Since 2015, Karen Richardson has been litigating issues arising out of the foreclosure sale of her home by attorneys with the firm of McCabe, Weisberg & Conway, LLC (“MWC”) appointed by Nationstar Mortgage, LLC as substitute trustees under a deed of trust granted by Ms. Richardson. On September 26, 2024, the District of Columbia Court of Appeals issued an opinion reversing a decision by the D.C. Superior Court that dismissed Ms. Robinson’s suit against MWC and the substitute trustees and remanding the case to the Superior Court. In so doing, the Court of Appeals held that MWC and the substitute trustees might be liable to Ms. Richardson for wrongful foreclosure even though the sale had been ratified by a final order over Ms. Robinson’s objection that the sale was wrongful, the sale had closed, and the purchaser had obtained a final order awarding it possession of the property, also over Ms. Richardson’s objection.
Ms. Richardson obtained a loan from Taylor, Bean & Whitaker Mortgage Corporation in 2008 secured by a deed of trust on her home. Through a series of assignments, the loan was assigned to Nationstar. Nationstar appointed lawyers with the MWC firm, as substitute trustees under the deed of trust. In 2015, Nationstar filed a foreclosure case against Ms. Richardson in D.C. Superior Court.
Ms. Richardson contested the case, asserting counterclaims and disputing that the loan had properly been assigned to Nationwide. However, the Superior Court entered a judgment of foreclosure against her, authorizing the substitute trustees to sell her home.
To stave off the sale scheduled for March 28, 2019, Ms. Richardson arranged for her cousin to buy her home and pay off the Nationstar loan. The title company engaged by the cousin requested a payoff balance from MWC. MWC provided a payoff statement good through March 5, 2019. As the sale was not scheduled to close until March 26, the title company requested an updated payoff statement from MWC. MWC did not respond until after 5:00 PM on March 26, 2019. The updated payoff statement “erroneously included a tax lien Ms. Robinson had previously paid, making the payoff figure roughly $74,000 higher than MWC’s prior estimation.” Ms. Richardson’s cousin did not purchase the property and the substitute trustees sold the property to Hantek Investments, LLC.
Ms. Robinson objected to the ratification of the sale. She alleged that Nationstar and MWC deprived her of her right to redeem her property from the sale by providing the incorrect and inflated payoff statement. However, as Ms. Richardson only had the statutory right to redeem the property until five days before the scheduled March 28 sale, the Superior Court held that she was not prejudiced by the incorrect payoff statement provided on March 26 and ratified the sale.
Hantek filed an eviction action against Ms. Richardson to obtain possession of the property that it had purchased. Ms. Richardson contested that case, but the Superior Court entered a judgment of possession in favor of Hantek.
Ms. Richardson then filed a new suit against Nationstar, Hantek, MWC, and the substitute trustees, alleging wrongful foreclosure, wrongful eviction, common law fraud, and intentional misrepresentation, and breach of fiduciary duty. The defendants moved to dismiss on the grounds that Ms. Richardson’s claims were barred by res judicata by the final judgment ratifying the foreclosure sale. The Superior Court agreed and dismissed Ms. Richardson’s suit. She then appealed.
The Court of Appeals said that claims are barred by res judicata if they are “the same claims that were or could have been litigated in the prior proceeding” and the claims are asserted against “a party or in privity with a party in the prior case.” The Court found that Ms. Richardson’s new suit “involves the same claims that were or could have been litigated in the foreclosure action.” However, MWC and the substitute trustees were not parties to the foreclosure case and the Court of Appeals concluded that they had not provided sufficient evidence to show that they were in privity with Nationstar, which was a party to the foreclosure case. The fact that the substitute trustees sold the property under a deed of trust in favor or Nationstar and that MWC represented Nationstar in the foreclosure case, without more, was not enough.
The Court of Appeals said that agents are in privity with their principals for res judicata purposes only if the prior action “concerned a matter within the agency.” As to attorneys, the Court said that even acting on behalf of a client within the scope of the agency relationship was not enough. Attorneys must show “a mutuality of legal interests between [the client and the attorney].” The Court said that the substitute trustees “put forward no evidence or argument over the scope of their agency relationship with Nationstar” and that a showing that MWC’s legal interests aligned with Nationstar was “absent.” Accordingly, the Court of Appeals remanded the case to the Superior Court to determine if the substitute trustees and MWC were in privity with Nationstar.
Since there was no evident dispute that the substitute trustees and MWC were engaged by Nationstar to foreclose on Ms. Richardson’s home to collect what she owed it, what more the substitute trustees and MWC need to present to establish privity is unclear. Given how long Ms. Richardson has been litigating, that may well be the subject of a future appeal.