By James L. Windsor, Clark J. Belote, Real Estate Claims & Title Insurance Solutions

Facing foreclosure in 2015, homeowners (husband and wife) filed suit in the Circuit Court of the City of Richmond challenging the validity of a credit line deed of trust claiming, among other things, that the wife’s signature on the deed of trust was forged. 

On June 1, 2006, the husband took out a credit line secured by a deed of trust on their residence (owned jointly as tenants by the entirety) with the lender. He repeatedly drew on the credit line and made repayments. In 2012, the husband filed a Chapter 7 bankruptcy petition in which he scheduled the credit line as secured, but with the notation: “6/26/06, 2nd Priority D/T (possibly defective)”. 

In 2016, following the lender’s initiation of foreclosure proceedings and a nonsuited case in 2015, the lender again moved to foreclose on the home. On November 7, 2016, the homeowners filed suit claiming that the credit line deed of trust was void as a result of the alleged forgery of the wife’s signature. Although the wife’s signature appeared on the notarized credit line deed of trust, they alleged that she did not sign the deed of trust and had never visited the city in which the notary block was executed. In addition, they alleged claims of usury-based on certain charges incurred in connection with the closing of the loan.

By a plea in bar, the lender argued that the declaratory judgment action seeking to have the credit line deed of trust invalidated on the basis of a forgery was barred by the two-year statute of limitations for fraud. [1]  The court agreed. 

For declaratory judgment claims, the court must apply the statute of limitations applicable to the underlying object of the litigation. See Kappa Sigma Fraternity, Inc. v. Kappa Sigma Fraternity, 266 Va. 455, 465 (2003). Citing related case law, the court recognized that, in Virginia, forgery constitutes fraud. Accordingly, the statute of limitations for fraud applied to the homeowners’ claim.

Actions founded on claims of fraud are governed by a two-year statute of limitations, which begins to run from the date the cause of action accrues. Va. Code Ann. § 8.01-243(A). The cause of action accrues when the fraud is discovered or, when by exercise of due diligence, reasonably should have been discovered. Va. Code Ann. § 8.01-249(1).

The court held that the husband’s bankruptcy petition in 2012 demonstrated that he knew of the alleged forgery at that time, as exemplified by his notation in the petition of the possible “defect”. Even if the husband was unaware of the defect, this notation would have caused a reasonably prudent person to exercise due diligence and inspect the validity of the deed of trust. In addition, the husband testified in an evidentiary hearing that he had contested the credit line deed of trust’s validity with the lender as early as 2011. Accordingly, the court held, the statute of limitations began to run in 2012. Because the homeowners did not file the subject suit until 2016, it was time-barred.

In so holding, the court rejected the homeowners’ argument that the forgery rendered the credit line deed of trust void ab initio, which is not subject to ratification and can be challenged at any time. 

The homeowners’ appeal to the Supreme Court of Virginia was ultimately dismissed in March of 2019 based on a failure to join necessary parties because the trustee of the credit line deed of trust was not joined in the appeal. See 2019 Va. Unpub. LEXIS 6.  On May 10, 2019, the Supreme Court of Virginia denied a Petition for Rehearing filed by the homeowners. Accordingly, the Circuit Court’s opinion stood. This Circuit Court opinion, Bekenstein v. Bank of Am., N.A., No. CL16-5005, 2017 Va. Cir. LEXIS 355, at *15 (Richmond City Sep. 28, 2017) is available here.  The Circuit Court ruling in Bekenstein is one of only a few cases addressing this issue and supporting the argument that forgery claims are subject to the two-year statute of limitations for fraud. 

Kaufman & Canoles, P.C. represented the lender in this matter. If you have any questions regarding this case or title issues in general, please contact Jim Windsor at (757) 873.6308 or jlwindsor@kaufcan.com, or Clark Belote at (757) 624.3109 or cjbelote@kaufcan.com.   

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[1] The lender also argued that the claim was barred by estoppel and laches as the homeowners had regularly drawn on the credit line and made payments on the credit line in the intervening nine years, treating the credit line deed of trust as valid until the eleventh hour, which the lender relied on in extending the credit. However, because the court dismissed the case on statute of limitations grounds, it did not reach this other viable argument. 

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