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Attorney Fees and Costs Recoverable against Foreclosed Borrowers in Virginia Unlawful Detainer Actions (Effective 7/1/18)

Posted By USFN, Tuesday, April 17, 2018
Updated: Monday, April 16, 2018

April 17, 2018 and May 1, 2018

by E. Edward Farnsworth, Jr.
Samuel I. White, P.C. – USFN Member (Virginia)

In the 2018 regular session, foreclosure purchasers realized a benefit by way of House Bill 311. Signed into law by the governor on March 9, 2018, and becoming effective July 1, 2018, this bill provides for additional remedies (including reasonable attorney fees and costs) against borrowers who fail to vacate after foreclosure. Virginia courts are adherent to the “American Rule,” which only permits a prevailing party to recover attorney fees and costs where contractually permitted or authorized by statute. For this reason, attorney fees and costs for post-foreclosure eviction actions have not been available in the Commonwealth. Most, if not all, common deed of trust forms fail to address recovery of post-foreclosure fees and costs associated with obtaining possession, and Virginia statute did not provide such a remedy.

Specifically, House Bill 311 amends Virginia Code § 8.01-126 (the Virginia unlawful detainer statute) and addresses the legal status of foreclosed borrowers who occupy the property on the date of foreclosure. The newly minted § 8.01-126(C)(4) states that foreclosed borrowers are “tenants-at-sufferance” and such tenancy is terminable by sending a written 3-day notice of termination. The new statute effectively negates Johnson v. Goldberg, 207 Va. 487 (1966), where the Virginia Supreme Court held that foreclosed borrowers, as tenants-at-sufferance, are not entitled to any notice to quit or vacate. After expiration of the notice, the foreclosure purchaser is permitted to file an unlawful detainer. Where notices to vacate mailed to foreclosed borrowers are currently more a requirement of court custom and preference, they will become a material condition to seeking possession as a matter of law.

The new section also enables claims for damages and fair rental value, in addition to attorney fees and court costs: “Such tenant shall be responsible for payment of fair market rental [sic] from the date of such foreclosure until the date the tenant vacates the dwelling unit, as well as damages, and for payment of reasonable attorney’s fees and court costs.” While these new remedies can be sought as part of the unlawful detainer, this new provision seems to also provide an avenue for a separate cause of action where the borrower vacates after the expiration of the termination notice, but prior to filing the unlawful detainer, and the property has been detained for a significant time thereafter and/or has been damaged by the borrower. Similarly, such remedies could be sought after a “lock out” pursuant to an order of possession, or through bifurcation of the unlawful detainer action into a ruling on possession and a later hearing, post-lock out, to determine “final rent and damages.” Bifurcation is commonly used in landlord/tenant cases.

Operationally, when the statute becomes effective, notices to vacate should be revised to recite this statue’s applicability to borrowers — and that failure to vacate may subject them to a claim for fair rental value, damages, and reasonable attorney fees and costs. This may give greater incentive to borrowers to timely vacate rather than exploit the administrative time required by the judicial eviction process. Perhaps it will also compel borrowers to evaluate the merits of contesting the eviction more prudently. It should be noted that this statute does not apply to occupancy by foreclosed tenants of the borrower, which is addressed by Virginia Code § 55-225.10(C).

 

While these remedies will be available come July 1, 2018, whether to pursue them should be carefully considered by servicers and outsourcers, as Virginia general district courts will likely require witnesses to establish these monetary claims (which are separate and apart from merely seeking possession). Seeking these new remedies may add additional time, cost, and effort to the standard eviction process where possession is the primary desired outcome. A monetary judgment, after all, may only be as good as its collectability.

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