Court Opinion

ID: 9594647
Source: CourtListenerOpinion
Date Created: 2023-08-22 00:31:38.468436+00
Date Added: 2024-06-11T18:01:24.253400
License: Public Domain

Dore, J.
(dissenting) — I dissent.
The Bank made a mistake in drafting the documents for this loan which put it in a dilemma: holding two deeds of trust, neither of which fully secured its loan, it was limited to judicial foreclosure or was left undersecured if it were to attempt two nonjudicial foreclosures. Although it could have employed the more cumbersome method of judicial foreclosure, the Bank chose to run the risk of losing part of its security by attempting a nonjudicial foreclosure. I see no reason to rescue the Bank from its own folly when to do so *419violates the letter and spirit of the "Deeds of Trust Act" (hereinafter the Act), RCW 61.24, and opens the door to abuses of that statute by lenders.
Judicial Foreclosure
The Legislature has provided two methods of foreclosure for deeds of trust: judicial foreclosure under RCW 61.12 and nonjudicial foreclosure under RCW 61.24. There are substantial differences in the respective rights of lenders and borrowers under each, which arise from the particular history of each statute.
This State's procedures for judicial foreclosure date to 1899. Laws of 1899, ch. 53, §§ 7-15, p. 89. While the text refers to the foreclosure of mortgages, the procedure has been employed in connection with deeds of trust since at least 1934. See Straus v. Wilsonian Inv. Co., 177 Wash. 167, 31 P.2d 516 (1934). Judicial foreclosure requires a petition by the mortgagee and the issuance of a judgment of foreclosure by the court. The order may provide for an upset price, that is, a minimum price at which the property can be sold which ensures an adequate return to the borrower. RCW 61.12.060. Property sold pursuant to judicial foreclosure ordinarily may be redeemed by the borrower within 1 year. RCW 6.23.020. Since sale under a decree of foreclosure is a forced sale, the state constitution requires that a certain portion of the value of residential property be preserved to the borrower as homestead. Const. art. 19, § 1. Thus, judicial foreclosure provides for a significant level of protection for mortgagors and grantors of deeds of trust: the right to an upset price, the right to redeem and the right to homestead.
However, these consumer protections place certain burdens on the lender. Judicial foreclosure is time consuming and requires extensive legal work and delays possession of the property by at least 12 months or more. Furthermore, the deed to the purchaser at the judicial sale conveys only an inchoate interest, since the borrower's right of redemption hangs over the sale for 1 year. In re Fourth Ave. *420South, Seattle, 18 Wn.2d 167, 138 P.2d 667 (1943). These burdens led the lending industry to seek an alternative means of foreclosure, which the Legislature provided in 1965.
Non judicial Foreclosure
Nonjudicial foreclosure under the Act, RCW 61.24, is a quick and inexpensive alternative to judicial foreclosure. The Legislature adopted the Act in 1965 because it was concerned that the cumbersome judicial foreclosure procedures were inhibiting residential financing in the state.
Faced with a choice between lending in a state with archaic property security laws such as Washington and a state with modern laws permitting ready realization, investors would naturally choose the latter. It is not surprising that California, with modern realization procedures, was securing four times as much real estate financing proportionately as Washington in periods of "tight money." Based on an unpublished study by William Branigan of the Seattle Bar.
Gose, The Trust Deed Act in Washington, 41 Wash. L. Rev. 94, 95 n.7 (1966). See Comment, Statutory Redemption: The Enemy of Home Financing, 28 Wash. L. Rev. 39 (1953).
Streamlining Washington's property security laws necessitated a reduction in the level of protection afforded to borrowers. The Act does provide a system of notice to ensure the borrower the opportunity to preserve his rights, but the Act expressly precludes redemption. RCW 61.24-.050. There is no provision for setting an upset price, since there is no judicial involvement in the sale. Finally, a private sale under the Act is not a forced sale, so there is no right of homestead. We explicitly recognized this in Felton v. Citizens Fed. Sav. & Loan Ass'n, 101 Wn.2d 416, 679 P.2d 928 (1984), though it was implicit in the Act when adopted.
The rights to redemption, upset price and homestead were surrendered in exchange for an important concession from lenders. The Act expressly forbids a deficiency decree.
*421Foreclosure, as in this chapter provided, shall satisfy the obligation secured by the deed of trust foreclosed, regardless of the sale price or fair value, and no deficiency decree or other judgment shall thereafter be obtained on such obligation.
RCW 61.24.100.1
This quid pro quo was clearly understood by the Legislature, bar and lending industry at the time. As one contemporary commentator expressed it:
There is, however, one sacrifice which the lender must make in utilizing the private sale provision of the act — he waives the right to a deficiency judgment.
Gose, at 96. This commentator went on to argue that the prohibition on deficiency judgments had no justification except as a quid pro quo for the public's surrender of consumer protections.
The rationale of denying a deficiency judgment to the lender upon his election to foreclose under the act's private sale provisions is subject to criticism. In Lessard v. Smith, 45 Wn. 2d 473, 275 P.2d 730 (1954), the Washington court denied the deficiency judgment right to a mortgagee who elected to use the notice and sale provision of the chattel mortgage statute, Wash. Rev. Code ch. 61.08 (1961). The Lessard court was moved by policy considerations — such a sale "could bind the debtor to the results of a collusive sale, or to one too speedily made, or to one completed under the shadow of distress." 45 Wn. 2d at 476, 275 P.2d at 732. However, these policy considerations do not seem applicable to the trustee's sale because of the strict statutory control over the sale. Thus, the legislature has perpetuated a distinction which should not be relevant. Apparently it was felt that the waiver of the right to a deficiency judgment is part of *422the "price" the lender must pay to elect to use the private sale provisions.
(Italics mine.) Gose, at 96 n.14.
The majority now abrogates this compromise. I cannot join in such an unjust result.
The Majority Violates the Logic of the Act and Unjustly Overturns the Legislative Compromise
First, the majority's reading of RCW 61.24.100 violates the logic of the Act. Contrary to the commentary by Gose quoted above, there is a substantive reason, beyond the legislative compromise, for the antideficiency rule.
As noted, one of the consumer protections embodied in the judicial foreclosure statute is the right to an upset price; that is, a minimum bid set by the court which ensures a fair return to the borrower. The Act, in contrast, authorizes private sale, so there is no opportunity for a borrower to request an upset price. The antideficiency rule of RCW 61.24.100 takes its place. Since the obligation is extinguished by the sale, the amount of the obligation necessarily becomes the minimum bid at the sale. An adequate return to the borrower is guaranteed by statute, where in a judicial foreclosure it could be granted in the court's discretion.
The majority's ruling destroys this "upset price" function of the antideficiency rule by permitting the lender to bid less than the full amount of the obligation at the private sale. This violates the borrower's right to an adequate return on the property sold; not only the extinguishment of the debt, but any excess a third party might bid beyond the lender's lien. The majority's removing the obligation as the minimum bid in any particular sale will result in a lower return on that sale than would otherwise have been obtained. The bidding will start at a lower level and will be less vigorous because the lender has the opportunity to *423recover the obligation out of a second or third deed of trust. While the majority is content to rely on appraisals that indicate this property was worth less than the obligation, anyone with any experience in this area knows that appraisals are necessarily rough approximations. Only actual, vigorous bidding can determine the true value of the security and ensure that the borrower receives his due. The majority's rule eliminates this function of the antideficiency statute, violates the logic of the Act and opens new possibilities for lenders to profit at the expense of borrowers.
The second reason I cannot join in the majority opinion is that it gives this lender what it could not obtain in the Legislature 23 years ago. The Bank is given all the benefits of both judicial and nonjudicial foreclosure: the right to a deficiency judgment and freedom from redemption, upset price and homestead. The borrower property owner is given all the burdens of both types of foreclosure: he is subject to deficiency but has no rights of redemption, upset price or homestead. The history of the Act clearly shows that this arrangement was rejected by the Legislature. Those burdens and benefits were carefully, and democratically, apportioned between lenders and borrowers in the compromise of 1965. Now, for the sake of saving a bank from its mistake, the majority abrogates that compromise. Such conduct is tragic for the property owner.
Conclusion
The rule of this case will do more than save this bank from its own mistake (if that was any justification). The rule of the majority is a substantial change in the law which opens the door to new possibilities in real estate financing which have not been carefully considered and which will benefit lenders at the expense of borrowers. The court should let the Legislature make this gigantic change and not engage in judicial legislation. It is unwise, unjust and wrong.
*424I would reverse.
Goodloe, J., concurs with Dore, J.
Reconsideration denied October 26, 1988.

 If, in a situation such as this one, the lender finds it necessary to obtain a deficiency judgment following foreclosure, the Act specifically reserves that right, but requires the lender to submit to the burdens of judicial foreclosure.
Where foreclosure is not made under this chapter, the beneficiary shall not be precluded from enforcing the security as a mortgage nor from enforcing the obligation by any means provided by law.
RCW 61.24.100. See also RCW 61.24.120.