Be Wary of Real Estate Closings When Appealing Judgments

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The Supreme Court of Virginia recently issued an opinion serving as a cautionary tale for judgment debtors appealing judgments against them while concurrently seeking to pass clear title on unrelated real estate sales. That case is Sheehy v. Williams, 2020 Va. LEXIS 139 (decision issued Nov. 25, 2020). In Sheehy, judgment was entered against Ms. Sheehy for $50,845.18, which she appealed.

While her appeal was pending, Ms. Sheehy entered into a contract to sell the real property against which Ms. Williams had recorded her judgment. Prior to closing, the title company for the buyer required satisfaction of the judgment in order “to obtain clear title” of the property. Buyers’ counsel subsequently sought payoff information from Ms. Williams’s attorney, who responded by providing buyers’ counsel with the balance due on the final judgment, which was $54,673.19.

Two days later, buyers’ counsel issued payment by check in that amount to Ms. Williams’s attorney, who then released the judgment in the land records. After the property sale closed, Ms. Williams moved the Virginia Supreme Court to dismiss the appeals as moot because the judgment was satisfied.

The Virginia Supreme Court analyzed the dismissal motion in conjunction with Virginia’s voluntary-payment doctrine. Under the voluntary-payment doctrine, “absent a showing of fraud or other misconduct, a claimant [can] not demand that a court return money to him that he had voluntarily paid to another.” Id. at *4. As the Supreme Court of Virginia recognized, “the voluntary-payment doctrine recognizes that at some point, reviewing courts should declare litigation to be at an end when the litigants themselves – by their own voluntary actions – have effectively ended it.” Id. at *5.

Virginia has developed a bright line test to determine when the doctrine is applicable. Under this test, “[v]oluntary payment of a judgment deprives the payor of the right of appeal.” Id. at *6. Alternatively, an involuntary payment, like in cases where the defendant is compelled to make payment pursuant to a writ of execution or garnishment, does not deprive the payor the right of appeal.

Ms. Sheehy argued the doctrine did not apply because the payment was issued “on behalf of the Buyers” and not by her or on her behalf. Ultimately, the Virginia Supreme Court issued a temporary remand of the case back to the circuit court to determine issues related to Sheehy’s consent, authorization, and voluntariness of the payment.

This opinion serves as a warning to appealing judgment debtors, and their attorneys handling both the appeal and the real estate closing, to carefully consider and address the judgment debt before closing. Specifically, judgment debtors and their attorneys should avoid inadvertently mooting an appeal in conjunction with providing clear title for the sale.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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