Parrish v. Callahan, Record No. 1342-22-3 (Va. Ct. App. Oct. 3, 2023)
A foreclosed homeowner tries to rescind the sale of his home in the Court of Appeals.
Facts. Ernest Parrish took a credit advance on his home, which he secured by a deed of trust. After Parrish failed to make mortgage payments, the lender appointed Quinton and Mark Callahan as substitute trustees on the deed of trust to arrange a foreclosure sale by auction. The trustees mailed notice of the sale to Parrish 30 days beforehand.
After the house was sold at auction, Parrish filed a complaint, asking the circuit court to rescind the sale because the trustees failed to satisfy notice requirements in Code §§ 55.1‑320(10) and 55.1‑321(A). The trustees and purchaser demurred, arguing that failure to comply with the notice provisions of the statutes was not a basis for rescission and that equitable rescission was not available because that remedy is limited to cases involving fraud, collusion, or a sale price “so low as to shock the conscience.” The trial court agreed and sustained the demurrer but allowed Parrish to file an amended complaint.
In his amended complaint, Parrish also alleged that if he had had proper notice he “would more than likely have found a way to stop the foreclosure, as a last resort by a bankruptcy.” He sought rescission again, but in the alternative, claimed rescission was not required because the “disputed foreclosure auction was conditional and not final, so the court should enjoin closing “on the disputed foreclosure auction” or require the trustees to “set aside the disputed foreclosure auction.”
The trustees and purchaser demurred again, and the court sustained the demurrer again. The court rejected Parrish’s claim that the sale was not final and found that he had not alleged damages with sufficient specificity to warrant equitable rescission. Parrish appealed.
Issues. (1) Whether a defect in notice of a foreclosure sale on a deed for trust is grounds for rescission. (2) Whether equitable rescission was available based on the facts pled in the amended complaint.
Holdings. (1) No. Code § 55.1-321(C) expressly states that a failure to comply with notice requirements “shall not affect the validity of the sale.” (2) No. Virginia courts have never held that equitable rescission is available in cases where a plaintiff fails to plead damages or harm caused by breach of a deed of trust.
Notes. (1) Code § 55.1-321(A) states that written notice of a foreclosure sale of an owner-occupied residence must be given no less than 60 days prior to the sale. Code § 55.1‑320(10) states that a trustee may not sell that property without receiving an affidavit from the party providing the notice confirming the notice was properly given. Code § 55.1-321(C) unambiguously states that failure to comply with notice requirements of Code § 55.1-321(A) does not affect the validity of the sale. Every violation of Code § 55.1-321(A), however, necessarily leads to a violation of Code § 55.1‑320(10). There is no provision that a violation of Code § 55.1‑320(10) supports rescission of the foreclosure sale, and reading an implied provision into the statute undermines the legislature’s decision to exclude rescission as a remedy in Code § 55.1-321(C). Finally, “upon foreclosure under a Virginia deed of trust, the contract of sale is consummated when the auctioneer cries the property out to the person making the highest and last bid.” Thus, the sale was not conditional, but final.
(2) Equitable rescission of a foreclosure sale is available “in cases involving fraud, collusion with the purchaser, and a foreclosure sale price of such gross inadequacy that it shocks the conscience of the court,” or based on a “breach of contract theory if the underlying breach of contract is substantial or material.” A “substantial” or “material” breach implies that the breach of contract has caused some damage or harm. Here, Parrish only alleged that notice would have given him more time to delay the sale, not that he would be able to pay off the debt to avoid foreclosure. “Without a link between the alleged wrong and proposed remedy,” Parrish did not plead sufficient grounds to support equitable rescission.