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1st Atlantic Guaranty Corp. v. Tillerson

January 25, 2007

1ST ATLANTIC GUARANTY CORPORATION ET AL., APPELLANTS,
v.
GEORGE E. TILLERSON AND CRYSTALD. LANE-TILLERSON, APPELLEES.



Appeal from the Superior Court of the District of Columbia (No. CA2000-01) (Hon. Natalia M. Combs Greene, Trial Judge).

The opinion of the court was delivered by: Glickman, Associate Judge

Argued June 21, 2005

Before REID and GLICKMAN, Associate Judges, and STEADMAN, Senior Judge.

In this appeal we consider the lis pendens effect of a wrongful foreclosure action on certain security interests in the subject property that were created and recorded following the foreclosure sale, while the action was pending. The trial court concluded that the security interests were extinguished by an interim ruling in the action on a motion for partial summary judgment declaring the foreclosure sale void. We disagree. Despite the interim ruling, the final judgment in the wrongful foreclosure action, based on a stipulation by the parties, was an unsecured award of monetary damages that preserved the purchaser's title to the property. The security interests therefore were not extinguished by the litigation, and they have priority over the judgment lien based on the unsecured monetary award.

I.

The dispute in this case is over a parcel of improved real property located at 3001 Georgia Avenue, N.W., in the District of Columbia. Appellees George E. Tillerson III and Crystal D. Lane-Tillerson acquired title to the Georgia Avenue property in 1996, subject to a first deed of trust for the benefit of Rufus Stancil. When the Tillersons defaulted on the note held by Stancil in March 1998, he initiated non-judicial foreclosure proceedings.

On August 10, 1998, George Tillerson filed suit against Stancil in Superior Court, seeking to enjoin the allegedly wrongful foreclosure sale that was scheduled to occur two days later. The trial court denied a temporary restraining order, however, and on August 12, 1998, Stancil conducted the sale, buying the Georgia Avenue property for his own account. Stancil acquired record title to the property pursuant to a trustee's deed that he recorded with the Register of Deeds on September 15, 1998. Tillerson then moved for a preliminary injunction to prevent Stancil from taking any further action with respect to the property, which the court denied. Tillerson thereafter amended his wrongful foreclosure complaint, among other things to allege fraud and to seek monetary damages in addition to return of the property.

On June 6, 2000, the trial court, per Judge Rafael Diaz, entered an order granting partial summary judgment in favor of Tillerson and declaring the foreclosure sale to be void. During the jury trial that commenced two weeks later, before Judge A. Franklin Burgess, Jr., the parties entered into a stipulation providing that if Tillerson prevailed on his claims, his remedy would be limited to monetary damages, and that Stancil would retain title to the Georgia Avenue property. Stancil made no representations to Tillerson or the court in connection with the stipulation as to the existence or status of any liens on the property.

On June 26, 2000, the jury awarded Tillerson a total of $727,315 in compensatory and punitive damages. The court entered judgment in accordance with the jury's verdict. On September 13, 2000, the court amended the judgment based on the parties' stipulation to award title to the Georgia Avenue property to Stancil.

Stancil did not appeal, but he also did not pay the judgment against him. On October 19, 2000, Tillerson obtained a writ of fieri facias to force the sale of the Georgia Avenue property in satisfaction of his judgment. After appropriate notices, the United States Marshal sold the property in execution to Tillerson on December 21, 2000, for $150,000, subject to all liens of record.

There were such liens. While the wrongful foreclosure action was pending, but before the trial court entered partial summary judgment declaring Stancil's title void in June 2000, Stancil twice encumbered the Georgia Avenue property. First, on January 14, 2000, Stancil and his wife borrowed $60,000 from appellant 1st Atlantic Guarantee Corporation. Although 1st Atlantic was on actual notice of Tillerson's pending wrongful foreclosure action against Rufus Stancil, the loan was secured by a first deed of trust on the Georgia Avenue property. The deed was recorded on February 7, 2000. A few weeks later, on February 29, 2000, 1st Atlantic extended a line of credit to the Stancils in the amount of $435,000. The deed of trust securing this second loan also encumbered the Georgia Avenue property (as well as other property owned by the Stancils). This second deed was recorded on April 13, 2000. By March 30, 2000, however, the Stancils were in default on their debt.*fn1

Tillerson learned of the existence of the 1st Atlantic liens encumbering the Georgia Avenue property around the time he obtained the writ of fieri facias to levy on the property and satisfy the monetary judgment in his wrongful foreclosure action. Seeking to set aside the liens, the Tillersons filed the present action against appellants (1st Atlantic, its affiliate Atlantic Funding, and the trustees of the two encumbering deeds) and the Stancils.*fn2 Although they initially pressed a claim of fraudulent conveyance,*fn3 the Tillersons eventually relied on the doctrine of lis pendens. The dispute over the applicability of that doctrine was presented to the trial court by cross motions for summary judgment on a joint stipulation of facts.

The Tillersons contended in their motion that, since 1st Atlantic had knowledge of the wrongful foreclosure action when it lent funds to the Stancils, its liens on the Georgia Avenue property were invalidated by Judge Diaz's June 6, 2000, partial summary judgment order declaring void the foreclosure sale at which Stancil acquired that property. The Tillersons further contended that the final judgment entered by Judge Burgess, which awarded the Georgia Avenue property to Stancil, did not revive 1st Atlantic's security interests, because it did not alter Judge Diaz's interim finding that the foreclosure sale was invalid. In opposition to the Tillersons' motion, and in their own cross motion for summary judgment, appellants argued that lis pendens was inapplicable because Tillerson did not file a notice of his wrongful foreclosure action against Stancil with the Recorder of Deeds, as required by a statute that took effect on June 24, 2000, when the action still was pending. See D.C. Code § 42-1207 (2001). Alternatively, appellants argued that Tillerson had abandoned his claim to the Georgia Avenue property during the wrongful foreclosure suit when he elected a monetary remedy and stipulated that Stancil would retain title to the property. Thus, appellants contended, the Tillersons' interest in the property, which was based on their judgment lien and the subsequent post-judgment judicial sale of the property, was subordinate to the 1st Atlantic liens that had been perfected prior to the end of the wrongful foreclosure action.

The trial court granted summary judgment to the Tillersons. Because 1st Atlantic had received actual notice of the wrongful foreclosure action, the court concluded, lis pendens principles applied irrespective of whether there had been compliance with D.C. Code ยง 42-1207. Further, the court ruled, Tillerson's election to accept an unsecured money judgment and forego the return of the Georgia Avenue property "did not destroy the lis pendens effect" of the wrongful foreclosure action, because Stancil's subsequent default entitled Tillerson to attach the property and compel its sale to satisfy the judgment. Finally, given the applicability of lis ...


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