Sweely Holdings, LLC, 296 Va. 367 (2018)
Virginia Supreme Court held that where a bank explicitly preserves its right to foreclosure in a forbearance agreement the bank has a right to foreclose on property despite having other remedial options available to it under the forbearance agreement.
Sweely Holdings, LLC (“Sweely”) and bank (“Bank”) entered into a $18.3 million loan agreement. Several parcels of real property served as collateral for the loan. Following Sweely’s default on the loan and threats of bankruptcy, Sweely and Bank entered into a master loan modification and forbearance agreement the “Forbearance Agreement”).
The Forbearance Agreement required Sweely to make cash payments to Bank on a set schedule or otherwise voluntarily convey collateralized parcels of property by deed in lieu of foreclosure to Bank on that schedule. When Sweely failed to make a payment, rather than accept a deed in lieu of foreclosure from Sweely, Bank foreclosed on certain parcels of the collateralized property in order to extinguish junior liens on the property that would not have been extinguished if transferred to Bank by deed in lieu of foreclosure. In response, Sweely filed suit against Bank, alleging, among other things, a claim for breach of contract. The circuit court dismissed all claims against Bank with prejudice on demurrer and the Supreme Court of Virginia affirmed.
On appeal, the Supreme Court considered whether the Forbearance Agreement allowed Bank the discretion to proceed with foreclosure or, alternatively, whether the Forbearance Agreement required Bank to accept the deed in lieu of foreclosure. Ultimately, the Court held that Bank had the discretion to proceed with foreclosure and did not breach the Forbearance Agreement by doing so. In the recitals of the Forbearance Agreement, Bank agreed to “forbear from exercising,” but not to “waiv[e] any rights or remedies available to [it],” including its right to foreclose. Citing to contract interpretation principles, the Court held that the Forbearance Agreement explicitly preserved Bank’s right to foreclosure and did not require Bank to forfeit that right even if Sweely offered a deed in lieu of foreclosure. Accordingly, the Court upheld the circuit court’s dismissal of all claims with prejudice.