In Advance Bank v. Matthews, the D.C. Court of Appeals determined that the trial court properly granted summary judgment in favor of the Bank on its complaint for breach of contract, judicial foreclosure and/or judicial sale of a residential mortgage, without first requiring the parties participate in mediation pursuant to D.C. Code § 42-815(b), which it determined was only applicable to non-judicial foreclosures.
According to the Court, judicial sales under D.C. Code §42-816 are “wholly different from non-judicial foreclosures because of the court’s involvement in the process, which reduces the risk of error and predatory foreclosure practices. Therefore, § 42-816 authorizes the court to order a judicial sale and there is no mediation requirement.” Op. at 10.
A copy of the opinion is at: http://www.dccourts.gov/internet/documents/13-CV-1473.pdf
In Matthews, an action against the Borrower for loan fraud, the Bank ultimately amended its lawsuit adding a breach contract claim, judicial foreclosure and/or judicial sale claim in the alternative, and thereafter moved for summary judgment.
After court-ordered mediation was unsuccessful, the trial court granted summary judgment on the breach of contract claims finding undisputed that the Borrower had defaulted on his residential loan and his promissory note. The trial also granted summary judgment on the judicial sale claim pursuant to D.C. Code §42-816. That statute provides in pertinent part:
In all cases of application to said court to foreclose any mortgage or deed of trust, the equity court shall have authority, instead of decreeing that the mortgagor be foreclosed and barred from redeeming the mortgaged property, to order and decree that said property be sold and the proceeds be brought into court to be applied to the payment of the debt secured by said mortgage . . . .
D.C. Code §42-816; accord Op. at n. 2 (“Section 42-816 authorizes the court to order a judicial sale instead of a judicial foreclosure. ‘A suit for judicial foreclosure to enforce a lien on real property is historically an equitable action, . . which involves an adjudication of the parties’ rights and obligations before any property is sold.’” (citations omitted)).
According to the trial court, although there existed a power of sale provision in the deed of trust, which the Bank could have used to initiate non-judicial foreclosure proceedings under § 42-815, the court found that a judicial sale was appropriate in light of Borrower’s opportunity to fully litigate the case; opportunity to participate in a mediation session; and knowledge that foreclosure would eventually occur.
The Borrower appealed, claiming that he was entitled to foreclosure mediation pursuant to D.C. Code § 42-815.02. He asserted that court-ordered mediation was insufficient, as it did not comply with the statutory mediation requirements of § 42-815.02 “because it was not geared toward loss mitigation, which provides the homeowner with alternative options for curing the mortgage default in lieu of foreclosure. . . . ” Op. at 4 n. 5, including “renegotiation of the terms of a borrower’s residential mortgage, loan modification, refinancing, short sale, deed in lieu of foreclosure, and any other options that may be available.” Op. at 5 (quoting D.C. Code § 42-815.02(a)(5)). According the Borrower, the Bank’s summary judgment motion requesting judicial foreclosure under § 42-816 circumvented the requirements in § 42-815 (b) and § 42-815.02, and further claimed that § 42-816 did not apply to residential mortgages.
Rejecting the Borrower’s arguments, the Court of Appeals observed that, although § 42-815 was amended in 2011 to require lenders and home owners to participate in mediation and obtain a “mediation certificate” prior to foreclosure, “[t]his amending act did not cause any changes to the law of judicial sales and judicial foreclosures under § 42-816.6.” Op. 8. Rather, “§ 42-815 controls when dealing with ‘power of sale’ [non-judicial] foreclosures under an instrument such as a deed of trust and § 42-816 refers to judicial sales, where the sale is requested by a lender then ordered by the court or an officer acting under court order.” Op. at 9.
Consequently, the Court determined that the amendment to § 42-815 providing for mediation “intended to protect District residents from predatory practices by mortgagees because of the lack of oversight during the non-judicial foreclosure process.” Op. at 9-10.
“Although mediation is not required for a judicial sale, there exists judicial oversight, which embodies the [City] Council’s intent in amending § 42-815 (b) to include the mediation requirement.” Op. at 10-11. In any event, the Court noted that Borrower “was provided with the same protections of § 42-815 because the parties participated in a court-ordered mediation in addition to the protections provided by § 42-816.” Thus, the Court concluded that “judicial sales pursuant to § 42-816 are not a means for bypassing the requirements in § 42-815, but are only alternative procedures for lenders seeking action with the court for a defaulted mortgage loan.” Op. at 11.
Finally, the Court rejected the Borrowers assertion that judicial sales under § 42-816 only apply to commercial mortgages, noting that the Borrower cited no authority for such proposition, and “that there is no basis, in the statute itself or in the legislative history, for concluding that the Council intended any such limitation on judicial sales.” Rather, the Court held that judicial sales under § 42-816 are applicable to residential mortgages. Op. at 11.
Accordingly, the D.C. Court of Appeals affirmed the trial court’s grant of summary judgment in favor of the Bank.