The opinion of the Virginia Supreme Court of Appeals in Young-Allen v. Bank of America provides both hope for lenders frustrated by borrowers who delay inevitable foreclosure sales by requiring the lender to comply with every applicable pre-foreclosure requirement and guidance for borrowers seeking to hold lenders to such requirements.

Ms. Young-Allen fell behind in her payments to Bank of America on a loan secured by a deed of trust on her home.  The Bank appointed Equity Trustees as substitute trustee under the deed of trust and Equity sent Ms. Young-Allen notice that her home would be sold at foreclosure sale.

Ms. Young-Allen’s deed of trust required the Bank to provide her with a notice of the right to cure, which stated the amount that must be paid, the date through which that amount would be adequate to reinstate the loan, and where payment was to be sent.  Although Ms. Young-Allen specifically requested such a statement, the Bank did not provide it.  Ms. Young-Allen requested that Equity postpone the foreclosure sale because of the Bank’s failure to provide the required notice.  However, Equity refused to postpone the sale.  An investment company purchased her home at the foreclosure sale.

Ms. Young-Allen filed suit against the Bank and Equity.  In her initial complaint, Ms. Young-Allen requested a declaratory judgment that the Bank and Equity had no right to foreclose because of the Bank’s failure to provide the required notice and rescission of the sale.  The Bank and Equity filed a demurrer in which they argued that Ms. Young-Allen had failed to allege that she had been damaged by the Bank’s failure to provide the required notice.  The Circuit Court agreed and dismissed Ms. Young-Allen’s complaint with leave to file an amended complaint.

Ms. Young-Allen then filed an amended complaint.  She requested that the foreclosure sale be rescinded due to the Bank’s failure to provide the required notice regarding her right to reinstate the loan and asserted that the Bank and Equity breached fiduciary duties to her by foreclosing without giving the required notice.  The Bank and Equity then filed a demurrer to the amended complaint, arguing again that Ms. Young-Allen had not alleged that she had been damaged.  The Circuit Court dismissed the amended complaint with prejudice.  Ms. Young-Allen appealed to the Virginia Supreme Court of Appeals.

The Supreme Court affirmed the dismissal of Ms. Young-Allen’s case.  With respect to rescission of the sale, the Court said that mere breach of a contract was not sufficient to rescind a sale.  Rescission will be ordered only in the case of a “material” or “substantial” breach of contract.  The Court said that “The terms ‘material’ and ‘substantial” imply that the breach of contract underlying the rescission claim has caused some type of injury or harm to the non-breaching party.”  Ms. Young-Allen’s complaint “did not allege that Young-Allen had the ability to cure her default.”  The Court said:

Without such an allegation, the complaint did not establish that the alleged breach caused any harm. If Young-Allen could not have cured her default, Bank of America’s failure to send the notices at issue regarding the right to cure did not cause Young-Allen to sustain an injury or incur any damages.

The Court affirmed the dismissal of the breach of fiduciary duty claim based on the same reasoning.  The Court again recited that Ms. Young-Allen had not alleged that she could have cured her default had she been given the required notice.  Equity, the Court said, was not required to postpone the foreclosure sale simply because Ms. Young-Allen told them that the Bank had not given the required notice.  The Court said:

[T]he complaint did not allege that Young-Allen told Equity that she had the ability to cure her default.  In the absence of such an allegation, the foreclosure sale appeared to be inevitable.

Noting that Ms. Young-Allen alleged in her complaint that she was behind in her loan payments, the Court said, “Under these circumstances, Equity did not breach any fiduciary duty that it owed to Young-Allen when it proceeded with the foreclosure sale.

The Virginia Supreme Court of Appeals’ denial of any relief to a borrower whose lender did not comply with its own loan documents, particularly based on a demurrer when the allegations in the complaint are to be taken as true, is extraordinary.  The decision was almost certainly influenced by the fact that Ms. Young-Allen had been given two chances to allege that she had sustained damages and had failed both times.  The Court emphasized the fact that “the previous demurrer expressly addressed the issue of damages.”  The fact that an investment company, rather than the lender, had purchased the property at the foreclosure sale so that rescission would have affected the rights of a third party without knowledge of the Bank’s failure to give notice, may have affected the decision as well.   Overall, the Court seems to have been convinced that Ms. Young-Allen was seeking delay for delay’s sake.  The Court made a point of noting that the complaint did not allege that Ms. Young-Allen could avoid a second foreclosure sale if the first was rescinded and that “the remedy requested by Young-Allen may have ultimately been futile.

Ms. Young-Allen alleged that she lost her home without being given the notice to which she was entitled.  She, like many, probably considered that to be damage enough.  Still, once she was told by the Circuit Court that she had not alleged damages sufficiently, she should have either abandoned her quest or alleged that the Bank’s failure to give her the required notice harmed her in some way.