Opinion ID: 3134113
Heading Depth: 2
Heading Rank: 1

Heading: DTA, ch. 61.24 RCW

Text: Statutory interpretation presents a question of law that we review de novo. Dep't of Ecology v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 9, 43 P.3d 4 (2002). 11 Brown was joined by two coplaintiffs in the superior court, but they are not participating in this appeal. Br. of Appellant at 9. 12 On June 9, 2015, Brown notified the court that M&T Bank agreed to enter a Trial Payment Plan loan modification with Brown, whereby Brown has an opportunity to make reduced monthly payments. See Suppl. Info. (June 9, 2015). This is a temporary program Brown intends to complete, and she hopes it will lead to a permanent modification. Because she may face the need for foreclosure mediation in the future, she maintains her request for declaratory relief that the Department's denial of her request for mediation was based on an erroneous interpretation of the DTA. !d. The Department has not argued that this affects the case. We agree. This case is not moot because the modification is temporary and contingent on future behavior. Also, this case involves issues of continuing and substantial public interest that justify rendering a decision on the merits. See State v. Hunley, 175 Wn.2d 901,907,287 P.3d 584 (2012). -22- Brown v. Wash. State Dep 't of Commerce, No. 90652-1 The court's objective is to ascertain and implement the legislature's intent. !d. If the statute's meaning is plain on its face, we give effect to that plain meaning as the expression of legislative intent. Id. at 9-10. But if the statute remains 'susceptible to more than one reasonable interpretation, then [we] may resort to statutory construction, legislative history, and relevant case law for assistance in discerning legislative intent.' Anthis v. Copland, 173 Wn.2d 752, 756, 270 P.3d 574 (2012) (quoting Christensen v. Ellsworth, 162 Wn.2d 365, 373, 173 P.3d 228 (2007)).
The parties dispute the meaning of four statutory provisions. See RCW 61.24.166 (mediation exemption provision), .005(2) (definition of beneficiary), .163(5)(c) (proof of beneficiary status), .030(7) (proof of beneficiary status). In cases such as this one, where the holder and the owner of the note are different entities, we conclude these provisions are ambiguous. Because we must determine whether the beneficiary of Brown's deed of trust is exempt from mediation, we start our analysis with the mediation exemption statute itself, RCW 61.24.166. That statute provides: The provisions ofRCW 61.24.163 [i.e., the FFA mediation program] do not apply to any federally insured depository institution, as defined in 12 U.S.C. Sec. 46l(b)(l)(A), that certifies to the department under penalty of perjury that it was not a beneficiary of deeds of trust in more than two hundred fifty trustee sales of owner-occupied residential real property that occurred in this state during the preceding calendar year. RCW 61.24.166. Here, only one element of this exemption-the beneficiary of deeds of trust-is disputed. If a beneficiary of deeds of trust refers to the owner -23- Brown v. Wash. State Dep 't of Commerce, No. 90652-1 of the note (here, Freddie Mac), the statute entitles Brown to mediation with Freddie Mac. That is because Freddie Mac is not a federally insured depository institution, so Freddie Mac cannot claim the exemption. But if a beneficiary of deeds of trust refers to the holder of the note (here, M&T Bank), the statute does not entitle Brown to·mediation. That is because M&T Bank is a federally insured depository institution that has certified under penalty of perjury to the Department that it has been a beneficiary in less than 250 residential Washington homes in the last year. Thus, this case turns on whether a beneficiary of deeds of tn1st in the exemption statute means the owner or the holder of the note. The exemption statute itself does not answer that question, so the parties turn to related statutes. The logical place to turn next is to the statute's definition of beneficiary. Under the statute's definition, Beneficiary means the holder of the instrument or document evidencing the obligations secured by the deed of trust, excluding persons holding the same as security for a different obligation. RCW 61.24.005(2). According to the Department, this definition unambiguously supports its view that a beneficiary for purposes of the mediation exemption provision, RCW 61.24.166, is the holder of the note. Were that the only related statute at issue, the definition's plain language would resolve this case. But two related statutes create ambiguity. These two related statutes discuss how a party proves that it is a beneficiary. After the parties have been referred to mediation, the FFA provides that they must -24- Brown v. Wash. State Dep 't of Commerce, No. 90652-1 exchange information with each other and the mediator. RCW 61.24.163(4). Among other things, the purported beneficiary must provide [p ]roof that the entity claiming to be the beneficiary is the owner of any promissory note or obligation secured by the deed of trust. Sufficient proof may be a copy of the declaration described in RCW 61.24.030(7)(a). !d. at (5)(c) (emphasis added). The cross-referenced subsection, which is one of the nine requisites to a trustee's sale, provides that [i]t shall be requisite to a trustee's sale ... [t]hat, for residential real property, before the notice of trustee's sale is recorded, transmitted, or served, the trustee shall have proof that the beneficiary is the owner of any promissory note or other obligation secured by the deed of trust. A declaration by the beneficiary made under the penalty of perjury stating that the beneficiary is the actual holder of the promissory note or other obligation secured by the deed of trust shall be sufficient proof as required under this subsection. RCW 61.24.030(7)(a) (emphasis added). These provisions create ambiguity in cases where the owner of the note is different from the holder of the note because the provisions each have a sentence that, standing alone, could be read to support either party's conclusion. Brown focuses on the italicized portions above. She argues these provisions require that the beneficiary own the note. But if we give effect to her reading, the second sentence of RCW 61.24.030(7)(a)-providing that a declaration that the beneficiary is the actual holder shall be sufficient proof' as required by the subsection-is superfluous and inharmonious in cases where it is undisputed that the owner and the holder are different entities. Further, Brown's position-that the word beneficiary in the mediation exemption statute, RCW 61.24.166, means owner-would be inconsistent with the statutory definition of beneficiary. See RCW 61.24.005(2) -25- Brown v. Wash. State Dep 't of Commerce, No. 90652-1 (defining beneficiary to be the holder of the instrument or document evidencing the obligations secured by the deed of trust, not the owner). By contrast, the Department focuses on the underlined portions above. It emphasizes that a declaration saying the beneficiary is the actual holder shall be sufficient proof' as required by RCW 61.24.030(7)(a). But if we give effect the Department's reading, the first sentence of RCW 61.24.030(7)(a)-providing that the trustee must have proof that the beneficiary is the owner-is superfluous and inharmonious in cases where it is undisputed that the holder is not the owner. Because these provisions are ambiguous in situations where the note owner and holder are different parties, we cannot conclude that either Brown's or the Department's interpretation is plainly correct and the other side's interpretation is plainly wrong. We thus tum to other indicators of legislative intent-statutory context, case law, and legislative history.
The Department argues that Washington's UCC supports its interpretation that the beneficiary for the purpose of the mediation exemption statute is the note holder. Brown argues that the content of certain forms under the DTA-specifically, the notice of default form and the notice of sale form-supports her interpretation that the beneficiary is the owner for the purpose of the mediation exemption statute, RCW 61.24.166. We find the Department's contentions more persuasive. -26- Brown v. Wash. State Dep 't of Commerce, No. 90652-1
The relevant UCC principles discussed above, see supra pp. 12-19, guide our analysis. M&T Bank is the holder of Brown's note because M&T Bank possesses the note and because the note, having been indorsed in blank, is payable to bearer. RCW 62A.1-201(21)(A) (holder); RCW 62A.3-205(b) (indorsed in blank). As the holder of the note, M&T Bank is entitled to enforce the note; it is the PETE. RCW 62A.3-30l(i). As the PETE, M&T Bank has the authority to modify and discharge the obligation. RCW 62A.3-604. If Brown had fulfilled her obligation and paid M&T Bank, the obligation would have been discharged and she would have been protected from any other suit on the note. RCW 62A.3-602(a). We agree with the Department that the UCC's focus on PETE status aligns with the legislature's intent behind the DTA's mediation program. See Bain, 175 Wn.2d at 103-04 (interpreting the DTA in light of article 3 principles). By enacting a program designed to promote the modification of notes, the legislature necessarily intended the party with the authority to negotiate and modify the note to be present in the FFA mediation session. See RCW 61.24.163(7)(b)(ii) (requiring the mediator to send a notice stating that a person with authority to agree to a resolution, including a proposed settlement, loan modification, or dismissal or continuation of the foreclosure proceeding, must be present ... during the mediation session). As discussed above, the party with such modification authority is the PETE, regardless of whether the PETE owns the note. See supra pp. 12-19. We implement the -27- Brown v. Wash. State Dep 't of Commerce, No. 90652-1 legislature's intent by holding that the party with the authority to modify the loan under article 3 of the UCC-here, the note holder, M&T Bank-is the beneficiary for purposes of the mediation exemption provision, RCW 61.24.166. The Department was entitled to rely on the undisputed declaration stating M&T Bank was the actual holder of the note, thereby satisfying RCW 61.24.030(7)(a) andRCW 61.24.163(5)(c).
Brown contends the notice of default provision, RCW 61.24.030(8), supports her argument that the beneficiary for purposes of the mediation exemption provision, RCW 61.24.166, is the owner of the note. The trustee or beneficiary issues the notice of default to the borrower. RCW 61.24.030(8). The notice of default must inform the borrower, among other things, ofthe name and address of the owner of any promissory notes or other obligations secured by the deed of trust and the name, address, and telephone number of a party acting as a servicer of the obligations secured by the deed of trust. !d. at (8)(l) (emphasis added). Only after the notice of default has been issued may an attorney or housing counselor refer a borrower to FFA mediation. RCW 61.24.163(1). But, when the attorney or housing counselor does so, the Department's form asks for the contact information of the Beneficiary (Holder of Note). WASH. STATE DEP'T OF COMMERCE, Foreclosure Fairness Program, http://www.commerce.wa.gov/ Programs/housing/Foreclosure/Pages/default.aspx (last visited Oct. 19, 20 15) (click Referral to Mediation Form and Instructions to download form). According to -28- Brown v. Wash. State Dep 't of Commerce, No. 90652-1 Brown, the Department's interpretation creates an illogical system where the information [the Department] asks for on the referral form, namely the identity of the beneficiary, cannot be obtained by a referrer from the [notice of default]-the issuance of which triggers the right to ask for FFA mediation. Br. of Appellant at 25. We disagree. A borrower can identify the note holder based on the information provided in the notice of default. The notice of default informs the borrower of the identity of the servicer. RCW 61.24.030(8)(/). Servicer is not a legal term of art. Homeowners use the word to refer to the bank to which they send mortgage payments because they reasonably believe the servicer is the person entitled to enforce the note and because paying the servicer will discharge their obligation. That is true when the servicer holds the note. RCW 62A.3- 30l(i), -602(a). The inference that a servicer denotes a holder is therefore apparent and we decline to read the notice of default form as creating an absurd or illogical system for borrowers seeking FFA mediation. Brown next argues that the statute's notice of sale form appears to equate beneficiary status with ownership. It provides in part, The attached Notice of Trustee's Sale is a consequence of default(s) in the obligation to [blank space], the Beneficiary of your Deed of Trust and owner of the obligation secured thereby. RCW 61.24.040(±). This form language contemplates the traditional scenario where one party both owns and holds the note, making that party clearly the beneficiary. But the form does not require that the borrower's obligation is always owed to the -29- Brown v. Wash. State Dep 't of Commerce, No. 90652-1 owner of the note because that would make the DTA conflict with article 3 of the UCC. Article 3 provides that a borrower's obligation is owed to a person entitled to enforce the instrument[, the PETE], RCW 62A.3-412 (emphasis added), and [a] person may be a person entitled to enforce the instrument[, a PETE,] even though the person is not the owner of the instrument, RCW 62A.3-30 1 (emphasis added).
In 2012, we decided Bain, 175 Wn.2d 83, a case concerning the Mortgage Electronic Registration System Inc. (MERS). In 2014, the Court of Appeals decided Trujillo v. Northwest Trustee Services, Inc., 181 Wn. App. 484,326 P.3d 768 (2014), rev'd in part, 183 Wn.2d 820. We subsequently issued a decision in Lyons v. US. Bank NA, 181 Wn.2d 775, 336 P.3d 1142 (2014), a case arising in similar circumstances as in Trujillo. We then granted the petition for review in Trujillo, 182 Wn.2d 1020 (20 15), and set oral arguments on the same day as in this case. 13
In Bain, we considered three certified questions concerning MERS. MERS is a corporation that maintains a private electronic registration system for tracking ownership of mortgage-related debt and is frequently listed as the 'beneficiary' of the deeds of trust that secure its customers' interests in the homes securing the debts. Bain, 175 Wn.2d at 88; see also id. at 94-98. The first certified question, 13 We recently issued our decision in Trujillo, reversing the Court of Appeals and holding, consistent with Lyons, that a trustee may not rely on an ambiguous declaration as to whether the beneficiary is the actual holder of a note. Trujillo, 183 Wn.2d at 826-27. -30- Brown v. Wash. State Dep 't of Commerce, No. 90652-1 relevant here, asked whether MERS [can be] a lawful beneficiary ... if it does not hold the promissory notes secured by the deeds of trust. !d. at 89. We answered the question no. See id. at 91 (CERTIFIED QUESTIONS: 1. Is [MERS] a lawful 'beneficiary' within the terms of the [DTA, RCW] 61.24.005(2), if it never held the promissory note secured by the deed of trust? [Short answer: No.] (third alteration in original)), 120 (CONCLUSION[:] Under the deed of trust act, the beneficiary must hold the promissory note and we answer the first certified question 'no.'). Bain thus recognized that holding the note is essential to beneficiary status. !d. This conclusion was primarily based on a plain reading of the definition ofbeneficiary in the statute. See id. at 98-99. We reasoned the DTA recognizes that the beneficiary of a deed of trust at any one time might not be the original lender. The act gives subsequent holders ofthe debt the benefit of the act by defining 'beneficiary' broadly as 'the holder of the instrument or document evidencing the obligations secured by the deed of trust.' !d. at 88 (quoting RCW 61.24.005(2)). The Bain opinion rejected various counterarguments and supported its primary reason in various ways, see id. at 98-110, 14 and its conclusion is clear. 14 Two of Bain' s supporting rationales are relevant here. First, Bain concluded that the beneficiary must hold the note for DTA purposes in order to harmonize the DTA with article 3 of the DCC because holding a note triggers PETE status under Article 3, RCW 62A.3-30l(i), and beneficiary status under RCW 61.24.005(2). See Bain, 175 Wn.2d at 103-04. Second, Bain supported its holding that the beneficiary must hold the note by referencing the FFA and recognizing that noteholders have the authority to modify a note. See id. at 103 ([I]f the legislature understood 'beneficiary' to mean 'noteholder,' then [the FFA's findings] make[] considerable sense because the legislature was attempting to create a framework where the stakeholders could negotiate a deal in the face of changing conditions.). -31- Brown v. Wash. State Dep 't of Commerce, No. 90652-1 Simply put, if MERS does not hold the note, it is not a lawful beneficiary. 15 !d. at 89. We follow Bain' s affirmation of the plain language of the definition of beneficiary in RCW 61.24.005(2). That statute defines a beneficiary as the holder of the instrument and makes no mention of ownership. RCW 61.24.005(2). Consistent with article 3 's recognition that a holder of a note is entitled to enforce the note, we adhere to Rain's holding that RCW 61.24.005(2) requires the beneficiary be the holder of the note. See Bain, 175 Wn.2d at 91, 120. To conclude otherwise-i.e., to hold that the beneficiary for purposes of the mediation exemption statute, RCW 61.24.166, is the owner and not the note holder-would undermine Bain' s core rationale that rested on the definition of a beneficiary in RCW 61.24.005(2) as the note holder. 16 15 Brown quotes statements from Bain that casually refer to ownership of the note. Br. of Appellant at 18, 30. The quotes are taken out of context from Bain's general background section on the DTA and in the analysis of the second certified question inBain, which is not at issue here. 16 Our recent decision in Cashmere Valley Bank, 181 Wn.2d 622, reinforces what we have said about the distinction between an owner of a note and a holder of a note. We held there that merely because an institution has a right to the economic benefits of mortgage-backed securities (i.e., is the owner of the mortgage notes or is a trust beneficiary where the settlor of the trust owns the notes) does not necessarily mean the institution has any legal recourse to the underlying trust assets in the event of default. Id. at 625. We further recognized an institution could be the person entitled to enforce the mortgage note, the PETE, even though it was not the owner. I d. at 626 n.4 (noting that when a lender sells a mortgage note on the secondary market, the lender may continue servicing the mortgage for a fee and in the event of the borrower's default, the lender may foreclose on the property and pass along proceeds from the sale, less the lender's fee or share, to the buyer), 636 (recognizing that when the trustee of a pool mortgage-backed securities holds the mortgage notes on behalf of the owner of the mortgage notes, the trustee can foreclose), 641 (similar). -32- Brown v. Wash. State Dep 't of Commerce, No. 90652-1
In Trujillo, a homeowner claimed the trustee violated its duty of good faith under RCW 61.24.010(4) when the trustee relied on a beneficiary declaration to satisfy RCW 61.24.030(7)(a). The declaration said the purported beneficiary, Wells Fargo, was 'the actual holder of the promissory note ... evidencing the ... loan or has requisite authority under RCW 62A.3-301 to enforce said [note].' Trujillo, 181 Wn. App. at 488 (emphasis added) (first and third alterations in original). The Court of Appeals synthesized the concepts of beneficiary, id. at 495-97, owner, id. at 497-501, and holder, id. at 501-02. It concluded, RCW 61.24.030(7)(a), properly read, does not require Wells Fargo to also be the 'owner' of the note. Rather, it requires that a person entitled to enforce a note be a holder and need not also be an owner. Id. at 502. The Court of Appeals thus held the trustee did not violate its duty of good faith when it relied on this declaration. We decided Lyons shortly afterwards. As relevant here, in Lyons we considered whether a trustee violated its duty of good faith when it relied on a beneficiary declaration similar to the one in Trujillo to satisfy RCW 61.24.030(7)(a). The declaration in Lyons said the purported beneficiary was the actual holder of the promissory note ... or has requisite authority under RCW 62A.3-301 to enforce said obligation. Lyons, 181 Wn.2d at 780 (emphasis added). We held that the declaration at issue here does not comply with RCW 61.24.030(7)(a), because it is ambiguous concerning which of the three grounds under RCW 62A.3-30 1 the purported beneficiary invoked. I d. at 791. We held a purported beneficiary satisfies -33- Brown v. Wash. State Dep 't of Commerce, No. 90652-1 RCW 61.24.030(7)(a) by providing a declaration stating it is the actual holder of the note. But, by RCW 61.24.030(7)(a)'s terms, we recognized a purported beneficiary does not satisfy RCW 61.24.030(7)(a) by stating that it meets the second or third method of obtaining PETE status under RCW 62A.3-301(ii) and (iii). We thus remanded the case for trial, instructing the trustee that it must satisfy RCW 61.24.030(7)(a) but may not just rely on this ambiguous declaration. !d. at 791. 17 As relevant here, our holdings in Lyons and Trujillo confirm that a trustee can rely on a declaration consistent with its duty of good faith if the declaration unambiguously states the bendiciary is the actual holder. 18 Here, the declaration does not suffer from the ambiguity at issue in Lyons and Trujillo. It states that M&T Bank is the actual holder of the promissory note. AR at 169. It does not have a following or ...  provision that created ambiguity about whether the declarations at issue in Lyons and Trujillo complied with RCW 61.24.030(7)(a)'s terms. Because these cases turned on ambiguity in the declaration that is not present here, they do not control our analysis. 17 As noted, our recent decision in Trujillo is consistent with this holding. 18 Accordingly, Brown's argument that the Department failed to act in good faith because it knew Freddie Mac was the owner of the note is not well taken. Cf RCW 61.24.030(7)(b) (providing a trustee cannot rely on a beneficiary declaration if the trustee has violated its duty of good faith); RCW 61.24.163(5)(c) (incorporating the method of proving beneficiary status under RCW 61.24.030(7)(a) for the purpose ofFFA mediation). The situation would be different if the Department had information contradicting M&T Bank's declaration that it was the actual holder of the note, but no one contested the truth ofM&T Bank's declaration. That declaration was therefore sufficient proof as required by RCW 61.24.030(7)(a) and RCW 61.24.163(5)(c). -34- Brown v. Wash. State Dep 't of Commerce, No. 90652-1
The legislative history behind the enactment of RCW 61.24.030(7)(a) sheds some light on the legislature's intent. See LAWS OF 2009, ch. 292, § 8; see also Suppl. Br. of Pet'r at 12-14, Trujillo v. Nw. Tr. Servs., Inc., No. 90509-6 (Wash. Aug. 20, 2015) (Suppl. Br. ofPet'r). That provision was enacted in 2009, along with the due diligence communication procedures that are required before a notice of default may be issued. LAWS OF 2009, ch. 292. The legislative staffs summary of public testimony identifies the apparent impetus for RCW 61.24.030(7)(a): Few homeowner know who has the authority to negotiate with them due to loan repackaging. The entity owning the loan should have to present the paper to prove they have authority to foreclose. S.B REP. ON S.B. 5810, at 4, 61st Leg., Reg. Sess. (Wash. 2009) (emphasis added), http://lawfilesext.leg.wa.gov/biennium/2009-1 O/Pdf/Bill%20Reports/Senate/581 0 %20SBA %20FIHI%2009.pdf. With RCW 61.24.030(7)(a), the legislature attempted to resolve this problem of homeowners not knowing who has the authority to enforce and modify their notes by including both the concepts of owning and holding the note. 19 Yet in cases where the owner and the holder of the note are different entities, as here, the provision is ambiguous. Cf Dale A. Whitman & Drew Milner, Foreclosing on Nothing: The Curious Problem of the Deed of Trust Foreclosure without Entitlement To Enforce 19 A prior bill ofwhatlaterbecame RCW 61.24.030(7)(a) focused only on the holder of the note, while the enacted version focuses on both the owner and the holder. See Suppl. Br. ofPet'r at 12-14. · -35- Brown v. Wash. State Dep 't of Commerce, No. 90652-1 the Note, 66 ARK. L. REv. 21, 26 & n.23 (2013) (stating that RCW 61.24.030(7)(a) was subject to considerable confusion because the statute conflates 'owner' and 'holder'). When we construe an ambiguous statute, we adopt the 'interpretation which best advances the perceived legislative purpose.' Dumas v. Gagner, 137 Wn.2d 268, 286, 971 P.2d 17 (1999) (quoting Wichert v. Cardwell, 117 Wn.2d 148, 151, 812 P.2d 858 (1991)). The legislature's clear purpose was to ensure the party with the authority to enforce and modifY the note is the party engaging in mediation and foreclosure. As discussed above, the holder of the note, the PETE, is the person with the authority to enforce and modify the note. We hold that a party's undisputed declaration submitted under penalty of perjury that it is the holder of the note satisfies RCW 61.24.030(7)(a)'s requisite to a trustee sale and RCW 61.24.163(5)(c)'s proof of beneficiary provision for FFA mediation. M&T Bank submitted such a declaration. It is therefore the beneficiary for the purposes of the mediation exemption provision, RCW 61.24.166. M&T Bank is exempt from mediation because it is a federally insured depository institution that has certified under penalty of perjury that it has been a beneficiary in less than 250 residential Washington homes in the last year. !d. The Department correctly denied Brown's request for mediation under the FFA.