Foreclosure – Collateral Estoppel – Fraudulent Suppression

Larsen v. WF Master REO, LLC, et al.; McDonald, et al., v. WF Master REO, LLC, et al.; WF Master REO, LLC v. Larsen, [Ms. 2200258, 2200259, 2200260, Jan. 21, 2022] __ So. 3d __ (Ala. Civ. App. 2022). The court (Moore, J.; Thompson, P.J., and Edwards and Fridy, JJ., concur; Hanson, J., concurs specially) affirms in part and reverses in part the Conecuh Circuit Court’s final judgment entered after a bench trial in a 2017 ejectment action following a foreclosure sale. The ejectment action also included claims for fraud asserted against WF Master REO, LLC (“WF”) by David Larsen who purchased the property after WF acquired the property at a foreclosure sale conducted by Waterfall Victoria Mortgage Trust 2011-1 REO, LLC (“Waterfall”). Ms. *4.

In 2015, the mortgagors, Donald and Mary McDonald, filed suit in an effort to stop the foreclosure. That action was removed to federal court by Waterfall, and the federal court subsequently entered final judgment in favor of Waterfall on all of the McDonalds’ claims. Ms. *3.

When the McDonalds failed to vacate the property in 2017, WF filed the subject action in Conecuh Circuit Court. Ms. *4. Larsen intervened and filed a cross claim for fraud against WF.

The court first affirms the circuit court’s ruling against the McDonalds on the ejectment claim and concludes that based on the prior federal court judgment “the doctrine of collateral estoppel precluded reconsideration of the power-of-sale, default, and notice issues in the ejectment action.” Ms. *23. The court notes that although WF was not a party to the federal action, “WF is in privity with Waterfall, as a successor in title, deriving its claim to the property from the foreclosure deed executed by Waterfall, with an identical interest in enforcing the foreclosure sale.” Ms. **24-25.

The federal court did not reach the McDonalds’ claim that Waterfall sold the property at the foreclosure sale for too low a price. However, the court affirms the circuit court’s ore tenus finding rejecting that claim, and notes “the trial court evidently concluded that the property was not worth the amounts advocated by the McDonald parties but, rather, was worth an amount more in line with the estimate proffered by the broker. It was the duty of the trial court, as the trier of fact, to resolve any conflicts in the evidence.” Ms.*27.

On Larsen’s cross appeal, the court affirms denial of Larsen’s breach of warranty claim because after foreclosure “the McDonalds never had a valid claim to the title to the property, and their insistence on litigating that invalid claim did not encumber the title to the property, a fact even Larsen acknowledged in his testimony.” Ms. **30-31.

The court reverses the judgment in favor of Larsen on his fraudulent suppression claim against WF and holds

The third element [of fraudulent suppression] requires the party asserting a claim of fraudulent suppression to prove that he or she reasonably relied upon the defendant and was induced to act or to refrain from acting by the defendant. See generally Foremost Ins. Co. v. Parham, 693 So. 2d 409 (Ala. 1997). If a party purchases real property pursuant to a purchase agreement that indicates that the property is being sold “as is,” that party, by agreeing to that term, cannot later claim that he or she reasonably relied on any prior representation regarding the state or condition of the property; under those circumstances, any fraud claim based on that prior representation fails as a matter of law. See Teer v. Johnston, 60 So. 3d 253 (Ala. 2010)…. Larsen essentially claimed that he would not have purchased the property had he known of the occupancy of the property by the McDonalds and of the litigation between WF and the McDonalds over the McDonalds’ claim to title to the property. However, in the purchase agreement, WF clearly and unequivocally indicated that the property was being sold “as is” and that it was not making any warranties or representations regarding the property, other than the covenant against encumbrances.

Ms. **33-34.

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