va. 352, 358, 626
8
S.E.2d 369, 372-73 (2006)).
Here, as in Mathews, the deed of trust incorporated certain
regulations of the United States Department of Housing and Urban
Development ("HUD"), and mandated that foreclosure was not
permitted where it violated such HUD regulations. One
regulation requires that, absent certain exceptions not relevant
here, “[t]he mortgagee must have a face-to-face interview with
the mortgagor, or make a reasonable effort to arrange such a
meeting, before three full monthly installments due on the
mortgage are unpaid. If default occurs in a repayment plan
arranged other than during a personal interview, the mortgagee
must have a face-to-face meeting with the mortgagor, or make a
reasonable attempt to arrange such a meeting within 30 days
after such default and at least 30 days before foreclosure is
commenced.” 24 C.F.R. § 203.604(b). The regulations also
require that “[b]efore initiating foreclosure, the mortgagee
must ensure that all servicing requirements [including the face-
to-face interview] have been met.” 24 C.F.R. § 203.606(a)
(emphasis added). This is so because the purpose of the face-
to-face meeting is to “reduc[e] the incidence of foreclosure” by
providing an environment in which the “mortgagee employee can
often determine the cause of the default, obtain financial
information[,] establish a repayment schedule[,] and prevent
foreclosure by influencing the payment habits of mortgagors.”
9
U.S. Department of Housing and Urban Development, Handbook 4330.1
Rev-5: Administration of Insured Home Mortgages § 7-7(C)(1)
(1994), available at http://portal.hud.gov/hudportal/
documents/huddoc?id=43301c7HSGH.pdf (last visited April 7, 2014).
Thus, the deed of trust required VHDA to have or make reasonable
efforts to arrange a face-to-face meeting with King as a
condition precedent to foreclosure. VHDA did neither.
“The elements of a breach of contract action are (1) a
legally enforceable obligation of a defendant to a plaintiff;
(2) the defendant's violation or breach of that obligation; and
(3) injury or damage to the plaintiff caused by the breach of
obligation.” Filak v. George, 267 Va. 612, 619, 594 S.E.2d 610,
614 (2004).
When a . . . complaint contains
sufficient allegations of material facts to
inform a defendant of the nature and
character of the claim, it is unnecessary
for the pleader to descend into statements
giving details of proof in order to
withstand demurrer. Hunter v. Burroughs,
123 Va. 113, 129, 96 S.E. 360, 365 (1918).
And, even though a . . . complaint may be
imperfect, when it is drafted so that [the]
defendant cannot mistake the true nature of
the claim, the trial court should overrule
the demurrer; if a defendant desires more
definite information, or a more specific
statement of the grounds of the claim, the
defendant should request the court to order
the plaintiff to file a bill of particulars.
Alexander v. Kuykendall, 192 Va. 8, 14-15,
63 S.E.2d 746, 749-50 (1951).
CaterCorp, Inc. v. Catering Concepts, Inc., 246 Va. 22, 24, 431
10
S.E.2d 277, 279 (1993). King pled that VHDA failed to have, or
make reasonable efforts to arrange, a face-to-face meeting with
her. She further pled that VHDA’s failure was a breach of
contract. She also pled that Evans breached its fiduciary duty
by holding a foreclosure sale before the requirement was
fulfilled. She claimed these breaches
caused Plaintiff’s home to be sold at the
October 28, 2011 foreclosure sale which
resulted in Plaintiff’s loss of Plaintiff’s
home which was assessed by the City of
Norfolk as having a value of $223,000.00,
along with Plaintiff also incurring
$35,420.84 in alterations on her home
performed by Potter; $8,629.16 claimed by
VHDA in late fees and costs attributable to
the disputed foreclosure proceedings; moving
expenses to a temporary location in the
amount of $3,569.99, accumulating damages of
$1,270.00 in monthly living expenses since
April, 2012, and negative impacts on her
Equifax, Experian, and TransUnion credit
ratings related to this controversy.
Indeed, her allegations in her complaint comport with the very
purpose of the face-to-face meeting requirement.
The facts she pled and the damage that she alleged from the
failure to conduct a face-to-face meeting were sufficient to
“inform a defendant[s] of the nature and character of the
11
claim.” 2 Id. Thus, the trial court erred in sustaining the
demurrer filed by VHDA as to King’s breach of contract (deed of
trust) claim and the demurrer filed by Evans as to King’s breach
of fiduciary duty claim. Therefore, we reverse and remand as to
Counts 1 and 3 alleged in King’s second amended complaint.
Rescission of the Foreclosure Sale
Squire argues that the sale should be rescinded.
Specifically, she argues that (1) the sale price at foreclosure
was so far below the home’s assessed value that it shocked the
conscience and (2) Potter cannot be a bona fide purchaser for
2
Notably in Bayview Loan Servicing, LLC v. Simmons, 275 Va.
114, 654 S.E.2d 898 (2008), where we affirmed an award of
damages against a lender in a post-foreclosure situation,
[the borrower] alleged that . . . the Deed
of Trust required a pre-acceleration notice
of breach and the action required to cure
the breach prior to acceleration of any
indebtedness secured by the Deed of Trust
and that . . . the Deed of Trust required
that notice be delivered or sent by
certified mail. [The borrower] then alleged
neither personal nor certified mail delivery
of the pre-acceleration notice was made and
therefore no right to accelerate the
indebtedness secured by the Deed of Trust
had accrued. Consequently, [the borrower]
claimed no right to foreclose had matured.
Id. at 116, 118, 654 S.E.2d at 898, 899. The borrower did not
allege what she would have done to prevent the foreclosure sale
had she received notice.
12
value because she notified it of a problem with the sale. King
cites Bayview Loan Servicing, LLC v. Simmons, 275 Va. 114, 121-
22, 654 S.E.2d 898, 901 (2008), and Mathews, 283 Va. at 736, 724
S.E.2d at 202, where we addressed a pre-foreclosure situation in
which a borrower sought a declaratory judgment that a
foreclosure sale would be void, in support of her argument that
a material breach of the FHA regulations incorporated into a
deed of trust should be grounds to set aside a foreclosure sale.
Neither of these cases addresses the situation presented here,
where a borrower seeks to set aside a completed foreclosure sale
to an independent third party.
Whether rescission is a proper remedy is within the sound
discretion of the trial court. Bolling v. King Coal Theatres,
Inc., 185 Va. 991, 996, 41 S.E.2d 59, 62 (1947) (quoting Dobie
v. Sears, Roebuck & Co., 164 Va. 464, 470, 180 S.E. 289, 291
(1935)). In general, a judicial sale “‘will not be set aside for
mere inadequacy of price unless that inadequacy be so gross as
to shock the conscience, or unless there be additional
circumstances against its fairness.’” Schweitzer v. Stroh, 182
Va. 842, 848, 30 S.E.2d 689, 692 (1944) (quoting Dunn v. Silk,
155 Va. 504, 509, 155 S.E. 694, 695 (1930)). The burden to
prove gross inadequacy is on the person advancing such argument.
Jones v. Jones, 249 Va. 565, 573, 457 S.E.2d 365, 370 (1995).
In the deed of trust foreclosure context, however, where, as
13
here, “[t]here is no evidence that the trustee was guilty of any
fraud,” and no “suggestion that he showed any partiality toward
or was in collusion with the purchaser,” even an inadequate
price would not necessitate that the sale be set aside. Cromer
v. DeJarnette, 188 Va. 680, 687-88, 51 S.E.2d 201, 204 (1949).
Absent evidence of fraud, a sale will not be set aside for an
inadequate price. Musgrove v. Glasgow, 212 Va. 852, 854, 188
S.E.2d 94, 96 (1972).
Next, King argues that Potter was not a bona fide purchaser
because it was on notice that she disputed the foreclosure sale.
“Notice is actual when the purchaser knows
of the existence of the adverse claim, or
perhaps where he is conscious of having the
means of knowledge and yet does not use
them; and it is immaterial whether his
knowledge results from direct information or
is gathered from facts and circumstances.
The information must proceed, however, from
some person interested, or otherwise likely
to be well informed, or from someone who
gives specific and definite
statements . . . . Vague reports on general
assertions, especially from persons not
interested in the property and who,
therefore, may not be well informed, will
not affect the purchaser’s conscience.”
Vicars v. Sayler, 111 Va. 307, 312, 68 S.E. 988, 990 (1910)
(quoting 2 Raleigh C. Minor, The Law of Real Property § 1412
(1908)).
The conversation between King and Potter’s agent was simply
not enough to negate Potter’s status as a bona fide good faith
14
purchaser, especially where, as here, the assertion allegedly
reported to the prospective purchaser is that the property was
“in litigation.” King’s complaint, on its face, demonstrates
that the property was not subject to litigation at the time of
the foreclosure sale, as the sale was held on October 28, 2011,
and King did not file suit until December 19, 2011. Moreover,
she did not file a lis pendens for seven months after filing
suit. Thus, King failed to plead sufficient facts that would
have required the trial court to set aside the foreclosure sale.
Therefore, the trial court did not err in sustaining the
defendants’ demurrers on the rescission claims. 3
Quiet Title
Finally, King sought an order to quiet title. “[A]n action
to quiet title is based on the premise that a person with good
title to certain real or personal property should not be
subjected to various future claims against that title.” Maine
v. Adams, 277 Va. 230, 238, 672 S.E.2d 862, 866 (2009). A
person seeking to quiet title must plead that she has superior
title over the adverse claimant. Thus, in order for a claim for
quiet title to survive demurrer in the foreclosure context, the
3
As we declined to address whether setting aside a
completed foreclosure sale may be an appropriate remedy in
Bayview and Mathews because the borrowers did not seek it there,
we decline to do so in this case because King did not plead
sufficient facts.
15
former homeowner must plead that she has fully satisfied all
legal obligations to the real party in interest. See Tapia v.
U.S. Bank, N.A., 718 F. Supp. 2d 689, 700 (E.D. Va. 2010), aff’d,
441 Fed. Appx. 166 (4th Cir. 2011). Here, King’s complaint
reveals that she had not satisfied all legal obligations to the
party in interest, VHDA. Indeed, her failure to satisfy part of
her legal obligations to VHDA is the very essence of the suit
and this appeal. As such, the trial court did not err in
sustaining the defendants’ demurrers on the quiet title claims.
III. CONCLUSION
The facts alleged in King’s complaint demonstrate that she
was more than three months in arrears on her mortgage payment
obligations and that she had not attempted to cure the arrearage
during the pendency of the forbearance agreement. Thus, the
trial court did not err in sustaining VHDA’s demurrer as to
King’s breach of contract (forbearance agreement) claim.
Similarly, the facts and allegations made by King are not
sufficient to state a claim for rescission and, therefore, the
trial court did not err in sustaining defendants’ demurrers.
King’s complaint revealed that she had not satisfied her legal
obligations to VHDA and, therefore, the trial court did not err
in sustaining the defendants’ demurrers as to her claim to quiet
title.
16
However, King’s complaint alleged that VHDA breached the
deed of trust by failing to have, or make reasonable efforts to
arrange, a face-to-face meeting prior to initiating foreclosure.
It also alleged that Evans breached its fiduciary duty in
conducting the foreclosure sale. Further, it alleged that she
incurred damages as a result of these breaches. As such, it was
sufficient to withstand demurrer and the trial court erred in
sustaining VHDA’s demurrer as to King’s breach of contract (deed
of trust) claim and Evans’ demurrer as to King’s breach of
fiduciary duty claim. Therefore, the judgment of the trial
court will be affirmed in part, reversed in part, and this case
will be remanded for further proceedings consistent with this
opinion.
Affirmed in part,
reversed in part,
and remanded.
CHIEF JUSTICE KINSER, with whom JUSTICE LEMONS and JUSTICE
McCLANAHAN join, concurring in part and dissenting in part.
The purpose of a demurrer is to determine whether a
complaint states a cause of action upon which the requested
relief may be granted. Assurance Data, Inc. v. Malyevac, 286
Va. 137, 143, 747 S.E.2d 804, 807 (2013). In other words, "[a]
demurrer tests the legal sufficiency of facts alleged in
pleadings." Id. (internal quotation marks omitted). I conclude
that Counts 1 and 3 in the second amended complaint fail to
17
state a cause of action for breach of contract and breach of
fiduciary duty, respectively. The allegations by Kim Squire
King in the second amended complaint are legally insufficient to
show that the foreclosure was caused by the failure to hold a
face-to-face meeting. 1 Thus, I respectfully dissent as to that
portion of the majority opinion. I concur in the majority
opinion on the other issues.
At the outset, for the reasons explained in my concurring
opinion in Mathews v. PHH Mortgage Corp., 283 Va. 723, 742-43,
724 S.E.2d 196, 206-07 (2012), the alleged facts in King's
second amended complaint do not accurately state the 30-day
face-to-face meeting requirement set forth in 24 C.F.R.
§ 203.604(b). That provision requires a mortgagee to conduct a
face-to-face meeting with a mortgagor under two separate
circumstances. First, the meeting must occur "before three full
monthly installments due on the mortgage are unpaid." 24 C.F.R.
§ 203.604(b). Second, a mortgagor must hold the meeting "at
least 30 days before foreclosure is commenced" if "default
occurs in a repayment plan arranged other than during a personal
interview." Id.
In the second amended complaint, King asserted no
allegation that the Virginia Housing Development Authority
1
King is now deceased. See supra note 1 (majority
18
(VHDA) failed to hold the meeting before three full monthly
installments were unpaid, or that a default occurred "in a
repayment plan arranged other than during a personal interview."
Id. As was the case in Mathews, "by omitting relevant portions
of 24 C.F.R. § 203.604(b), [King] [was] able to allege that the
mortgagee failed to conduct a face-to-face meeting with [her] 30
days before commencing foreclosure, a requirement not set forth
in the plain terms of that sub-section." Mathews, 283 Va. at
744, 724 S.E.2d at 207 (Kinser, J., concurring). However, like
the mortgagee in Mathews, VHDA did not assert this ground in its
demurrer, and this Court, therefore, cannot consider it on
appeal. Id.
Turning now to the breach of contract claim, I find a lack
of uniformity among courts across the country as to the ability
of a mortgagor to file a cause of action based on a violation of
regulations promulgated by the Secretary of the United States
Department of Housing and Urban Development (HUD). "[T]he
weight of authority around the country roundly rejects the
notion that . . . HUD regulations support either direct or
implied private causes of action for their violation." Wells
Fargo Home Mortgage, Inc. v. Neal, 922 A.2d 538, 543-44 (Md.
2007) (collecting cases); accord Moses v. Banco Mortgage Co.,
opinion).
19
778 F.2d 267, 272 n.2 (5th Cir. 1985) (citing courts that "have
refused to create a right of action for private parties who wish
to sue to enforce [the National Housing Act] or regulations
promulgated thereunder"). This is in accord with decisions of
the United States Supreme Court holding that courts will not
imply such private rights unless the statute under which
regulations are issued itself reveals that Congress intended
such an action to be privately enforceable. See Touche Ross &
Co. v. Redington, 442 U.S. 560, 575 (1979).
Courts are also generally in agreement that although "the
HUD regulations do not create an implied cause of action for
damages," such regulations "may be used defensively as an
affirmative defense to a judicial foreclosure action instituted
by the creditor." Pfeifer v. Countrywide Home Loans, Inc., 150
Cal. Rptr. 3d 673, 687 (Cal. Ct. App. 2012) (citing cases); see
also Federal Land Bank of Saint Paul v. Overboe, 404 N.W.2d 445,
448 (N.D. 1987) ("[F]ederal regulations which have been held to
not imply a private cause of action may nevertheless afford a
basis for an equitable defense to a foreclosure action."); Lacy-
McKinney v. Taylor, Bean & Whitaker Mortgage Corp., 937 N.E.2d
853, 861-64 (Ind. Ct. App. 2010) (holding that noncompliance
with HUD regulations, such as the face-to-face meeting
requirement of 24 C.F.R. § 203.604(b), can be used as an
affirmative defense in a mortgage foreclosure action); Pfeifer,
20
150 Cal. Rptr. 3d at 686-89 (same).
Courts are split, however, on the question whether a
mortgagor may maintain a post-foreclosure breach of contract
action based on a mortgagee's non-compliance with HUD
regulations, even when the HUD regulations are incorporated in a
deed of trust. Those jurisdictions that have held that a
mortgagor cannot maintain a breach of contract action have done
so on differing grounds. For example, in Wells Fargo, 922 A.2d
at 545-47, the court stated that "a mortgagor may not wield as a
sword the HUD regulations alluded to in a mandatory [Federal
Housing Act] form deed of trust" because the regulations are not
a "voluntarily assumed" element of the contract and "do not
control directly the relationship between the mortgagor and the
mortgagee." Accord Hayes v. M&T Mortgage Corp., 906 N.E.2d 638,
642 (Ill. App. Ct. 2009) (adopting Wells Fargo rationale). In
Dixon v. Wells Fargo Bank, N.A., 2012 U.S. Dist. LEXIS 137769,
at *23 (E.D. Mich. September 25, 2012), the court rejected
plaintiff's breach of contract action as "merely a restatement
of claims for violations of the HUD regulations, an action that
concededly does not exist." See also Pfeifer, 150 Cal. Rptr. 3d
at 698 ("[W]e agree with the majority of courts that have
concluded that the breach of these regulations do[es] not
ordinarily provide a right of action.").
A minority of jurisdictions, however, have reasoned that
21
when HUD regulations are incorporated in a deed of trust, non-
compliance can serve as the basis for a post-foreclosure breach
of contract action against a mortgagee. See Mullins v. GMAC
Mortgage, LLC, 2011 U.S. Dist. LEXIS 35210, at *8 (S.D. W.Va.
March 31, 2011) ("[P]laintiffs are suing under a straightforward
state law contract theory," and not merely "to enforce HUD
regulations under some vague and likely non-existent cause of
action allowing a member of the public to take upon himself the
role of regulatory enforcer."); Baker v. Countrywide Home Loans,
Inc., 2009 U.S. Dist. LEXIS 53704, at *15 (N.D. Tex. June 24,
2009) ("[F]ailure to comply with the regulations made part of
the parties' agreement may give rise to liability on a contract
theory because the parties incorporated the terms into their
contract."). Our decisions in Mathews and Bayview Loan
Servicing, LLC v. Simmons, 275 Va. 114, 654 S.E.2d 898 (2008),
seem to align us with the minority view.
Although it did not involve HUD regulations, Bayview
addressed a post-foreclosure breach of contract action against a
mortgagee for violating a deed of trust, which required the
mortgagee to provide a "pre-acceleration notice of breach and
the action required to cure the breach prior to acceleration of
any indebtedness secured by" the deed of trust. 275 Va. at 118,
654 S.E.2d at 899. The deed of trust required that notice be
delivered or sent by certified mail. Id. The mortgagor
22
asserted that the required notice had not been made and that the
right to accelerate the indebtedness and to foreclose therefore
had not matured. Id. The trial court awarded the mortgagor
damages representing her loss of equity in her real property
after the mortgagee had foreclosed. Id. at 119, 654 S.E.2d at
900.
On appeal, the only issue was whether under Code § 55-
59.1(A), the mortgagee's notice of proposed foreclosure sale
effectively exercised the right of acceleration in the deed of
trust. Id. We concluded that it did not because the parties
had expressly agreed in the deed of trust that "no right of
acceleration would be in existence to exercise . . . until the
condition precedent of providing the pre-acceleration notice had
been satisfied." Id. at 121, 654 S.E.2d at 901. Because the
mortgagee failed to give the required notice, it "had not
acquired the right to accelerate payment." Id. Thus, we
affirmed the trial court's judgment awarding damages to the
mortgagor. Id. at 122, 654 S.E.2d at 902.
In Mathews, we did, however, address HUD regulations
incorporated in a deed of trust, but in the context of a pre-
foreclosure declaratory judgment action. 283 Va. at 728-29, 724
S.E.2d at 197-98. In the complaint, the mortgagors sought a
declaratory judgment that the impending foreclosure sale would
be void because the mortgagee had not complied with the face-to-
23
face meeting requirement in 24 C.F.R. § 203.604(b). Id. We
held that the HUD regulations were incorporated in the deed of
trust and "express[ed] the intent of the parties that the rights
of acceleration and foreclosure do not accrue under the [d]eed
of [t]rust unless permitted by HUD's regulations." Id. at 734,
724 S.E.2d at 201. "[T]he face-to-face meeting requirement,"
therefore, was "a condition precedent to the accrual of the
rights of acceleration and foreclosure incorporated into the
[d]eed of [t]rust." Id. at 736, 724 S.E.2d at 202. We thus
reversed the trial court's judgment sustaining the mortgagee's
demurrer and remanded the case, allowing the mortgagors to
proceed with their declaratory judgment action. Id. at 741, 724
S.E.2d at 205.
Although our decisions in Mathews and Bayview suggest that
we will allow a post-foreclosure breach of contract action
against a mortgagee for failure to comply with HUD regulations
incorporated in a deed of trust, neither of those decisions
addresses the central issue raised by VHDA in its demurrer to
King's breach of contract claim concerning the face-to-face
meeting requirement: that King did not plead sufficient facts to
show that her alleged damages were a direct result of VHDA's
failure to conduct the face-to-face interview. Mathews involved
a pre-foreclosure declaratory judgment action and thus did not
address the issue, and the mortgagee in Bayview did not raise
24
causation at trial or on appeal. See Bayview, 275 Va. at 118,
654 S.E.2d at 899.
VHDA argues, as it did on the demurrer, that the second
amended complaint contains no factual allegations to demonstrate
that the foreclosure resulted from the failure to conduct a
face-to-face meeting with King or that she would have been
entitled to a loan modification or other avoidance measure had
the meeting taken place. VHDA further argues that, unlike the
homeowner in Bayview who was unable to exercise her rights under
a deed of trust because she was not notified of the impending
foreclosure sale, King was aware of the foreclosure proceedings
and had the express authority under the deed of trust to
reinstate her loan and security instrument at any time, even
after foreclosure proceedings had been instituted, by tendering
all amounts required to bring her account current.
Like all plaintiffs in a breach of contract action, King
"bears the burden of establishing a causal connection between
the defendant's breach and the damages claimed." Haass &
Broyles Excavators, Inc. v. Ramey Bros. Excavating Co. 233 Va.
231, 235, 355 S.E.2d 312, 315 (1987). King's injury must be
"sustained in consequence of the wrongful . . . act,"
Westminster Investing Corp. v. Lamps Unlimited, Inc., 237 Va.
543, 546, 379 S.E.2d 316, 318 (1989) (internal quotation marks
omitted), and King has to establish that her damages "flowed
25
from [VHDA's] breach." Isle of Wight County v. Nogiec, 281 Va.
140, 149, 704 S.E.2d 83, 87 (2011). The causal connection
between a defendant's breach and the alleged damages is an
essential element of a breach of contract cause of action.
Filak v. George, 267 Va. 612, 619, 594 S.E.2d 610, 614 (2004).
Thus, to withstand a demurrer, King had to plead some fact to
show the causal connection between VHDA's breach and the
foreclosure.
In her second amended complaint, King pled that failure to
provide the face-to-face meeting "caused [her] home to be sold,"
which resulted in the loss of her home, costs incurred by
alterations done on the house, late fees and costs associated
with the foreclosure proceedings, moving expenses, monthly
living expenses after she moved from her home, and "negative
impacts" on her credit rating. Even though King never disputed
that she was in default under the terms of her loan agreement,
she did not, however, allege what she would have offered to VHDA
during a face-to-face meeting to avoid the commencement of
foreclosure proceedings or that the lack of the meeting
prevented her from exercising any of her rights under the deed
of trust, in particular her right of reinstatement. As the
majority correctly notes, the circuit court determined that the
deed of trust permitted King to tender a lump sum to bring her
account current but King never pled that she did so. Her alleged
26
monetary damages obviously flowed from the foreclosure, but
nothing in King's second amended complaint shows that the
foreclosure was "sustained in consequence of" the lack of the
face-to-face meeting. Westminster Investing Corp., 237 Va. at
546, 379 S.E.2d at 318 (internal quotation marks omitted).
Stated differently, King pled absolutely no facts that, if
proven at trial, would establish that the foreclosure resulted
from the failure to have the face-to-face meeting.
In reviewing a ruling upon demurrer, this Court is required
to accept as true all facts properly pled and all reasonable
inferences arising from those facts, Glazebrook v. Board of
Supervisors, 266 Va. 550, 554, 587 S.E.2d 589, 591 (2003), but
we are not bound to accept conclusory allegations made without
any factual support. See Moore v. Maroney, 258 Va. 21, 23, 516
S.E.2d 9, 10 (1999). King's "mere conclusory statement . . .
does not satisfy the pleading requirement of alleging facts upon
which relief can be granted" and is thus "insufficient to
withstand a demurrer." Dean v. Dearing, 263 Va. 485, 490, 561
S.E.2d 686, 690 (2002); see also Van Deusen v. Snead, 247 Va.
324, 330, 441 S.E.2d 207, 211 (1994) (holding that plaintiff's
"conclusory averment" was made without any supporting "factual
allegation" and thus the sustaining of a demurrer was affirmed).
When a plaintiff's cause of action "is asserted in mere
conclusory language" and supported by "inferences that are not
27
fairly and justly drawn from the facts alleged," it is proper to
sustain a defendant's demurrer. Bowman v. Bank of Keysville,
229 Va. 534, 541, 331 S.E.2d 797, 802 (1985).
Despite our well-established principles that a demurrer
tests "the legal sufficiency of facts alleged in pleadings,"
Glazebrook, 266 Va. at 554, 587 S.E.2d at 591 (emphasis added),
the majority is willing to overlook the absence of a single
factual allegation to show that the foreclosure was caused by
VHDA’s breach of its obligation to have a face-to-face meeting.
The majority is allowing a mortgagor in default to proceed to
trial on the bald, conclusory assertion that the lack of the
face-to-face meeting caused foreclosure under a deed of trust.
I am not willing to do so.
I fully subscribe to the principle that "it is unnecessary
for the pleader to descend into statements giving details of
proof in order to withstand demurrer." CaterCorp, Inc. v.
Catering Concepts, Inc., 246 Va. 22, 24, 431 S.E.2d 277, 279
(1993). Nevertheless, a plaintiff must allege sufficient
material facts "to enable the court to find the existence of a
legal basis for its judgment." Eagle Harbor, L.L.C. v. Isle of
Wight County, 271 Va. 603, 611, 628 S.E.2d 298, 302 (2006). 2
2
This is not a negligence case in which, under Rule
3:18(b), "an allegation of 'negligence' is sufficient without
specifying the particulars." Russo v. White, 241 Va. 23, 28,
28
Accepting as true the factual allegation that VHDA breached its
legal obligation to have the face-to-face meeting, I conclude
that the second amended complaint was not "made with 'sufficient
definiteness to enable the court to find the existence of a
legal basis for its judgment.'" Hubbard v. Dresser, Inc., 271
Va. 117, 122, 624 S.E.2d 1, 4 (2006) (quoting Moore v. Jefferson
Hospital, Inc., 208 Va. 438, 440, 158 S.E.2d 124, 126 (1967)).
King did not allege any fact to show that the foreclosure was
"caused by the breach of obligation." Sunrise Continuing Care,
LLC v. Wright, 277 Va. 148, 154, 671 S.E.2d 132, 135 (2009). 3
For these reasons, I respectfully concur in part and
dissent in part. I would affirm the circuit court's judgment
sustaining the demurrers.
JUSTICE MIMS, concurring.
I join the majority opinion in its entirety. I write
separately only to emphasize two key points in response to the
opinion of Chief Justice Kinser concurring in part and
dissenting in part.
400 S.E.2d 160, 163 (1991).
3
King's claim for breach of fiduciary duty against Evans &
Bryant, P.L.C., as substitute trustee, was also based on the
failure to have a face-to-face meeting. Thus, for the same
reasons, I conclude that King failed to allege sufficient facts
to state a cause of action for breach of fiduciary duty.
29
First, like the Chief Justice’s concurring opinion in
Mathews v. PHH Mortgage Corp., 283 Va. 723, 742-43, 724 S.E.2d
196, 206 (2012) (Kinser, C.J., concurring), her concurrence in
part and dissent in part in this case correctly observes that 24
C.F.R. § 203.604(b) (“the Regulation”) requires a “face-to-face
interview . . . or . . . reasonable effort to arrange such a
meeting” before either (a) “three full monthly installments due
on the mortgage are unpaid” or (b) “[i]f default occurs in a
repayment plan arranged other than during a personal interview,
. . . within 30 days of such default and at least 30 days before
foreclosure is commenced.”
Like the complaint in Mathews, id. at 743, 724 S.E.2d at
207, the second amended complaint in this case misquoted the
Regulation. However, it alleged that “Paragraphs 9 and 18 of
[the] Deed of Trust denied [Virginia Housing Development
Authority (“VHDA”)] acceleration of the debt and foreclosure on
[King’s] home without first complying with certain Federal
regulations,” specifically identifying the Regulation. It
further alleged that “VHDA materially breached Paragraphs 9 and
18 of its Deed of Trust with [King] by accelerating the debt and
foreclosing on [her] home without first complying with [the]
aforesaid Federal regulations.” It further invoked both of the
Regulation’s face-to-face meeting requirements by alleging that
“VHDA failed to comply [because] there was no face-to-face
30
meeting . . . at any point in time prior to foreclosure.”
(Emphasis added.)
On demurrer, courts accept a complaint’s allegations of
fact, not its conclusions of law. E.g., Arogas, Inc. v.
Frederick County Bd. of Zoning Appeals, 280 Va. 221, 224, 698
S.E.2d 908, 910 (2010). Courts deciding demurrers are not
constrained by a plaintiff’s characterization of the law.
Accordingly, misquoting or misconstruing the Regulation is not
fatal to King’s claim. The second amended complaint’s
allegation that acceleration and foreclosure occurred before the
regulatory requirement was fulfilled, having specifically
identified the Regulation, is sufficient to survive demurrer.
Second, in deciding a demurrer, courts consider not only
the facts actually alleged in the complaint but also “all facts
impliedly alleged[] and all reasonable inferences that may be
drawn from such facts.” Assurance Data, Inc. v. Malyevac, 286
Va. 137, 143, 747 S.E.2d 804, 807 (2013).
The second amended complaint alleged that King “made
several calls to Evans [& Bryant, PLC (“Evans”)] making inquiry
as to how she might have her loan reinstated, but Evans
indicated to her that they needed to check with VHDA.” It
further alleged that she “had $8,812.12 in savings and offered
to use these funds to cure the disputed arrearage in an effort
to have the loan reinstated.” It further alleged that she
31
“again contacted VHDA, but they only referred her to Evans.” It
further alleged that she “again contacted . . . Evans and
offered to cure the arrearage, but Evans responded that ‘there
was nothing that she could do.’” It further alleged that she
“was . . . in a financial position to cure the arrearage . . .
in May 2011, and offered to do s[o], both directly to VHDA and
indirectly through [Evans] but was refused by both.” *
If we accept these allegations as true, as we must on
demurrer, Arogas, 280 Va. at 224, 698 S.E.2d at 910, King had
money with which to reinstate the loan and offered to pay it,
but VHDA and Evans would not accept it or even tell her how much
they wanted. It is reasonable to infer from these facts that if
VHDA had complied with the Regulation and met her face-to-face,
she might have been able to pay the amount required, or at least
to learn how much it was. It therefore is reasonable to infer
that VHDA’s violation of the Regulation and breach of the deed
of trust prevented her from reinstating her loan and resulted in
*
Both the majority and the Chief Justice observe that King
ostensibly had a contractual right under her deed of trust to
reinstate her loan by paying the arrearage, plus any accrued
interest and fees, in a lump sum. However, she could not tender
such a payment until she knew how much was required. In her
response to the defendants’ demurrers, King asserted that she
“called both VHDA and Evans in an effort to discover what it
would cost to save her home, yet neither defendant provided this
critical information.”
32
a needless foreclosure, thereby causing her to lose the equity
in her home.
I therefore concur with the holdings of the Court.
33