Title: Virginia Housing Dev. Auth. v. Fox Run Ltd.
Citation: N/A
Docket Number: 970924
State: Virginia
Issuer: Virginia Supreme Court
Date: February 27, 1998

PRESENT: All the Justices 
 
VIRGINIA HOUSING DEVELOPMENT AUTHORITY 
 
v.  Record No. 970924 
 
FOX RUN LIMITED PARTNERSHIP 
 
 
 
 
OPINION BY 
 
 
 
JUSTICE LAWRENCE L. KOONTZ, JR. 
 
 
 
February 27, 1998 
 
STUART A. SIMON, TRUSTEE 
 
v.  Record No. 970946 
 
FOX RUN LIMITED PARTNERSHIP 
 
 
FROM THE CIRCUIT COURT OF ROANOKE COUNTY 
Kenneth E. Trabue, Judge 
 
 
These two appeals arise from a foreclosure sale of a multi-
family housing project.  In the first appeal, we consider 
whether the noteholder and purchaser at that sale is entitled to 
collect the “prepayment fee” provided for by the terms of the 
notes secured by the deed of trust.  The second issue we 
consider, raised in both appeals, is whether the advertisement 
of the foreclosure sale by the trustee adequately disclosed that 
certain personal property, also encumbered by the deed of trust, 
was to be sold along with the real property. 
BACKGROUND 
 
The parties do not dispute the principal facts.  On 
November 23, 1987, the Virginia Housing Development Authority 
(VHDA) made a loan, evidenced by three notes in the total amount 
of $11,737,000, to Fox Run Limited Partnership (Fox Run) to 
finance the acquisition of land and the construction thereon of 
a 274-unit multi-family housing project in Prince William 
County.  Additionally, the acquisition of certain items of 
personalty, generally consisting of appliances for individual 
units, was also financed by the loan. 
 
The three notes, secured by a single deed of trust, are 
identical in their terms.  Relevant to this appeal, each note 
provides as follows: 
 
D. Upon failure of [Fox Run] to perform or comply 
with any of the terms or conditions of this Note or 
upon the occurrence of any event of default under the 
Deed of Trust hereafter described securing this Note, 
the entire unpaid principal hereof, together with all 
accrued interest thereon, shall, at the option of 
[VHDA], become at once due and payable (and no failure 
by [VHDA] to exercise such option shall be deemed or 
construed as a waiver of the right to exercise the 
same in the event of any subsequent or continuing 
default or breach). 
 
. . . . 
 
 
F. . . . In the event that [VHDA] shall exercise 
its right under Section D hereinabove . . ., a 
prepayment fee shall, at the option of [VHDA], become 
at once due and payable . . . .  Any prepayment fee 
which shall become due and payable under this Section 
F shall be secured by the Deed of Trust . . . .[ ]
1
 
                     
 
1This section provides for alternate calculations to 
determine the amount of the prepayment fee.  However, for 
purposes of this appeal the parties agree that the fee is six 
percent of the outstanding balance of the loan, which amounts to 
$698,104.59.  
 
2
 
In addition to the real property, the deed of trust 
describes the property encumbered thereby as “equipment and 
fixtures . . . and all items of personal property . . . now or 
hereafter used on or in connection with the Development.”  
(Emphasis added.)  It further provides that “[t]he Secured 
Indebtednesses consist of . . . [a]ll obligations under three 
certain deed of trust notes of even date . . . [and] [a]ll other 
indebtednesses of [Fox Run] to [VHDA].”  (Emphasis added.) 
 
The deed of trust provides that upon default, as defined 
therein, acceleration of “all of the Secured Indebtednesses 
shall, at the option of [VHDA], become at once due and payable” 
and provides for the sale of all secured property by the trustee 
to satisfy the debt.  The deed of trust also contains waivers of 
delay and notice: 
No delay by [VHDA] or the Trustees in exercising 
any right or remedy hereunder or otherwise afforded by 
law shall operate as a waiver thereof or preclude the 
exercise thereof during the continuance of any default 
hereunder. 
 
 
. . . . 
 
Unless required by law, notice of the exercise of 
any option granted to [VHDA] herein need not be given, 
and [Fox Run] hereby waives, to the extent permitted 
by law, any notice of the election of [VHDA] to 
exercise any such option. 
 
 
On December 4, 1991, following default by Fox Run on the 
notes, VHDA gave notice by letter to Fox Run of its election to 
exercise its right of acceleration under the notes and the deed 
 
3
of trust, declaring the entire principal, accrued interest and 
late charges to be immediately due and payable.  While not 
addressing the prepayment fee, VHDA expressly reserved its right 
to “any remedies . . . at law [or] in equity, under the Notes  
[and] the Deed of Trust.” 
 
Fox Run filed a bankruptcy petition on December 10, 1991, 
staying any effort at foreclosure by VHDA.  On November 6, 1992, 
the bankruptcy court terminated the automatic stay, and, on 
December 10, 1992, VHDA again informed Fox Run that it had 
exercised its option to accelerate the debt.  Again, there was 
no express mention of the prepayment fee in this notice, but the 
same reservation of remedies was made. 
 
Fox Run and VHDA entered into negotiations in an effort to 
restructure the loan and cure the default.  When the 
negotiations failed, VHDA directed Stuart A. Simon, the 
substitute trustee under the deed of trust (the trustee), to 
institute foreclosure proceedings.  The trustee notified Fox Run 
on May 26, 1993 that the foreclosure sale would be held on June 
18, 1993.  The published advertisement of the sale stated that 
the trustee would “offer for sale . . . all of the property with 
any improvements thereon . . . .  Reference is made to the 
. . . Deed of Trust for a more particular description.”  The 
notice further provided that “[t]he Real Property shall be 
 
4
conveyed by special warranty deed and the Personal Property 
shall be conveyed by Bill of Sale.”  (Emphasis added.) 
Fox Run then began considering the possibility of paying 
off the loan or of bidding on the property at the foreclosure 
sale, and requested that VHDA supply it with the payoff terms.  
In response to this request, VHDA calculated the balance due on 
the notes to be $13,576,596.85, including a 6% prepayment fee of  
$698,104.59.  These figures, setting out the amount of the 
principal, interest, late charges, legal fees and the prepayment 
fee in express terms, were communicated to Fox Run by letter on 
June 11, 1993. 
By letter dated June 16, 1993 and delivered via 
telefacsimile, Fox Run notified VHDA of the “contingency” that 
Fox Run might submit a bid at the foreclosure sale, and asked 
VHDA to confirm that “[n]o prepayment penalty will be required 
by the foreclosure.”  Fox Run further asked VHDA to confirm 
“[t]he amount required by VHDA to discharge its indebtedness in 
full,” setting out the amount of principal and interest, but 
excluding the prepayment fee, late charges, and legal fees which 
had been previously supplied by VHDA. 
On the same day, VHDA responded to Fox Run.  It confirmed 
the amount of principal and interest owed, and expressly noted 
that late charges, legal fees, and costs incident to the sale 
had not been included in Fox Run’s inquiry, referring Fox Run to 
 
5
the June 11, 1993 letter.  With respect to the prepayment fee, 
VHDA stated “[t]he deed of trust notes representing the 
outstanding debt clearly provide that a prepayment [fee] may be 
required upon acceleration by [VHDA].  However, this is not to 
say that [VHDA] will necessarily include, in any bid it may put 
forward, all or any part of the prepayment [fee].” 
VHDA, in expectation that Fox Run would have funds 
available in its reserve accounts to pay a possible deficiency 
resulting from foreclosure, initially prepared its foreclosure 
bid without including the full prepayment fee.  However, after 
reviewing this bid on the morning of the sale, VHDA decided to 
increase its bid to include the full amount it had calculated 
was due, including the prepayment fee.  VHDA was the sole bidder 
at the foreclosure sale, submitting a bid of $13,670,000, the 
amount VHDA had calculated was the whole indebtedness including 
the prepayment fee.2
On August 16, 1993, Fox Run informed VHDA that it claimed 
ownership of certain “personal property remaining on the 
premises, including appliances and other items,” and submitted 
                     
 
2The parties do not dispute that VHDA failed to consider 
certain credits due Fox Run for its reserve accounts or that 
there was a slight deficiency between VHDA’s bid and the actual 
amount due under VHDA’s calculations.  Accordingly, following 
the sale VHDA determined that Fox Run was due $110,136.85 from 
the sale after all debts and fees were satisfied, and paid that 
sum to Fox Run. 
 
6
an inventory of those items.3  On August 25, 1993, VHDA responded 
that the personal property “was transferred [to VHDA] by the 
trustee as part of the trustee’s sale.”  After Fox Run disputed 
VHDA’s ownership of the personal property located on the 
premises, VHDA provided Fox Run with a copy of the bill of sale 
which transferred to VHDA “all right title and interest to the 
personal property.” 
On August 27, 1993, Fox Run filed a motion for declaratory 
judgment against VHDA and the trustee asserting that VHDA is not 
entitled to the prepayment fee because VHDA “has not properly 
exercised its option to impose a prepayment [fee] or done so in 
a timely manner.”  Thus, the pleading asserts that the sale 
price of the property at foreclosure exceeded the indebtedness 
secured by the lien of the deed of trust by the amount of the 
prepayment fee.  Continuing, the pleading further asserts that 
the trustee had not “properly sold” the personal property 
belonging to Fox Run.  Accordingly, Fox Run sought a declaratory 
judgment that VHDA is not entitled to the prepayment fee, 
creating an excess from the foreclosure sale in that amount in 
                     
 
3The personal property consisted generally of appliances 
such as stoves, refrigerators, washers, and dryers used in the 
individual apartments.  The parties do not dispute that certain 
other appliances used at Fox Run were the property of Fralin & 
Waldron, the developer that had formed the Fox Run Partnership.  
Fralin & Waldron was permitted to remove its appliances 
following the foreclosure sale. 
 
7
Fox Run’s favor, and that title to the personal property remains 
vested in Fox Run.4
VHDA and the trustee responded to the suit with general 
denials.  Extensive discovery proceedings followed, with agents 
and employees of the parties being deposed. 
 
Nina B. Nolley, a VHDA employee, testified at her 
deposition that the prepayment fee had not been calculated until 
Fox Run requested payoff figures on June 9, 1993.  She further 
testified, however, that the prepayment fee “always existed in 
the [loan] documents,” and that she always included prepayment 
fees in her loan calculations if one was provided for in the 
loan documents.  Nolley testified that in every instance that 
she could recall, VHDA assessed a prepayment fee for any payoff 
that was subject to such a fee. 
 
J. Judson McKellar, Jr., General Counsel for VHDA, and Paul 
M. Brennan, Senior Counsel for VHDA, both testified that 
following Fox Run’s request for payoff figures, McKellar, whose 
responsibilities at VHDA included such matters, determined that 
the prepayment fee would be included as part of Fox Run’s debt.  
According to McKellar, the decision to impose the prepayment fee 
was “a group decision . . . involv[ing] Hunter Jacobs [Deputy 
                     
 
4A further claim concerning pre-foreclosure rents was 
settled by the parties and is not a part of this appeal. 
 
 
8
Director of Housing Management], Paul Brennan, myself . . . Nina 
Nolley . . . [and] . . . later . . . Conrad Sterrett.” 
 
Sterrett, the Director of Finance for VHDA, actually 
prepared VHDA’s foreclosure bid.  He testified that in 
discussing the matter within VHDA, the prepayment fee “was owed 
us and therefore should be included in the maximum amount owed 
us.”  This, Sterrett testified, was the “[g]eneral philosophy of 
the finance division” of the VHDA. 
 
The parties submitted the case to the chancellor on the 
depositions, stipulations of fact, and cross-motions for summary 
judgment.  Following review of the evidence and upon written and 
oral argument of the parties, the chancellor issued a letter 
opinion.  In that opinion, the chancellor found that “the 
evidence fails to establish that prior to foreclosure at auction 
that VHDA or anyone with the authority to do so . . . [made] an 
election to impose [the prepayment fee].”  The chancellor 
further found that “[t]he Trustee did not advertise that any 
personal property of Fox Run located on the premises was to be 
subject to the foreclosure sale. . . . [N]o one (neither the 
parties nor interested outside bidders) had a clue from the 
newspaper advertisement as to what freestanding appliances or 
personalty in the apartment units was owned by Fox Run.”  Based 
upon these findings, the chancellor granted summary judgment for 
Fox Run, awarding it $698,104.59 as the excess of the 
 
9
foreclosure sale proceeds without the prepayment fee and 
$113,921.28 for the conversion of the personal property.  We 
awarded appeals to both VHDA and the trustee.5
DISCUSSION 
 
VHDA contends that the chancellor erred in finding that 
prior to foreclosure it had not made an election to impose the 
prepayment fee.  We agree.  The evidence showed that McKellar, 
an officer of VHDA authorized to make such determinations, in 
consultation with other officers and employees made the election 
to exercise VHDA’s option to assess the prepayment fee as part 
of “the maximum amount owed” by Fox Run, and not merely as a 
condition of avoiding foreclosure by prepayment.6  Following that 
determination, Nolley calculated the exact amount of the 
prepayment fee and this figure was communicated to Fox Run in 
                     
 
5We also accepted assignments of cross-error by Fox Run 
related to rulings by the chancellor on its claim for pre-
judgment interest.  Our resolution of the main issues of these 
appeals renders the assignments of cross-error moot. 
 
6Since the notes precluded Fox Run from making payoff prior 
to ten years and four months after the first unit was rented, 
VHDA further contends that its election to assess the prepayment 
fee was clearly applicable to the debt to be collected by 
foreclosure.  While the notes contain this limitation, it is 
apparent from the record that VHDA and Fox Run had entered into 
negotiations to restructure or compromise the debt after default 
and that the amount of the prepayment fee could have been 
included in such a negotiated payoff. 
 
10
the June 11, 1993 letter.7  At that time, VHDA clearly had 
elected to exercise its option to assess the fee as part of Fox 
Run’s debt prior to foreclosure. 
 
The fact that VHDA subsequently advised Fox Run that VHDA’s 
foreclosure bid might not include the prepayment fee, and that 
VHDA initially had determined that it would include only a 
portion of the fee in its bid, is not relevant.  VHDA was under 
no obligation to bid the full amount of the debt at the 
foreclosure sale, especially if, in its estimation, the debtor 
had assets that could satisfy any deficit remaining after the 
sale. 
 
However, the determination that VHDA had elected to 
exercise its option to assess the prepayment fee does not 
resolve the dispositive issue presented by this appeal.  This is 
so because that determination leaves unanswered the contention 
of Fox Run, as originally asserted in the motion for declaratory 
judgment, that VHDA’s election was not “properly exercised 
. . . or done so in a timely manner.”  Therefore, we will assume 
that the chancellor’s ruling contemplated that VHDA had not 
                     
 
7Fox Run concedes that the June 11, 1993 letter placed it on 
notice that VHDA would impose the prepayment fee as a condition 
or penalty of Fox Run’s paying off the debt to avoid 
foreclosure.  For purposes of this opinion, we will assume 
without deciding that neither VHDA’s June 11, 1993 letter, nor 
its June 16, 1993 letter, was adequate notice of VHDA’s intent 
to assess the prepayment penalty as a cost of foreclosure. 
 
11
properly exercised its election because it had not notified Fox 
Run of that election with respect to foreclosure.  Thus, we must 
consider what duty, if any, VHDA owed under the notes or the 
deed of trust to give Fox Run notice of VHDA’s intent to assess 
the prepayment fee as part of the debt to be collected by 
foreclosure. 
 
We begin by noting that deeds of trust and their underlying 
notes are “separate and distinct” documents.  Jim Carpenter 
Company v. Potts, 255 Va. 147, 156 n.5, ___ S.E.2d ___, ___ n.5 
(1998).  However, in appropriate circumstances, we have 
recognized that “notes and contemporaneous written agreements 
executed as part of the same transaction will be construed 
together as forming one contract.”  Richmond Postal Credit Union 
v. Booker, 170 Va. 129, 134, 195 S.E. 663, 665 (1938)(citation 
omitted).  So long as neither document varies or contradicts the 
terms of the other, terms of one document which clearly 
contemplate the application of terms in the other may be viewed 
together as representing the complete agreement of the parties.  
Id.  Such is the case with respect to the notes and deed of 
trust at issue here, and, accordingly, we will construe these 
documents as representing one contract. 
 
Nothing contained within the express language of the notes 
or the deed of trust requires VHDA to provide notice to Fox Run 
of its election to impose the prepayment fee at foreclosure.  
 
12
Fox Run contends, however, that in order for VHDA to exercise 
its option to assess the prepayment fee as part of the debt to 
be collected at foreclosure, that election must have been 
included in the notices of acceleration or given within a 
reasonable time thereafter.8  Relying, in part, upon our decision 
in Florence v. Friedlander, 209 Va. 520, 523, 165 S.E.2d 388, 
391 (1969), Fox Run correctly points out that a notice of 
acceleration must be clear and unequivocal that the creditor is 
exercising its option to accelerate.  Thus, under the 
circumstances of the present case, Fox Run asserts that VHDA was 
required, but failed, to give Fox Run notice in clear and 
unequivocal terms in the notice of acceleration that the fee 
would be imposed at foreclosure.  We disagree. 
 
While it is true that the notes and the deed of trust 
expressly provide for the prepayment fee to be included in the 
indebtedness secured by the deed of trust, this does not make 
the prepayment fee a part of the principal and interest subject 
                     
 
8With respect to the question of timeliness, Fox Run asserts 
that VHDA’s actions should be judged from the time of the first 
notice of acceleration immediately prior to Fox Run’s filing of 
its bankruptcy petition in 1991.  We disagree.  Having filed for 
bankruptcy and received the benefit of the automatic stay 
imposed on the foreclosure action, Fox Run cannot now assert 
VHDA was nonetheless required to continue actively to pursue the 
foreclosure during that stay, other than through the normal 
procedures of the bankruptcy court.  Moreover, our resolution of 
the notice issue renders any issue of timeliness moot. 
 
 
13
to notice of acceleration.  To the contrary, it is clear that 
acceleration of the principal debt is a condition precedent to 
VHDA’s ability to exercise its option to assess the prepayment 
fee following a default.  Accordingly, we hold that VHDA was not 
required to include notice of its election to assess the 
prepayment fee as a part of the debt owed upon notice of 
acceleration of the principal debt. 
 
We are left to consider then whether notice of VHDA’s 
election to assess the prepayment fee as part of the debt to be 
collected at foreclosure was an independent requirement fairly 
implied in the contract represented by the notes and the deed of 
trust.  The deed of trust contains express provisions for waiver 
of “notice of any option granted [VHDA] herein” and that “[n]o 
delay by [VHDA] in exercising any right or remedy hereunder 
. . . shall operate as a waiver thereof or preclude the exercise 
thereof.”  Fox Run asserts that the use of the terms “herein” 
and “hereunder” limits the application of these two provisions 
to options exercised under the deed of trust, and, thus, 
implicitly requires timely notice for options exercised under 
the notes.  We disagree. 
 
As we have noted above, the notes and the deed of trust 
represent a single contract.  Since there is no express 
provision within the notes requiring notice of VHDA’s election 
to assess the prepayment fee, the waiver and delay provisions of 
 
14
the deed of trust may be applied to the notes without varying or 
contradicting any terms therein.  Richmond Postal Credit Union, 
170 Va. at 134, 195 S.E. at 665.  Thus, we hold that Fox Run 
waived the right to notice of VHDA’s election to assess the fee 
as part of the debt to be collected at foreclosure. 
 
We now turn to the issue of the adequacy of the trustee’s 
advertisement of sale with regard to the personal property.  
Code § 55-59.3 provides the required contents for an 
advertisement of a sale under a deed of trust: 
The advertisement of sale under any deed of trust, in 
addition to such other matters as may be required by 
such deed of trust or by the trustee, in his 
discretion, shall set forth a description of the 
property to be sold, which description need not be as 
extensive as that contained in the deed of trust, and 
shall identify the property by street address, if any, 
or, if none, shall give the general location of the 
property with reference to streets, routes, or known 
landmarks.  Where available, tax map identification 
may be used but is not required.  The advertisement 
shall also include the time, place and terms of sale 
and shall give the name or names of the trustee or 
trustees.  It shall set forth the name, address and 
telephone number of such person (either a trustee or 
the party secured or his agent or attorney) as may be 
able to respond to inquiries concerning the sale. 
 
 
We have not previously addressed the application of this 
statute.  Fox Run relies upon our decision in Deep v. Rose, 234 
Va. 631, 636, 364 S.E.2d 228, 231 (1988), wherein we held that 
the time periods for advertising foreclosure sales contained in 
Code § 55-59.2 are mandatory.  Relying on this holding, Fox Run 
 
15
asserts that the same principle should apply to the content of 
the advertisement.  We disagree. 
 
In Deep v. Rose, we expressly stated that our holding was 
limited to the effect of Code § 55-59.2.  234 Va. at 638, 364 
S.E.2d at 232.  In other matters concerning advertisement of 
foreclosure sales under deeds of trust, we have held that 
substantial compliance is sufficient so long as the rights of 
the parties are not affected in any material way.  See, e.g., 
Bailey v. Pioneer Federal Savings and Loan Association, 210 Va. 
558, 562-63, 172 S.E.2d 730, 734 (1970). 
 
Here, the notes and deed of trust clearly make reference to 
the real and personal property as the collateral for the loan.  
The advertisement refers to the deed of trust for a description 
of the property to be sold and expressly states that the 
personal property will be conveyed by bill of sale.  This was 
adequate notice to Fox Run, and to any potential third-party 
bidder, that the personal property “used on or in connection 
with” Fox Run’s housing project would be sold as part of the 
foreclosure.  Accordingly, we hold that the trustee’s 
advertisement of the sale substantially complied with the 
requirements of Code § 55-59.3. 
 
For these reasons, we will reverse the judgment of the 
chancellor and enter final judgment for VHDA and the trustee. 
Reversed and final judgment. 
 
16