Alabama Supreme Court Issues Three Significant Decisions Concerning Law Of Foreclosure And Ejectment
Financial Services Litigation & Regulatory Compliance Alert
On Friday, September 13, the Alabama Supreme Court issued three significant opinions concerning Alabama’s law of foreclosure and ejectment. Although those decisions put to rest some of the uncertainty concerning the jurisdictional nature of defenses to an ejectment action and when a foreclosure actually takes place, they raise new issues concerning standing in general and foreclosures involving Mortgage Electronic Registration Systems, Inc. (MERS).
Ex parte GMAC Mortgage, LLC (In re Patterson v. GMAC Mortgage, LLC)
In Ex parte GMAC Mortgage, LLC (In re Patterson v. GMAC Mortgage, LLC), [Ms. 1110547, Sept. 13, 2013] __ So. 3d __, 2013 WL 4873071 (Ala.), a case handled by Bradley Arant Boult Cummings attorneys Marc Ayers, Aaron Chastain, and Jon Patterson, the court used its certiorari power to review and reverse an Alabama Court of Civil Appeals decision against GMAC Mortgage (GMACM) in an ejectment action.
The borrowers had executed a note and mortgage in favor of Option One Mortgage Corporation. After they defaulted on their loan payments, GMACM conducted a nonjudicial foreclosure of their property in accordance with the Alabama Code, receiving an assignment of the borrowers’ mortgage the day before it executed the power of sale. Id. at *1. GMACM bought the property at a foreclosure sale and then sued to evict the borrowers.
The borrowers defended the ejectment action and counterclaimed, arguing that GMACM lacked the power to foreclose at the time it “initiated foreclosure proceedings” (by posting notice of the planned sale and accelerating the loan), which was before it received the assignment of the mortgage. As a result, it lacked standing to bring the ejectment action.
The circuit court granted summary judgment (dismissed the case without trial) in GMACM’s favor, but the court of civil appeals reversed, holding that (1) proof of a valid foreclosure is a jurisdictional element to an ejectment action and (2) GMACM lacked the power to initiate foreclosure proceedings when it posted the notice of the foreclosure sale and accelerated the debt. Id. at *2.
On a writ of certiorari, the Alabama Supreme Court unanimously reversed the court of civil appeals, holding that prefatory measures to a foreclosure sale—such as the publication of notice and acceleration of the loan—do not constitute “foreclosure” and thus are not required to be completed by a party entitled to foreclose. Id. at *6. Instead, the court held that a foreclosure occurs when the power of sale is executed. If the party executing the sale is authorized to foreclose at that time, then the foreclosure sale is valid. Id. at *4.
Ex parte BAC Home Loans Servicing, LP (In re Sturdivant v. BAC Home Loans Servicing, LP)
In Ex parte BAC Home Loans Servicing, LP (In re Sturdivant v. BAC Home Loans Servicing, LP), [Ms. 1110373, Sept. 13, 2013] __ So. 3d __, 2013 WL 4873061 (Ala.) (a case consolidated with Robinson v. Cox, [Ms. 1110458, Sept. 13, 2013] (Ala.)), the Alabama Supreme Court reversed the Alabama Court of Civil Appeals, rejecting its holding that the issue of whether a party has the power to execute a foreclosure is a jurisdictional element of a subsequent ejectment action.
In Ex parte BAC Home Loans Servicing, LP, BAC Home Loans Servicing conducted a foreclosure sale on property formerly owned by Bessie Sturdivant, bought the property that was the subject of the sale, and then filed an ejectment action against Sturdivant. Id. at *2-*3. Sturdivant raised several defenses to the ejectment action in the trial court but didn’t challenge BAC’s authority to conduct the foreclosure. Instead, she waited until after the trial court granted summary judgment in BAC’s favor to argue for the first time that BAC lacked standing to bring the ejectment action because it hadn’t received the assignment of her mortgage when it initiated foreclosure proceedings. Id. at *4.
Although BAC contended that Sturdivant had waived that argument by failing to raise it at the first opportunity as a defense to the ejectment action, the court of civil appeals rejected BAC’s contention and ruled in favor of Sturdivant on appeal. Id. at *5. In doing so, the court of civil appeals held that proof that a foreclosing party had the power to foreclose on property is a jurisdictional element of an ejectment claim and thus can be raised at any time. Id.
Applying that rule, the court held that BAC lacked standing for its ejectment claim because it couldn’t prove when it originally initiated foreclosure proceedings on the property that it had the power to do so by being either the assignee of the mortgage or holder of the note at that time. Id. The court of civil appeals relied on the Alabama Supreme Court’s earlier holding in Cadle Co. v. Shabani, 950 So. 2d 277, 279 (Ala. 2006). In that case, the supreme court held that because the plaintiff “lacked standing to maintain the ejectment action, the trial court lacked subject-matter jurisdiction over th[e] case, and its resulting judgment [was] therefore void.”
The Alabama Supreme Court used its certiorari power to grant discretionary review of the court of civil appeals’ decision and reverse its holding. Writing for the court, Justice Glenn Murdock offered a lengthy analysis of standing doctrine in Alabama law, critiquing the court’s tendency to categorize issues concerning elements of a cause of action as “standing issues” as well as its wholesale adoption of federal standing jurisprudence applicable to cases involving public law, not private causes of action. Id. at *12-*14. Applying that critique to the court of civil appeals’ decision (and the supreme court’s previous Cadle opinion), the supreme court held that any problems with an ejectment plaintiff’s proof that it is entitled to possession of property as a result of a foreclosure deed goes to the substantive merits of the ejectment claim, not the courts’ subject-matter jurisdiction. Id. at *15.
Harris v. Deutsche Bank National Trust Company
In Harris v. Deutsche Bank National Trust Company, [Ms. 1110054, Sept. 13, 2013] __ So. 3d __, 2013 WL 4870808 (Ala.), the Alabama Supreme Court addressed issues concerning the power of a party that does not hold a promissory note to execute a power of sale in a mortgage. In this case, the borrowers executed a note and mortgage in favor of SouthStar Funding, with MERS as the lender’s nominee. Id. at *1. The borrowers defaulted, and after MERS assigned the mortgage to Deutsche Bank as trustee, Deutsche Bank conducted a nonjudicial foreclosure on the property and bought the property at the sale. Id. at *3. When the borrowers refused to vacate, the bank filed an ejectment action, and the borrowers defended by challenging the bank’s power to foreclose. Id. After the trial court granted summary judgment in Deutsche Bank’s favor, the borrowers appealed. Id. at *5.
The Alabama Supreme Court affirmed in part and reversed in part. The court affirmed summary judgment for Deutsche Bank on the borrowers’ claims that the bank (1) lacked standing to file the eviction claim or (2) impermissibly initiated foreclosure proceedings before receiving the power to do so, citing its holdings in Ex parte BAC Home Loans Servicing, LP and Ex parte GMAC Mortgage, LLC. Id. at *5. The court also affirmed summary judgment for the bank on the borrowers’ claims that the assignment from MERS to Deutsche Bank was invalid because of problems with the pooling services agreement holding that the borrowers lacked standing to raise any alleged breaches of the PSA. Id. at *6-*7.
However, regarding the borrowers’ argument that Deutsche Bank lacked standing as merely the assignee of the mortgage, the supreme court reversed summary judgment for the bank and sent the case back to the circuit court for further factual findings. The supreme court stated that under Alabama law, a party that can execute a power of sale in a mortgage is one “who, by assignment or otherwise, becomes entitled to the money thus secured.” Id. at *7.
In light of Deutsche Bank’s concession that the mortgage the borrowers granted to MERS as nominee didn’t entitle MERS to the money secured by the mortgage, the court held that “for purposes of this case,” Deutsche Bank didn’t become entitled to foreclose as a result of the assignment from MERS, and thus, further factual proceedings were necessary to determine whether Deutsche Bank had the power to foreclose under Alabama law. Id. at *8.
These three decisions provide several key takeaway points regarding Alabama foreclosure and eviction law:
- Under Alabama law, a foreclosure takes place when a power of sale is executed, not before. The publication of notice of a planned sale and the acceleration of debt are not part of a nonjudicial foreclosure. Therefore, a party need not obtain the power to foreclose (for example, by being assigned the note) before publishing notice and accelerating the debt; it need only obtain that power before the sale is actually executed.
- Under Alabama law, proof of a valid nonjudicial foreclosure is not a jurisdictional element for a subsequent ejectment action. An ejectment defendant may not claim that the ejectment plaintiff lacks standing merely because the party that conducted the foreclosure sale wasn’t the holder of the note or mortgage at the time it conducted the sale. An ejectment defendant may raise as a defense to an ejectment action the foreclosing party’s alleged lack of power to conduct a foreclosure sale, but the argument goes to the merits of the claim and is waived if not raised.
- In Harris, the Alabama Supreme Court stated that a party is entitled to foreclose if it is a party “who, by assignment or otherwise, becomes entitled to the money thus secured.” The court did not reach the question of whether a mortgagee may foreclose under Alabama Code § 35-10-12 when the mortgage contains a power of sale.
Going forward, there may be fewer cases in which Alabama courts grant dismissal on the basis of standing. In one opinion, a majority of the court issued a lengthy section of dictum discussing how it had gone off course in applying federal standing law—which was meant to address problems in “public law” cases when plaintiffs lacked a sufficient interest in the action to lead to a case or controversy—to “private law” cases under Alabama law in which the sufficiency of the parties’ skin in the game usually isn’t a problem.