August 2, 2016
by E. Edward Farnsworth, Jr.
Samuel I. White, P.C. – USFN Member (Virginia)
Historically, foreclosed borrowers in Virginia have been unable to prevent possession awards in General District Court unlawful detainers by alleging defects in the foreclosure. Such challenges were deemed collateral attacks on title and outside of the statutorily created subject matter jurisdiction of the court. Circuit Courts sitting in their derivative appellate jurisdiction were similarly restrained from considering such defenses. Accordingly, foreclosure purchasers were accustomed to an unfettered path to obtaining an order of possession without much delay.
Borrowers alleging defects in a foreclosure were forced to file separate affirmative suits in the Circuit Court, challenging the sale and seeking remedies to delay enforcement of an award of possession. A recent Virginia Supreme Court decision, however, has granted borrowers a path to present defenses pertaining to challenging the foreclosure sale by mandating prosecution of certain cases in the Circuit Court, rather than in General District Court.
In Parrish v. Federal National Mortgage Association, Record Number 150454 (June 16, 2016), Virginia’s highest Court considered the foreclosed borrowers’ appeal from the Hanover Circuit Court’s award of summary judgment in an unlawful detainer that originated in the General District Court. In the “Grounds of Defense” filed in the General District Court, the Parrishes alleged that the lender violated 12 C.F.R. § 1024.41(g) by proceeding to foreclose where a complete loss mitigation package had been provided more than 37 days prior to sale. The General District Court awarded possession in favor of Fannie Mae, from which the borrowers appealed. In the appeal, Fannie Mae filed a motion for summary judgment, or alternatively, a motion in limine.
The Circuit Court granted Fannie Mae summary judgment, awarding it possession, and the Parrishes appealed to the Virginia Supreme Court. In a 5-2 decision, the Court held that the borrowers had raised a “bona fide claim” that the foreclosure sale, and resulting trustee’s deed, could be set aside. This deprived the General District Court (and the Circuit Court on appeal) of subject matter jurisdiction, requiring dismissal of the unlawful detainer without prejudice, and requiring Fannie Mae to file suit in the Circuit Court in order to obtain possession — where that court’s original jurisdiction permits it to adjudicate issues of title.
The majority in Parrish confirmed that General District Courts have never been granted jurisdiction to try matters of real estate title within actions for unlawful detainer, but they opined that this limitation created a “conundrum because some actions for unlawful detainer necessarily turn on the question of title.” The Court determined that where a plaintiff’s right of possession is based on a claim of title acquired after defendant’s entry, “[t]he question of which of the two parties is entitled to possession is inextricably intertwined with the validity of the foreclosure purchaser’s title” and, because of this intertwining, “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.”
The majority was careful to explain that in order to deprive the court of jurisdiction, such claims “must be legitimate.” The standard outlined by the Court is whether such allegations are sufficient to survive a demurrer had the borrower filed a complaint in the Circuit Court. Applying this newly created standard to the facts of the case, the Court held that the allegations were sufficient to have stated a bona fide claim. The grant of summary judgment was therefore vacated and the case dismissed without prejudice.
With regard to any retroactive application of the ruling, the majority indicated that where a borrower did not previously raise such challenges, the ruling was not subject to collateral attack; and that adverse decisions where the borrower had raised such issues were “voidable” and subject to collateral attack on direct appeal. The impact of Parrish will be a notable increase in costs and eviction timelines where it becomes necessary to proceed through the Circuit Court instead of the more streamlined General District Court process.
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