Barnes v. VNB Mortgage Corp.

Holding

This appeal in a declaratory judgment proceeding involves a due-on-sale clause in a deed of trust. Typically, this type of clause provides that the entire balance secured by a deed of trust may be declared immediately due and payable if the property given for security is transferred without the consent of the noteholder.

In a previous case, we considered a due-on-sale clause in the context of a simple real estate transaction wherein property was conveyed subject to a deed of trust, but without the consent of the noteholder. It was contended the noteholder could not invoke the clause in the absence of a showing that the security had been impaired. We rejected the contention and upheld the noteholder’s right to invoke the clause. United Va. Bank/Nat. v. Best, 223 Va. 112, 286 S.E.2d 221, cert. denied, 459 U.S. 879 (1982).

In another case, we reviewed a due-on-sale clause in a more sophisticated arrangement whereby the purchaser, without the consent of the noteholder, would take possession of the property and make all payments on an existing deed of trust but would not receive a deed until the amount secured was paid in full. It was contended that the clause was invalid as an unreasonable restraint on alienation and that the proposed arrangement constituted neither a sale nor a transfer under the clause. We upheld the validity of the clause and ruled its operation would be triggered by the proposed arrangement. Lipps v. First American Serv. Corp., 223 Va. 131, 286 S.E.2d 215 (1982).

The present case involves a different twist in the form of a “Land Trust Agreement” (the Agreement), executed pursuant to Code § 55-17.1.1 The Agreement was part of a transaction which also included a deed of bargain and sale and a deed of trust.