CitiFinancial Mortgage Company, Inc. v. Augustus Beasley

Citation: Not availableDocket: W2006-00386-COA-R3-CV

Court: Court of Appeals of Tennessee; January 10, 2007; Tennessee; State Appellate Court

Original Court Document: View Document

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Augustus and Sheila Beasley (the Beasleys) are appealing the denial of their request to challenge an unlawful detainer judgment and the foreclosure of their residence, following a summary judgment granted to CitiFinancial Mortgage Company, Inc. (Citi). The Beasleys' initial petition for writs of certiorari and supersedeas, which was submitted after the appeal deadline, claimed insufficient funds for a timely appeal and alleged that the foreclosure was premature, violating their deed of trust. The trial court denied their petition, stating it lacked sufficient merits for a trial de novo. On appeal, the Beasleys argued that their claims met the merits requirement under Tennessee law. The appellate court reversed the trial court's decision, indicating that the Beasleys' allegations warranted further consideration. The Beasleys defaulted on their loan in July 2004, received a notice of default, and did not rectify the situation before the foreclosure sale on August 13, 2004, where Citi purchased the property. After failing to appear at the detainer hearing on September 27, 2004, the Beasleys filed their petition on October 21, 2004, citing financial constraints and lack of knowledge about Citi's repossession intent until just before filing. Citi filed for summary judgment, providing a statement of undisputed facts but omitting details about the Beasleys' petition. The case was set for a hearing in early 2005, but the presiding judge recused herself. The appellate court's ruling reversed and remanded the case.

On the same day, the Beasleys submitted a motion to amend their original petition, detailing facts related to their wrongful foreclosure claim, material facts in dispute, and a response to the plaintiff's motion for summary judgment. Following an agreement between the parties, the venue for the hearing was moved to Tipton County on August 8, 2005. A summary judgment hearing took place on January 12, 2006, where the Beasleys argued their wrongful foreclosure case. The Beasleys re-filed all prior documents, including the amended petition, in Tipton County the following day and provided additional legal arguments to the judge. On January 26, 2006, the court granted summary judgment to Citi, stating the Beasleys had not sufficiently supported their petition, despite acknowledging the foreclosure and detainer actions. The court did not reference the amended petition. On appeal, the Beasleys claimed that Citi did not comply with the deed of trust, which could have allowed them to cure the default. The appeal raised questions about whether the trial court erred in dismissing the Beasleys' petition based on insufficient merits and whether the wrongful foreclosure claim constituted a valid defense against unlawful detainer. 

The appellate review focuses on three key issues: the trial court's consideration of the amended petition, the requirements for reviewing an unlawful detainer judgment, and the validity of a wrongful foreclosure defense in such actions. The court concluded that the amended petition was properly before the trial court, as it introduced a potentially meritorious defense, contrasting with the original petition which lacked sufficient merit, particularly regarding the vague allegations of insufficient notice related to the detainer proceedings.

The Tennessee Rules of Civil Procedure dictate the framework for appeals from general sessions courts to circuit courts, distinguishing between pleadings and motions. Pleadings must include a clear statement of the claim and a demand for relief (Tenn. R. Civ. P. 8.01), while motions are written applications for court orders, requiring specific grounds and the relief sought (Tenn. R. Civ. P. 7.02). The Rules explicitly limit pleadings to defined types and treat motions separately, emphasizing that a motion is not classified as a pleading. Although a petition may be viewed as either a motion or a pleading, the case indicates it should have been amended. No rules specify how to amend motions, but Tennessee courts typically allow amendments if no ruling has been made on the original motion. In this instance, the court had not ruled on the petition, and the proposed amendment was with Citi for nearly a year before the hearing. The court reviewed issues related to foreclosure without opposition from Citi regarding the Beasleys' statement of evidence, which is thus accepted as accurate. As such, the amended petition was properly before the trial court, whether analyzed as a motion or a pleading. The Beasleys had the right to amend their petition since no answer had been filed by Citi, who only submitted a motion for summary judgment. Under Tenn. R. Civ. P. 15.01, the Beasleys could amend as of right, confirming that the petition, regardless of classification, was appropriately amended.

In the context of a petition for writs of certiorari and supersedeas following an unlawful detainer action, the parties dispute the applicable standard for success. The Beasleys argue that financial constraints justify their failure to appeal and claim that they need not provide a statement of merits or an excuse for not appealing, asserting that their allegations constitute sufficient merits. In contrast, Citi argues that a petitioner must demonstrate a substantial reason for not appealing and present allegations that would, if true, establish a meritorious defense.

Under Tennessee law, an unsuccessful defendant in a forcible entry and detainer (FED) action has ten days to appeal the judgment. While the defendant can appeal as of right, the plaintiff may regain possession by posting bond for twice the rent amount. If the defendant wishes to retain possession during litigation, they may petition for writs of certiorari and supersedeas, which would stay the writ of possession and permit circuit court review. To succeed, the defendant must file within thirty days of the judgment, adequately state merits, and post bond covering costs and damages.

The standards for sustaining such petitions differ from those in other cases. While the general requirement is to show good reason for not appealing, this is not necessary for FED judgments, although both require sufficient merits. If a defendant posts bond and files for writs within the specified timeframe, they need only demonstrate sufficient merits for circuit court review. Merits are defined as allegations that, if proven true, would provide a meritorious defense. The statute does not mandate proving these allegations to the level required at trial; instead, a prima facie showing of merit is adequate for issuing writs.

The Beasleys met the statutory requirements by posting bond and filing timely for the writs, thus necessitating a prima facie showing of merit to retry the unlawful detainer action in circuit court.

The Beasleys may assert wrongful foreclosure as a defense in their unlawful detainer action, which could entitle them to writs if deemed meritorious. Tennessee law recognizes a right to pursue a writ of possession when a lessee remains after lease termination, as established by Cain P'ship v. Pioneer Inv. Servs. Co. and supported by Tenn. Code Ann. § 29-18-101. The purpose of forcible entry and detainer (FED) actions is to provide a quick, low-cost means of determining land possession rights, contrasting with the more complex common law ejectment actions. These proceedings aim to prevent violence during property repossession, necessitating a court-issued writ for lawful entry.

While FED actions focus solely on possession rights, and typically do not address title issues, there are exceptions. When a party’s title claim directly affects possession rights, such as in cases of fraudulent representation or questionable title, the court may consider title evidence. In Elliott v. Lawless, the court upheld that title issues could affect possession rights, indicating that such matters might require resolution outside summary proceedings. Ultimately, if a claimant's title is disputed, that could necessitate proof of superior title before proceeding with an FED action. The Tennessee Supreme Court affirmed that the plaintiff in a detainer action could not succeed without establishing lawful possession, highlighting the limitations of pursuing possession under an incorrect theory.

In Tennessee, when a defendant takes possession of property—either vacant or from a third party claiming title through adverse possession—the plaintiff must initiate an ejectment suit to recover that possession. The Tennessee Supreme Court distinguishes between ejectment and unlawful detainer based on whether there is a legal title issue. In cases involving a deed of trust where the maker defaults and refuses to surrender possession post-foreclosure, the appropriate legal action is unlawful detainer. 

Unlawful detainer applies when a defendant enters via a contractual relationship, either as a tenant or an assignee, and holds possession willfully without force. A landlord/tenant relationship established by contract is essential for an unlawful detainer action. If the trust deed creates such a relationship between the mortgagor and the purchaser at a foreclosure sale, constructive entry occurs upon title transfer, allowing for an unlawful detainer action.

To succeed in an unlawful detainer claim, the plaintiff must demonstrate constructive possession and that the defendant's actions resulted in the loss of that possession. Although possession rights generally do not depend on title, in foreclosure cases, a landlord/tenant relationship may not exist if the trustee improperly exercised the power of sale, potentially leading to void title. If the Beasleys' allegations of wrongful foreclosure by Citi are substantiated, they could not maintain an unlawful detainer action and would have a valid defense.

The deed of trust specifies that the lender must notify the borrower of any default and provide a cure period before acceleration and sale can occur. This notice must detail the default, required actions for cure, a deadline for compliance, and inform the borrower of their rights regarding reinstatement and legal action. Failure to cure by the specified date allows the lender to demand full payment and invoke the power of sale.

Lender is entitled to recover expenses related to remedies in this section, including attorneys' fees and title evidence costs. If the power of sale is invoked, the Trustee must provide public notice of the sale as mandated by law and mail a copy to the Borrower. The Trustee will sell the Property at public auction to the highest bidder and may allow Lender or its designee to purchase the Property. The Trustee will issue a deed to the purchaser without any warranties. Following the sale, the Borrower must surrender possession of the Property, or otherwise become a tenant at will, agreeing to pay reasonable rent. 

The Beasleys claim they received notice of default on July 29, 2004, supported only by a facsimile, which Citi has not disputed. This facsimile supports the Beasleys’ case of wrongful foreclosure since the foreclosure sale occurred within the thirty-day curative period and may have breached the trust deed terms. Compliance with advertisement and notice requirements is crucial under Tennessee law, which mandates strict adherence to terms in the deed of trust for valid conveyance. However, statutory requirements allow some flexibility, where non-compliance does not invalidate a foreclosure sale. Contractual terms in the deed of trust can supersede statutory requirements, and failure to adhere to these specified terms can lead to the foreclosure sale being set aside.

A foreclosure sale was set aside due to the trustee's violation of the deed of trust's default notice provisions. When the purchaser drafts the deed of trust that waives the makers' equity of redemption, strict construction and adherence to the deed's terms by the trustee are required to validly deprive the makers of their title. Specific compliance is necessary for notice of the sale, which is considered a condition precedent; failure to provide such notice renders the sale unauthorized and void. The trustee cannot substitute personal notice with public advertisements, as this undermines the notification requirement. 

In this case, the deed of trust stipulated that the lender could invoke the power of sale only after a thirty-day period. The Beasleys argued that Citi lacked authority for the foreclosure sale, thus stating a valid defense against the emergence of a landlord/tenant relationship after the sale. They sought to retry the unlawful detainer action in circuit court through writs of certiorari and supersedeas, needing to demonstrate sufficient merits for their case. The court found that the Beasleys presented a prima facie case of wrongful foreclosure due to Citi conducting the sale before the curative period expired as outlined in the deed of trust. This breach invalidated the conveyance at the foreclosure sale, meaning the purchaser received no title and could not claim immediate possession in an unlawful detainer action. Consequently, the judgment of the trial court was reversed, and the case was remanded for the issuance of writs of certiorari and supersedeas, with costs taxed to CitiFinancial Mortgage Company, Inc.