Prepared by Kristine Brown, Managing Attorney, Shapiro & Brown, LLP
For the mortgage industry, meeting the challenge of assisting borrowers during this difficult time is paramount. And, where practical solutions can be found, loss mitigation is key. As the industry evolves, there is also the inevitable litigation that must be addressed. Favorable caselaw from Virginia seems to provide light at the end of the tunnel and a spread of common sense rulings that favor a harm standard crossing the Potomac.
Years ago, Shapiro & Brown obtained the ruling in Shepherd v. Burson establishing that a failure to disclose every secured party in the Notice of Intent to Foreclose is not a basis for dismissing a foreclosure action. The Court followed traditional Maryland law which required a party to allege not only an error but also actual harm or prejudice before setting aside or dismissing a foreclosure case. This logic has finally crossed over into Virginia.
In the case of Young-Allen v. Bank of America, the Supreme Court of Virginia applied a similar “harm” standard to this borrower’s challenge to the foreclosure sale and ruled that absent an ability to cure the default, allegations of defects in the notice of default were not sufficient to rescind the foreclosure sale. The Court deemed an assertion of injury caused by the lender and/or the Trustee to be necessary in order to establish a breach of contract claim. Because the borrower did not assert an ability to reinstate, the Court held where reinstatement was not feasible, the alleged defect of notice was immaterial and did not cause the borrower to sustain any injury.
In a similar progression, in Hobby v. Burson, our firm obtained a favorable ruling addressing HUD’s face to face requirements in Maryland in 2013. That court rejected the strict compliance standard imposed in other states which found that an allegation of noncompliance regardless of the substantive harm, may if sustained, preclude acceleration and enforcement of the deed of trust. In Hobby, the Maryland Court expressly reviewed the allegations to determine that there was no harm or prejudice and that, in the absence of harm or prejudice, the foreclosure sale was proper. By reviewing the totality of the circumstances, noting the prolonged unameliorated default and subsequent opportunity for mediation and loss mitigation options, the Maryland Court reaffirmed a substantial compliance standard so that a foreclosure sale need not be set aside on an allegation of error absent a showing of substantive harm or prejudice.
Now, in 2020, out of Virginia, the Fourth Circuit has confirmed with Stepp v. U.S. Bank Trust, N.A. that the Matthews v. PHH Mortgage Corp. case is no longer controlling and “branch office” is only meant to include loan servicing offices that conduct mortgage related business. This narrower ruling is consistent with Hobby v. Burson’s practical approach to making such meetings available where discussions of loss mitigation options are actually feasible.
In both instances, Young-Allen and Stepp’s challenges to the foreclosure sales in Virginia fail and the Courts make it clear that our current circumstances call for common sense decisions that advance the goals of home ownership and home retention.
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