Opinion ID: 2640704
Heading Depth: 1
Heading Rank: 5

Heading: Deeds of Trust Act and Washington Case Law

Text: ¶ 11 Chapter 61.24 RCW governs Washington's use of deeds of trust. The relevant statute, RCW 61.24.100(1), provides: Except to the extent permitted in this section for deeds of trust securing commercial loans, a deficiency judgment shall not be obtained on the obligations secured by a deed of trust against any borrower, grantor, or guarantor after a trustee's sale under that deed of trust. (Emphasis added.) ¶ 12 The Sariches argue that the trial judge correctly dismissed Beal Bank's claims, relying on our decision in Washington Mutual, 115 Wash.2d 52, 793 P.2d 969. Specifically, the Sariches contend that Washington Mutual stands for the proposition that a nonjudicial foreclosure eliminates the ability of any lienholder, including non-foreclosing junior lienholders, to sue the debtor for a deficiency. Br. of Resp't at 10. ¶ 13 Conversely, Beal Bank argues the trial judge erred by reasoning a nonjudicial foreclosure sale bars an action to recover any debt that was secured against the property whether or not the creditor purchased the collateral at the trustee's sale. Beal Bank asks us to rule that a nonjudicial foreclosure does not extinguish a junior nonforeclosing party's right to sue on the independent obligation of the debtors. ¶ 14 We turn to the plain language of the relevant portion of RCW 61.24. 100 and find the right of nonforeclosing junior lienholders and creditors is simply not implicated. To accept the Sariches' argument would render a result whereby all liens attached to security would be automatically extinguished upon foreclosure. We find nothing in the statutory scheme supporting this conclusion. While foreclosure eliminates the security of a junior lienholder, the debts and obligations owed to that nonforeclosing junior lienholder are not affected by foreclosure under the statutes. ¶ 15 Further, both the trial judge and the Sariches have misinterpreted our decision in Washington Mutual. In Washington Mutual, we decided a question certified to us by the Ninth Circuit Court of Appeals to enable the Ninth Circuit to interpret a federal regulation relating to the redemption rights of the Internal Revenue Service (IRS). The question certified by the federal court was: In Washington, may a nonforeclosing junior lienor who purchases property at a nonjudicial foreclosure sale sue for a deficiency under Washington law, and, if so, what is the manner of computing the deficiency? Wash. Mut., 115 Wash.2d at 55, 793 P.2d 969. ¶ 16 While the certified question in Washington Mutual suggested the court was deciding the rights of a purchasing junior lienholder, the underlying issue centered on the rights of the IRS to redeem the property foreclosed on, pursuant to an act of Congress. Under 28 U.S.C. § 2410 and 26 U.S.C. § 7425, the IRS is granted certain rights to a debtor's property in a foreclosure action. Our statute dealing with nonjudicial foreclosures contains no similar right to redeem. Further, the ultimate determination in Washington Mutual centered on how much the IRS was required to pay to redeem the property. The IRS argued that the amount bid at foreclosure was the correct amount. Washington Mutual argued, in the alternative, that the IRS was required to pay either the fair market value or the combined debt against the property, which included the foreclosure sale price plus the amount due on the unpaid junior lienholder debt. ¶ 17 Applying redemption principles, we held that to redeem the property the IRS was required to pay the combined total of both notes against the property. Hence, Washington Mutual does not stand for the principle that a junior note is extinguished; Washington Mutual supports the opposite conclusion that the obligation owed to a junior lienholder continues after a trustee's sale. ¶ 18 In Justice Guy's concurrence to Washington Mutual, this was made clear that where a junior deed of trust holder does not foreclose, that junior deed of trust holder is not precluded from suing under the note. Wash. Mut., 115 Wash.2d at 60, 793 P.2d 969. Later, in clarifying the opinion, we narrowed our holding by adding: We do not herein address the matter of a junior deed of trust holder's continued right to sue the debtor on the promissory note because it is not before us. Wash. Mut., 115 Wash.2d at 59, 793 P.2d 969. Hence, the Washington Mutual case has no bearing on the present case and expressly did not address the issue before us now. ¶ 19 Here, Beal Bank is not a purchaser of the property at a nonjudicial foreclosure sale but seeks to enforce its rights under the separate promissory notes. Because Washington Mutual, as the senior lienholder, elected to pursue its rights to a nonjudicial foreclosure, Washington Mutual's action does not preclude a junior lienholder (here, Beal Bank) from seeking its legal recourse. Put another way, while Beal Bank's rights in the collateral are extinguished by Washington Mutual's trustee's sale, the underlying promise by the Sariches and Mr. Cashman to pay Beal Bank on the two notes continues via the promissory notes, although the promissory notes are now unsecured as a result of that trustee's sale. ¶ 20 Accordingly, we reverse the trial judge's grant of summary judgment to the Sariches and hold the nonjudicial foreclosure of a senior lienholder's deed of trust under RCW 61.24.100(1) of the deeds of trust act does not preclude an action by a nonforeclosing holder of a junior deed of trust to recover on a debt secured by a junior deed of trust on the same property.