West Virginia Supreme Court of Appeals Holds That Borrowers Facing Foreclosure Do Not Have Standing to Challenge Validity of Assignments of Their Debts

Clete Pavone bought property in West Virginia from Patrick Russell in October of 2018.  Because he did not obtain a title search before buying the property, Mr. Pavone did not know that it was encumbered by a deed of trust that Mr. Russell had granted to Equity South Mortgage in 1999. Mr. Pavone learned of the existence of the Equity South deed of trust less than six months after he purchased the property when he received a foreclosure notice from a trustee acting for NPL Mortgage Acquisitions, LLC.

Mr. Pavone filed suit to enjoin the foreclosure sale.  He argued that NPL Mortgage had no right to foreclose because there had been no proper assignment of the deed of trust to NPL Mortgage.  The evidence showed that the following assignments of the deed of trust had occurred:

  1. Assignment by Equity South Mortgage to EFC Mortgage Corporation dated January 16, 2000 and recorded February 7, 2019;
  2. Assignment by EFC Mortgage to Life Bank dated January 7, 2000 and recorded February 11, 2019;
  3. Assignment by Life Bank to Franklin Credit Management Corporation dated August 15, 2005 and recorded February 12, 2019;
  4. Assignment by Franklin Credit Management to Deutsche Bank National Trust Company dated February 4, 2009 and recorded February 13, 2019; and
  5. Assignment by Deutsche Bank to NPL Mortgage dated January 30, 2019 and recorded February 14, 2019.

Mr. Pavone argued that there was a fatal break in the chain of assignments because the deed of trust had not yet been assigned to EFC Mortgage on January 7, 2000 when it purported to assign it to Life Bank.  As noted above, the assignment from the original beneficiary of the deed of trust, Equity South, to ECF Mortgage was dated January 16, 2000, nine days after the purported assignment by EFC to Life Bank.

The trial court ruled against Mr. Pavone based on the “after-acquired property doctrine.”  Under that doctrine, “property acquired by a grantor, who previously attempted to convey title to land which the grantor did not in fact own, inures automatically to the benefit of prior grantees.”  Mr. Pavone appealed to the West Virginia Supreme Court of Appeals.

In Pavone v. NPL Mortgage Acquisitions, LLC, the West Virginia Supreme Court did not address whether the trial court had misapplied the after-acquired property doctrine.  Instead, it held that Mr. Pavone did not have standing to challenge the validity of the assignments and remanded the case to the trial court with instructions to dismiss it.

The Supreme Court said that it had long recognized that the “prudential standing rule…normally bars litigants from asserting the rights or legal interests of others in order to obtain relief from an injury to themselves.”  Mr. Pavone was seeking to do just that because he was not a party to any of the assignments.  The Supreme Court cited multiple decisions of other courts which had held that only the parties to assignments of deeds of trust and mortgages have standing to challenge their validity and that borrowers do not because they are not parties to the assignments or intended third party beneficiaries.

The Supreme Court acknowledged that some courts have recognized an exception “if the borrower is at risk of paying the same debt twice.”  However, the Court said that “Obviously, in this case, Mr. Pavone could not make such a claim as he was not the borrower and, therefore, was not subject to paying the debt in the first instance.”

While the fact that Mr. Pavone was not the borrower might give someone who actually is the borrower hope that he or she can distinguish the Pavone case and stop a foreclosure sale of property by someone who does not hold a valid assignment, the Supreme Court’s holding does not seem to leave that door open.  The Court said without qualification, “we now hold that a litigant who is not a party to a mortgage assignment or a party intended to benefit from the assignment lacks standing to challenge the assignment.”

In light of the Supreme Court’s ruling, Mr. Pavone’s must choose between losing his property at a foreclosure sale or paying a debt of Mr. Russell that Mr. Pavone “was not subject to paying…in the first instance.”  Although that may appear harsh, depriving the holder of the unpaid loan to Mr. Russell of the right to collect because of the dates of the assignments would be a harsh result as well.  The after-acquired property doctrine developed to prevent that very result.  The only clear message from the Supreme Court’s opinion is this: When you buy property, get a title search!