More than two years later, in January 2017, Flagstar filed a judicial foreclosure suit. It later amended its complaint to argue that the 2014 foreclosure was unconscionable and legally invalid, and added new claims for declaratory relief, breach of fiduciary duty, and unjust enrichment. The trial court dismissed all claims, holding that the prior foreclosure had extinguished Flagstar’s lien and that the amended claims were time-barred.
On appeal, the Court of Appeals affirmed most of the trial court’s findings. However, it found the trial court had erred in one respect: the lower court incorrectly held that Flagstar’s argument challenging the foreclosure sale as unconscionable was time-barred. The appellate court clarified that such an argument, when raised in response to an affirmative defense, is not subject to a statute of limitations.
Still, the win for Flagstar was limited. The appellate panel, led by Associate Judge Deahl, ultimately concluded that the foreclosure sale was not unconscionable as a matter of law. The court relied heavily on its 2024 ruling in New Penn Financial, LLC v. Daniels, where it had upheld a 2014 foreclosure sale of a property for $5,000 despite a tax-assessed value of $131,380. In that case, as in this one, the sale occurred at a time when the law surrounding the extinguishment of mortgage liens by condominium association foreclosures was unsettled.
The court determined that the low sale price in Flagstar’s case—just over 10% of the assessed value—was not unconscionable given the legal uncertainty that existed at the time. That uncertainty, the court said, impacted the fair market value of the property and explained the discounted price. It further found that the specific reference to Flagstar’s lien in the foreclosure notice did not change the legal analysis, emphasizing that under DC law, a condominium association cannot waive the statutory effect of a super-priority lien simply by stating that the sale is subject to a mortgage.
The court also rejected Flagstar’s attempt to toll the statute of limitations on its remaining claims by invoking the discovery rule or principles of equitable tolling. It held that the clock began running at the time of the 2014 sale, not when the court clarified the law in Liu v. U.S. Bank National Association in 2018. The opinion noted that Flagstar, as a federally chartered bank, was in a position to be aware of the developing case law and should have acted earlier to protect its interests.