O'Malley v. Chevy Chase Bank, F.S.B.

Citations: 766 A.2d 964; 2001 D.C. App. LEXIS 34; 2001 WL 137973Docket: 97-CV-1189

Court: District of Columbia Court of Appeals; February 8, 2001; District Of Columbia; State Supreme Court

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Joseph W. O'Malley, III, appeals the District of Columbia Court of Appeals' grant of summary judgment in favor of Chevy Chase Bank, F.S.B., concerning foreclosure proceedings on his property. O'Malley, representing himself, contests the trial court's denial of his motion for reconsideration and seeks to invalidate two foreclosure sales that occurred on January 3, 1996, and March 12, 1996. He claims the trustee improperly denied him the right to cure his loan default before the first sale and that the bank's notice for the second sale was defective, lacking information about his right to cure and the cure amount, and preventing him from bidding.

The court reverses the summary judgment and remands the case for further proceedings, holding that the statutory limit on the right to cure defaults does not restrict O'Malley's contractual right under the deed of trust, which does not impose a limitation on the number of cures. Disputed factual issues regarding whether O'Malley was allowed to cure his default before the first sale necessitate further examination. The court does not address whether the mortgagor's equity of redemption is transferred to the purchaser at a foreclosure sale, as it focuses on the validity of the first sale.

O'Malley originally executed a Deed of Trust for his residence in 1984, securing a loan of $110,000. He has defaulted on loan payments multiple times since 1988, but until June 20, 1995, he managed to cure his defaults and reinstate his loan, halting foreclosure proceedings.

O'Malley filed for bankruptcy before a scheduled foreclosure sale on June 20, 1995, which stayed the sale. The first sale relevant to this case occurred on January 3, 1996, after O'Malley was notified of his loan default, which he did not cure. At the sale, O'Malley attended with his friend Jessie Willingham, who was the highest bidder but failed to complete the sale within the required timeframe, resulting in a second sale scheduled for March 12, 1996. 

The notice for the second sale, recorded on February 9, 1996, indicated that the minimum balance to cure the default was not applicable. On March 11, 1996, O'Malley inquired about the deposit required for bidding but was informed reinstatement of the loan was not possible. During the second sale, O'Malley attempted to qualify as a bidder with a total of $6,000 in a cashier's check, $2,000 in a personal check, and cash. Discrepancies arose regarding whether he had the necessary $10,000 deposit. The sale was temporarily adjourned for O'Malley to certify his personal check, but while he was away, the sale concluded with another bidder winning. 

O'Malley returned after the auction ended and filed a complaint in Superior Court on April 17, 1996. Following a motion for summary judgment filed by the bank on December 4, 1996, the trial court granted summary judgment in favor of the bank and the trustee on April 4, 1997.

The trial court determined that when a bidder defaults at a foreclosure sale, equitable title of the property returns to the debtor-in-possession. In this case, after Willingham defaulted, equitable title reverted to O'Malley. However, the court ruled that under D.C. Code § 45-715.1, O'Malley's right to cure his default was limited to once every two calendar years, meaning he could not cure his default prior to the second sale. 

In the appeal, O'Malley argued that the trial court erred in its interpretation of the statute, which he claimed restricted his right to cure only once every two years, asserting that his deed of trust allowed unlimited cures. The trial court had concluded that since O'Malley could not cure his default in 1996, he could not prevent the auction of his property. The court held that any notice suggesting otherwise would be erroneous.

D.C. Code § 45-715.1 allows a residential mortgage debtor to cure a default up to five business days before a foreclosure sale, but only once every two consecutive calendar years. To cure, the debtor must pay all amounts necessary to bring the account current, perform any obligations due, and cover foreclosure-related costs. Once cured, the debtor is restored to the position as if no default occurred.

The statutory limit on the right to cure a default in residential mortgage foreclosure is set at "not more than 1 time in any 2 consecutive calendar years" according to D.C.Code 45-715.1(b). This provision establishes a minimum requirement for contracts lacking a right to cure but does not restrict the number of cures allowed if the contract provides for more. The statute's plain language is the primary guide for interpretation, and the court will not endorse interpretations that contradict the overall legislative policy. Unlike other statutory provisions that override contractual terms, this statute is silent on its effect on contracts between parties.

If the contract grants the debtor a more favorable right to cure than the statute, the contract prevails, and section 45-715.1 does not limit this right. Legislative intent supports this interpretation, aiming to protect homeowners by ensuring they have at least one opportunity to cure defaults every two years, regardless of contract terms. The legislative history indicates that the act was designed to provide mortgagors with a statutory right to cure defaults, emphasizing the need for sufficient notice and an opportunity for legal recourse before foreclosure.

The Committee Report indicates that the Council aimed to establish a statutory right for borrowers to cure defaults in their contracts, thereby enhancing opportunities for homeowners to rectify defaults. Statistical evidence suggests the need for statutory foreclosure relief, as traditional Deed of Trust Notes often lack clear provisions regarding a mortgagor's right to cure defaults. Many of these notes also automatically accelerate all payments upon default, disadvantaging mortgagors.

Currently, no statutory provisions allow a debtor-mortgagor to prevent foreclosure by paying amounts sufficient to restore the mortgagee to their pre-default position. Although such a right to cure can be contractually granted, the proposed Bill 5-187 aligns the District’s laws with federal regulations while establishing minimum standards for mortgage relationships in single-family owner-occupied residences. The legislative history clarifies that the statute does not preempt more favorable contractual cure rights.

The trial court's ruling that limited O'Malley's right to cure under the Deed of Trust was incorrect. The Deed of Trust allows the borrower to reinstate their loan by paying all amounts due before a specified time, with no limitations on the number of reinstatement attempts nor explicit statutory constraints. If the lender invokes the power of sale, they must provide written notice as required by law. Ambiguous contractual language is interpreted against the drafter. The specific provisions of the Deed of Trust clarify the timing for exercising the right to cure, which aligns with the statutory framework that allows for cure up to five business days before a sale, highlighting an intent to permit multiple cure attempts by the mortgagor.

The Deed of Trust does not restrict O'Malley's ability to cure defaults, allowing him the right to do so during the first sale in January 1996, despite having previously cured a default within two years. O'Malley contends that both the January 3 and March 12, 1996, sales are invalid because he claims the bank and trustee denied him the chance to cure his default prior to the first sale. Although he acknowledged receiving proper notice, he argues that the trial court erred by not addressing whether he was offered an opportunity to reinstate his loan before the January sale. Appellees counter that this issue was not explicitly raised in O'Malley's complaint and is therefore irrelevant to the appeal. Nonetheless, O'Malley argued in his opposition to the defendants' summary judgment motion that the bank violated the deed of trust and D.C. law by refusing reinstatement. The trial court did not address this due to its interpretation of a statute limiting curing defaults. Upon review, the court found sufficient evidence to question whether appellees denied O'Malley’s right to cure, emphasizing that the record must be viewed favorably toward the nonmoving party. The court concluded that O'Malley’s complaint, while not explicitly clear, did raise the issue of the first sale's validity, and any ambiguities in the complaint should be resolved in his favor.

O'Malley alleged in his complaint that he had previously requested the right to cure a default before a foreclosure sale on March 12, 1996, but Mr. Prensky denied this request. This assertion raised the validity of the prior foreclosure sale as a material issue in the case. Citing precedent, the document states that a foreclosure sale can be invalidated if the notice of foreclosure fails to include the cure amount. Although O'Malley did not explicitly challenge the first sale in his complaint, he addressed the issue in opposition to the summary judgment motion, which the bank acknowledged as a disputed fact. If the bank wrongly denied O'Malley’s right to cure, the first sale could be deemed invalid, preserving O'Malley’s equitable rights and his ability to cure at the time of the subsequent sale.

The burden was on the appellees to demonstrate no genuine dispute of material fact regarding O'Malley’s claim about the right to cure. The bank and trustee contended that O'Malley was not entitled to reinstatement because he failed to offer to cure within the required timeframe and had acknowledged his inability to cure the default. Contradictory affidavits from O'Malley and the trustee highlighted the existence of a material fact dispute. O'Malley claimed he requested reinstatement figures and was prepared to cure before the first sale, while the trustee asserted that O'Malley had been given the opportunity to cure but did not do so. Additionally, a letter from O'Malley to Prensky the day before the sale was referenced, where O'Malley acknowledged lacking sufficient funds to cure but offered a lesser amount for a postponement, though this letter was not part of the trial court record and could not be considered on appeal. O'Malley did not have the chance to explain the letter's context or its implications for his right to cure.

Failure to provide timely notice of the cure amount in a foreclosure sale is not mitigated by the mortgagor's inability to cure the default financially. The primary purpose of the notice is to allow the mortgagor the opportunity to remedy the default. In this case, O'Malley offered two-thirds of the cure amount and requested a postponement of the foreclosure sale, suggesting that with proper notice, he may have been able to raise the necessary funds. The mortgagee bank's awareness of O'Malley's right to reinstate could have influenced its position on postponement. Due to the disputed material fact regarding O'Malley's right to cure, the summary judgment is reversed and remanded for factual determination by the trial court. If O'Malley is found not to have been allowed to cure, the court must also consider whether his claimed financial inability affects the sale's validity, despite the bank's incorrect assumption about his rights. Should the court find the first sale invalid, the purchase contract would also be invalid, restoring O'Malley's rights to their prior state. Additionally, the other defendants were dismissed for lack of service. Associates Financial Services of America (AFSA) intervened for surplus proceeds related to a junior deed of trust, which was granted by the trial court. O'Malley later divorced, and his wife transferred her interest in the property to him. The mortgage obligations were subsequently transferred to Chevy Chase Bank. The trial court noted that while a debtor may cure a default to prevent foreclosure, this right is limited to once every two calendar years if they have previously cured.

Paragraph 19 of the deed of trust between O'Malley and Chevy Chase Bank raises important legal issues regarding the application of a statute enacted after the execution of the deed. The deed of trust was executed on February 22, 1984, before the statute was enacted on May 8, 1984. However, O'Malley's attempts to cure defaults occurred in 1996, after the statute's enactment. The statute does not specify which mortgages it applies to, leading to uncertainty about whether it should be interpreted based on the execution date of the mortgage or the date a right to cure is invoked. Generally, contracts are interpreted according to the law at the time of execution unless there is a clear intent to incorporate subsequent legal changes.

Assuming the statute applies, Section 45-715 of the D.C. Code stipulates that a foreclosure sale under a deed of trust cannot occur without at least 30 days' written notice to the property owner, which must be sent via certified mail. Strict compliance with these notice requirements is essential to ensure the property owner is adequately informed about the impending sale. At the time of O'Malley's mortgage execution, there were no limitations on the number of times a mortgagor could cure a default, suggesting that the statute's minimum requirements preempt any lender-imposed restrictions on rights to cure.

Additionally, the trial court noted that although certain statements were labeled as affidavits, they did not appear to have been made under oath, leading the court to classify them as unsworn statements of fact. There was also an issue with missing pages in the record on appeal, but the court accepted attachments from the parties' briefs as supplements, provided the documents were previously submitted to the trial court and not contested by either party.