On April 20, 2012, the Virginia Supreme Court issued an opinion in favor of a borrower facing foreclosure. This is the first such favorable opinion since Bayview Loan Servicing v. Simmons in early 2008. While the Virginia foreclosure litigation scene looks like a total massacre from the homeowners' point of view, there is plenty of hope for the future given the April 20 opinion.
Notably, MERS is headquartered in Virginia and pays a hefty tax revenue to Virginia. In this regard, Virginia judges are essentially on the MERS payroll, and they may be hard-pressed to bite the hand that feeds them. In my view, this provides an explanation why most foreclosure cases in Virginia are decided against the homeowner even where other states have ruled in the homeowner's favor in a similar situation and under similar applicable principles of law.
Nonetheless, the VA Supreme Court's opinion in Mathews v. PHH Mortgage Corp., No. 110967 (Va. Apr. 20, 2012) is fair and well-reasoned. The Court held that (1) just because a borrower is in arrears does not mean that the borrower cannot sue its lender for breach of the terms of the mortgage (deed of trust); the Court also held that (2) in an FHA loan, the loan servicer must have a face-to-face meeting with the borrower before it can initiate a foreclosure if the conditions triggering such a requirement are met.
Here are some notable quotes from the opinion:
A "lender must comply with all conditions precedent to foreclosure in a deed of trust even if the borrowers are in arrears."
"[D]amages may be awarded at law after a foreclosure sale has been conducted improperly because the power of foreclosure has not accrued. Equitable relief is available to enjoin the improper sale before it occurs as well . . . (a debtor may resort to equity to ensure that a trustee under a deed of trust fulfills his duties under the deed of trust[;] [e]quity . . . could interfere by injunction to restrain a trustee from improperly exercising his powers)."
"Accordingly, the face-to-face meeting requirement is a condition precedent to the accrual of the rights of acceleration and foreclosure incorporated into the Deed of Trust."
The entire opinion can be accessed here.