Supreme Court of Virginia Shifts Jurisdiction of Some Actions of Unlawful Detainer

In June of 2016, the Supreme Court of Virginia decided Parrish v. Fannie Mae, setting a new precedent for the way in which some types of unlawful detainer actions are tried in Virginia courts.  This case is significant to purchasers of foreclosed properties that are still occupied by the former owners, making litigation to gain possession more complex, time-consuming and costly. 

When a bank puts a property up for foreclosure sale, the previous occupants sometimes refuse to leave the premises.  In these situations the new property owner (the foreclosure purchaser) must file an action of “unlawful detainer” with the court.  An unlawful detainer is an action against a defendant who lawfully entered into possession of property, but whose right has since ended.  It is a request for the court to declare that the foreclosure purchaser now has the legal right of possession, and that the previous occupants must vacate the premises. 

To understand the ramifications of Parrish v. Fannie Mae, it is important to quickly review the structure of the Virginia judicial system.  The lowest courts are the General District Courts (civil, traffic and criminal divisions) and the Juvenile & Domestic Relations Court. The General District Courts routinely hear landlord/tenant disputes including actions for unlawful detainer. An Appeal of the General District Court decision would be heard by a Circuit Court but only after the appellant notes and perfects the appeal including posting a bond in the amount awarded by the lower court. An appeal of the Circuit Court decision would be heard by the Court of Appeals or the Supreme Court of Virginia. The Supreme Court of Virginia is the highest court in the state and its decisions are final. 

General District Courts are the entry level courts for most types of cases. The majority of parties going before the court are “pro se,” meaning they are unrepresented by counsel. Like the Circuit Courts, there are General District Courts in every city and county in Virginia. These Courts are presided over by a single judge with the authority to hear misdemeanor criminal cases and civil claims between up to $25,000 at issue.  Unlike the Circuit Courts, they do not have the authority to determine complete title of property.  However, General District Courts have traditionally held the authority to determine possession of property in unlawful detainer actions. It is routine practice for General District Courts to award possession of premises to landlords who prove that the tenants, after having been given proper notice, are behind in their rent or have otherwise violated terms of an agreement to lease.  

The fact that Circuit Courts have the power to try cases involving complete title, while General District Courts lack such power, is critical and undisputed.  

Up until Parrish was decided in 2016, unlawful detainer actions have not been considered to involve determinations of complete title.  They were viewed simply as actions to determine which party in the dispute has the right to possess the property.  However, in cases where a former owner of the property challenges title, the Parrish decision holds that that the General District Court lacks jurisdiction to hear the unlawful detainer. 

In the case at hand, the Parrishes conveyed their property to a trustee by deed of trust.  The trustee subsequently conveyed the parcel by trustee’s deed to Federal National Mortgage Association, or “Fannie Mae.”   Fannie Mae sent the Parrishes a notice to vacate and filed a summons for unlawful detainer in the General District Court of Hanover County.  The Parrishes defended by alleging breach of trust.  They claimed that their deed of trust contained federal regulation 2 C.F.R. § 1024.41(g), which prevents foreclosure if the borrower submits a loss mitigation statement within 37 days of receiving the initial foreclosure notice.  

The General District Court of Hanover County heard the case, and found that the foreclosure was not a material breach of the deed of trust.  Fannie Mae was awarded possession of the property.  The Parrishes appealed to the Circuit Court of Hanover County, which affirmed the General District Court’s decision in favor of Fannie Mae.  The Parrishes appealed to the Supreme Court of Virginia. 

In an unexpected decision, the Supreme Court of Virginia vacated the Circuit Court’s ruling and found for appellants, the Parrishes.  The majority held that the Parrishes’ allegations of material breach of trust were sufficient to raise a question of complete title.  Therefore, the General District Court lacked authority to try the original case, since it only had jurisdiction to determine possession and not matters of complete title. 

Likewise, the Supreme Court found that the Circuit Court also lacked jurisdiction over the case.  Even though Circuit Courts have the authority to determine complete title in cases brought before them, this authority does not apply to an appeal because an appellate court’s jurisdiction is derived completely from the lower court’s authority to hear a case.  In other words, if the General District Court never had authority to try the case, the Circuit Court would also be unable to hear it on appeal.  Therefore, the Circuit Court’s authority was limited to dismissing the case without prejudice, after which Fannie Mae could refile the case in the Circuit Court.  The Circuit Court may then exercise its own jurisdictional authority to resolve the question of title. 

As a result of this decision, when a question concerning title is raised in the General District Courts, the judge must now determine first whether the claim is sufficient to raise a bona fide issue of complete title.  If not, the General District Court will retain jurisdiction and may hear the case.  However, if there is a genuine issue of title, the case must be dismissed without prejudice and refiled in Circuit Court. 

The question of title is never a factor when a plaintiff had prior possession of the property then yielded it to the defendant.  For instance, a landlord/plaintiff filing an unlawful detainer action against a tenant who refuses to vacate the premises will not have a title dispute with the tenant, since the tenant never had title in the first place.  The landlord will only need to show that she has the right of possession.  Therefore, the case may be heard in General District Court. 

The issue of complete title may arise when a Plaintiff’s claimed right of possession has been acquired after the defendant’s entry onto the property.  In such a case, the plaintiff’s right of possession depends not on recovering possession, but on claiming possession for the first time.  Unlawful detainer actions arising from foreclosures will almost always fall into this category.  Thus, if the Defendant raises a question of title at the General District Court level, the case will have to be dismissed and re-filed in the Circuit Court.  While scheduling a hearing on a Summons of Unlawful Detainer in a General District Court is relatively quick (about 21 days after sending 5 Days’ Notice to the defendant), getting a date in Circuit Court will take substantially more time. Similarly, discovery in General District Court is largely limited to a Bill of Particulars and Grounds of Defense while Circuit Court can be lengthy with interrogatories, depositions and requests for production of documents. 

While the full effect of this decision is yet to be determined, it seems likely to impact the foreclosure market.  For example, a potential purchaser who is wary of becoming involved in an extended legal process may be more inclined to hesitate before making an offer on an occupied foreclosure property.  The purchaser may narrow their search to include only unoccupied properties, thereby reducing the number of potential buyers and effectively decreasing the demand for occupied foreclosures.  Alternately, an interested buyer may make a lower bid, reasoning that the additional time, money and legal action required to gain possession of the property should cause a reduction in the purchase price.  Further, it is foreseeable that a foreclosure purchaser might be deprived of possession until after they have sought remedy in Circuit Court, while still retaining the obligations of ownership such as the payment of property taxes. The potential of increased expenses and possible delays in gaining possession of an occupied foreclosure property will have to be carefully evaluated by a buyer, preferably with help from an experienced real estate attorney.  

Kathryn Byler is a Pender & Coward attorney focusing her practice on real estate, trusts & estates, and guardianships/conservatorships. A Virginia licensed real estate broker, Kathryn is also an adjunct professor at Regent Law School where she currently teaches Real Estate Transactions.  Contact Kathryn at kbyler@pendercoward.com.   

Bryan Peeples was an active duty officer in the United States Navy, a student at Regent University School of Law and the law librarian at pender & Coward when this article was written.  As of October 19, 2018, he is an attorney at Pender and Coward and can be reached at bpeeples@pendercoward.com.