VA: Foreclosure Purchasers Face New Potential Hurdle In Virginia

In Parrish v. Federal National Mortgage Association, the Virginia Supreme Court ruled 5-2 that when a defendant raises a bona fide question of the plaintiff’s title in an unlawful detainer/ejectment action before the General District Court, that court loses subject matter over the case and the plaintiff must vindicate its title in the Circuit Court, thereby creating another potential roadblock for purchasers of occupied properties at foreclosure.

The Parrish family owned improved real property in Hanover County, Virginia, and burdened by a deed of trust for the benefit of Fannie Mae to secure a loan. The Parrish’s defaulted on the loan, and Fannie Mae purchased the property at foreclosure, receiving a trustee’s deed.  Fannie Mae then filed an unlawful detainer action in the General District Court. In their defense, the Parrish’s argued that the foreclosure sale was invalid because they had filed a timely loss mitigation application as permitted by the deed of trust. The General District Court granted judgment to Fannie Mae, and the Parrish’s appealed to the Circuit Court, which also granted Fannie Mae judgment. The Virginia Supreme Court, in an opinion by Justice Mims, held that while a trustee’s deed would suffice in most cases to establish right of possession, “in limited circumstances, the homeowner could allege facts sufficient to place the validity of the trustee’s deed in doubt.” In that case, the General District Court lacks subject matter jurisdiction, and must dismiss the case without prejudice, unless that court is able to “satisf[y] itself that the allegations are insufficient.” The appeal to the Circuit Court did not cure the problem, since the Circuit Court’s jurisdiction on appeal is the same as the General District Court’s. Thus, in such a case, the holder of the trustee’s deed is left to vindicate its title claim in the Circuit Court through a new action.

This holding inspired two separate dissents. Justice McClanahan argued that the “result-oriented approach” used by the majority failed to appreciate the difference between right of possession, which is needed for an unlawful detainer action and within the General District Court’s subject matter jurisdiction, and “complete title,” which is not needed for an unlawful detainer action. Justice Powell agreed that the General District Court lacks jurisdiction to try title to real property, but argued that “there is a significant difference between an action that turns on the question of title and an action that tries title”-the former is an evidentiary question that is part of an unlawful detainer proceeding properly heard by the General District Court, while the latter “involves a conclusive determination of a party’s title.”