Court Opinion

ID: 2929239
Source: CourtListenerOpinion
Date Created: 2015-09-14 21:41:21.503328+00
Date Added: 2024-06-11T11:35:27.608151
License: Public Domain

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON

BEL AIR & BRINEY, a general                          No. 71544-5-1
Partnership, NICK BRINEY, a single
man, ROGER C. BEL AIR AND
CANDACEBELAIR,

                      Appellants,
                                                    DIVISION ONE
       v.

CITY OF KENT,                                        PUBLISHED OPINION

                      Respondent.                   FILED: September 14, 2015

       Spearman, C.J. — When the City of Kent (City) bought the property that is

the subject of this action, it paid off the first position lien but did not discover the

junior lien until after the proceeds had been disbursed. The City filed a complaint

for declaratory relief, seeking equitable subrogation to the prior first position

lienholder and the right to foreclose on the resulting equitable lien. On the City's

motion for summary judgment, the trial court granted the requested relief. The

junior lienholders appeal, claiming the trial court erred in so ruling because they

will be materially prejudiced by subrogating the City to the first position lien and

the City was not entitled to foreclose on the lien. We affirm in part and reverse in

part, finding that while the City is entitled to equitable subrogation, it may not

foreclose on its equitable lien.
No. 71544-5-1/2

                                              FACTS

        Appellant Bel Air & Briney (B&B) is a general partnership between Roger

B. Bel Air and Nick Briney.1 In June 2007, B&B loaned Hiep Nguyen, Hoang

Tran, and Dun Tram (Borrowers) $134,000 in return for a promissory note with

an interest rate of 12 percent (Note). This interest rate would rise to 24 percent

on default. The Note required interest-only payments of $1,345 until its maturity

on December 13, 2007, at which time the total unpaid balance would be due. On

December 7, 2007, the Note's maturity date was extended to June 13, 2008, and

the principal amount increased by $9,500. The Borrowers' monthly payments

increased to $1,435, reflecting the additional interest for increased principal. The

Note was extended again on June 27, 2008, resulting in an additional $10,000 in

principal, monthly payments of $1,535, and a maturity date of December 13,

2008.

        The Note was secured by a deed of trust (B&B deed of trust) that

encumbered four parcels of land, listed as Parcels A, B, C, and D. The B&B deed

of trust was recorded on June 15, 2007, and was in either second or third

position on each parcel. The senior liens on parcels A and Dwere foreclosed in
2009, extinguishing B&B's junior interests. Parcel Bwas sold at a short sale in
2012, and B&B received $3,500 in exchange for release of its interest in Parcel

B.

          1Although Nick Briney and Roger and Candace Bel Air are also named as parties, the
activity giving rise to this appeal was primarily that ofthe general partnership, Bel Air and Briney.
Forthat reason we referto the entity of the general partnership rather than the individuals during
the course of this opinion. No disrespect is intended.
No. 71544-5-1/3

       The City wanted to develop an aquatic center on the block of Parcel C

(Property). The City and the Borrowers entered into negotiations to purchase the

Property in 2006. The City received a preliminary title commitment from Pacific

Northwest Title Company (PNWT) on March 14, 2007, three months before B&B

recorded its deed of trust. PNWT issued a title policy to the City on January 31,

2008, based on the preliminary title commitment. The B&B deed of trust was not

included in the title report or the policy. The sale closed in January 2008 and the

City paid $392,500 cash for the Property. Mortgagelt, the first position lender,

received $196,894.17 from proceeds and reconveyed its deed of trust. The

Borrowers received $193,499.50 from the sale and ceased making regular

payments on the B&B deed of trust. The last payment B&B received was $1,850,

which included a late-payment fee, in October of 2008. As of January 31, 2008,

the total outstanding amount on the Note was $143,305.42.

       The Borrowers did not inform the City about the B&B deed of trust. As a

result, the City did not learn about the deed of trust until it was contacted by

Briney in July 2012. Briney learned about the sale of the Property in July 2012,

while in negotiations to reconvey B&B's interest in Parcel B. Until then, B&B was

unaware that the Mortgagelt deed of trust had been reconveyed.

       The City gave notice of B&B's claim to its title insurer, First American Title

Insurance Company (First American), successor to PNWT. First American

accepted tender of defense. On May 1, 2013, the City filed a complaint for

declaratory relief, seeking a judgment of equitable subrogation declaring that

B&B's interest is junior to the City's interest in the amount of $196,894.17. The

City later amended its complaint to add a second claim for foreclosure of the
No. 71544-5-1/4

resulting equitable lien to extinguish all junior interests in the property. As of

October 2012, the Property's fair market value was approximately $110,000.

        The parties filed cross motions for summary judgment on October 18,

2013. The trial court granted the City's motion on January 21, 2014 and denied

B&B's cross motion. The trial court entered judgment in favor of the City,

declaring B&B's deed of trust to be second to the City's lien, and ordering

foreclosure of the City's lien. At the sale, the City would be permitted to credit bid

up to $196,894.17, and would receive any proceeds from the sale after deducting

costs. B&B filed a motion for reconsideration, which the court denied on April 9,

2014.

        B&B filed a second motion for reconsideration on April 21, 2014,

contending that the trial court had no basis for ordering foreclosure of the lien.

The trial court granted B&B's second motion and struck the right to foreclose on

the equitable lien. B&B immediately served a notice of default, instituting

foreclosure of its junior lien. The City then filed a motion for reconsideration on

the issue of foreclosure. B&B filed this appeal before the trial court had ruled on

the City's motion. On July 30, 2014, the trial court granted the motion and

entered an order permitting the City to foreclose on its lien. B&B assigns

additional error to that order.

                                    DISCUSSION

        We review a trial court's order granting summary judgment de novo.

Columbia Cmtv. Bank v. Newman Park. LLC, 177 Wash. 2d 566, 573, 304 P.3d 472

(2013). On review, we view all evidence in the light most favorable to the

nonmoving party. ]d. Summaryjudgment is appropriate if there is "no genuine
No. 71544-5-1/5

issue as to any material fact" and "the moving party is entitled to a judgment as a

matter of law." CR 56(c).

                               Equitable Subrogation

       Subrogation is "'an equitable remedy,'" and is "'founded in the facts and

circumstances of each particular case.'" Newman Park, 177 Wash. 2d at 581

(quoting, Restatement (Third) of Property Mortages § 7.6 cmt. a); Credit

Bureau Corp. v. Beckstead, 63 Wash. 2d 183, 186, 385 P.2d 864 (1963)). The

doctrine allows an outside party to step into the lender's shoes and receive the

benefit of the outstanding debt, without an agreement or assignment of rights

among the outside party, the lender, or the debtor, jd. at 573. In other words, if a

third party pays the debtor's outstanding loan to the lender without any formal

agreement among the parties, then equity may permit the third party to take over

the lender's interest and receive the debtor's payments. kL at 574. The rationale

for subrogation is to prevent the unearned windfall that would otherwise accrue to

the debtor, who could deny the obligation to make further payments on the debt

because it has been satisfied by another to whom the debtor owed no obligation

by reason of assignment of rights or other agreement, jd.

       In the context of mortgage refinancing, equitable subrogation takes a

somewhat different form. There, it is considered "'a tool by which real property

lenders, or lienors, may replace the prior, senior lien position of an earlier in time

lender by paying off that prior lender's loan.'" Id (quoting Scott B. Mueller, Is
Equitable Subrogation Dead for Lenders and Insurers in Missouri?, 66 J. Mo. B.
196, 196 (2010)). Thus, in the refinancing context it is generally not the debtor
No. 71544-5-1/6

who would be unjustly enriched by the payment of his or her debt by a third party,

rather it is the junior lienholder. This is so because, absent subrogation:

       [T]he third party's payment would bump the number two
       security interest into the number one position without the
       junior lienholder having taken any action to warrant such
       an advancement. We prevent this unjust enrichment by
       subrogating the party paying off the priority interest to the
       party who held that interest, to the extent of the former
       lienholder's interest at that time.

]d at 575 (citation omitted). Stated differently, in this context, "equitable

subrogation simply seeks to maintain the proper order of priorities." Bank of

America, N.A. v. Prestance Corp., 160 Wash. 2d 560, 564, 160 P.3d 17 (2007)

(citing Buraoon v. Lavezzo, 68 Wn. App., D.C. 20, 92 F.2d 726, 729 (1937)).
       Washington has explicitly adopted the "liberal approach" to equitable

subrogation as expressed in the Restatement (Third) § 7.6. See Newman Park,
177 Wash. 2d at 580 ("We now explicitly adopt Restatement (Third) § 7.6 in full.)

That section reads as follows:

              (a) One who fully performs an obligation of another, secured by
       a mortgage, becomes by subrogation the owner of the obligation and
       the mortgage to the extent necessary to prevent unjust enrichment.
       Even though the performance would otherwise discharge the
       obligation and the mortgage, they are preserved and the mortgage
       retains its priority in the hands of the subrogee.
              (b) By way of illustration, subrogation is appropriate to prevent
       unjust enrichment if the person seeking subrogation performs the
       obligation:
            (1) in order to protect his or her interest;
            (2) under a legal duty to do so;
            (3) on account of misrepresentation, mistake, duress, undue
        influence, deceit, or other similar imposition; or
            (4) upon a request from the obligor or the obligor's successor to
       do so, if the person performing was promised repayment and
       reasonably expected to receive a security interest in the real estate
       with the priority of the mortgage being discharged, and if subrogation
       will not materially prejudice the holders of intervening interests in the
        real estate.
No. 71544-5-1/7

Under the liberal approach of § 7.6, "[e]quitable subrogation should never be

allowed if a junior interest is materially prejudiced, but if the junior interests

are unaffected, then there is no reason to deny it." Prestance, at 572. See

also Newman Park, 177 Wash. 2d at 582. ("If the circumstances are such that

subrogation to a prior mortgage will relieve the payor, and if no prejudice to

any innocent person will result, the payor may have subrogation." (Quoting

Restatement (Third) § 7.6, cmt d.))

        B&B argues that equitable subrogation is not applicable to this case

because it would be materially prejudiced thereby and because its absence

would not cause B&B to be unjustly enriched.2 B&B points out that the

Borrowers, who ceased making payments shortly after the sale, pocketed the

amount in excess of that necessary to pay off the senior loan. Thus, it received

nothing from the proceeds of the sale even though the amount was more than

sufficient to pay off its lien. B&B also points out that in the interim, the property's

value has decreased to such an extent that it is worth less than the amount owed

on its lien. As a result, according to B&B, if equitable subrogation is applied, it will

be materially prejudiced because it will lose any opportunity to recoup any of its

losses. And, in the absence of its application, even if B&B's priority is advanced,

         2B&B also argue that equitable subrogation is not properly applied where the senior lien
is paid off as part ofa sale and not a refinance. In the latter circumstance, B&B contends the
lender fully expects to be substituted in the prior lender's position, but a purchaser who buys the
property outright has nosuch expectation. We reject the argument for three reasons. First, other
than the fact that Prestance and Newman Park arose in the context of a refinancing, B&B cite no
case authority in supportof this argument. Second, under the liberal approach to equitable
subrogation adopted in Newman Park, we find no meaningful distinction between the two
circumstances. And, third, Illustration 21 to Restatement § 7.6, cmt. d, contemplates just such a
situation as here, where equitable subrogation is properly applied in favor of the purchaser of a
property who pays off the senior lien, but which, unbeknownst to the purchaser, is also subject to
a junior lien. See infra at 9.
No. 71544-5-1/8

it cannot be unjustly enriched, given the Borrowers' retention of the sale

proceeds and subsequent default and the substantial decrease in the property's

value.

         In support of its position, B&B relies primarily on Centreville Car Care, Inc.

v. N. Am. Mortgage Co., 263 Va. 339, 559 S.E.2d 870 (2002). But the case is

unavailing because it is distinguishable both on its facts and because Virginia,

unlike Washington, has not adopted § 7.6 of the Restatement.

         In Centreville, the plaintiff, Centreville Car Care (Centreville) held a

second deed of trust on a property that was overlooked when the property was

purchased. 559 S.E.2d at 871. The purchasers paid off the first deed of trust and

gave the remainder of the sale proceeds to the original owners. JcL The

purchasers had borrowed money from a third lender, North American Mortgage,

to pay for the sale, and secured that loan with a first mortgage on the property.

Id. The original owners defaulted on their loan to Centreville, and Centreville

sought to foreclose. Id. North American Mortgage sought equitable subrogation,

claiming that its deed of trust should be senior to the Centreville mortgage, id.

The Virginia court disagreed, concluding that equitable subrogation was

inapplicable because Centreville was not unjustly enriched since it had the right

to anticipate that its secured interest would be improved and/or paid based on

the satisfaction of the first deed of trust, and that subrogation, if imposed would

materially prejudice Centreville because it would get virtually nothing in return on

its lien. \± at 874.

         Although no Washington cases have addressed this precise factual

scenario, the result in Centreville appears to be directly at odds with § 7.6 of the

                                            8
No. 71544-5-1/9

Restatement. The Centreville court found that subrogation would prejudice

Centreville because satisfaction of the senior lien did not result in payment of its

lien and that the improvement in the position of its lien was warranted. But the

comment to Restatement (Third) § 7.6(d) contemplates just such a situation and

concludes otherwise. Illustration 21 presents the following circumstance:

              Mortgagor holds Blackacre subject to two mortgages, held
       respectively by Mortgagee-1 and Mortgagee-2. Mortgagor sells
       Blackacre to Grantee, falsely stating to Grantee that Blackacre is
       subject only to the first mortgage and promising that Mortgagor will
       pay and satisfy that mortgage obligation with the proceeds of the
       sale. Grantee, believing this statement, makes no title examination
       and is unaware of the existence of the second mortgage. Grantee
       completes the purchase. Mortgagor uses the proceeds of the sale
       to satisfy the first mortgage but does not satisfy the second.
       Grantee is entitled to be subrogated to the rights of Mortgagee-1 as
       against Mortgagee-2 and may enforce the first mortgage against
       Mortgagee-2.

The comment concludes that "if the cash price paid by the grantee included the

second mortgage balance, subrogation to, rather than extinction of, the first

mortgage will result in order to prevent unjust enrichment ofthe second
mortgagee." In other words, under the Restatement, the City's payment would
bump B&B into the number one position without B&B having to take any action to
warrant such an advancement. See, Newman Park, 177 Wash. 2d at 575 (". . .

absent subrogation, the third party's payment would bump the number two
security interest into the number one position without the junior lienholder having
taken any action to warrant such an advancement."). Thus, in Washington, under
the circumstances presented here, absent the application of equitable

subrogation B&B would be unjustly enriched.
No. 71544-5-1/10

        B&B's contention that it will be materially prejudiced by the application of

equitable subrogation is similarly unavailing. B&B offers examples of the

difficulties it has suffered at the hands of its Borrowers, but it fails to explain how

the application of equitable subrogation affects it in any material way. It

bargained for a second position mortgage and in exchange for that risk, it

obtained more favorable terms for the loan than it could have obtained

otherwise.3 Granting the City an equitable lien leaves B&B in the same bargained

for position as it was before. The Borrowers' default on the loan and the

decrease in value of the property are not effects attributable to subrogation.

        B&B argues that Kim v. Lee. 145 Wash. 2d 79, 31 P.3d 665 (2001), supports

its claim that it will be prejudiced by equitable subrogation. But the case is

distinguishable. Kim involved the parents' loan to purchase property for their

children, secured by a deed of trust, with the children making payments. 145
Wash. 2d at 82. The children later took out a new loan, secured by a new deed of

trust, to pay off their parents' loan. Id. Kim had a judgment lien against the

children that he claimed succeeded to first position when the parents' loan was

paid off. jd. at 83. The Kim court held that the judgment lien had priority under the

rule of replacement and modification. Id. at 90. Under the rule, modification will

ordinarily cause a mortgage to lose priority to junior interests to the extent that

the modification is materially prejudicial to those interests. Id. The loan to the

        3"If the first-priority mortagee forecloses, then a second-priority mortagee knows he can
recover any surplus remaining only after the first-priority mortagee has been fully satisfied.
Therefore, second-priority mortages often include terms to help alleviate this risk, such as higher
interest rates. It is unfair to allow a second-priority mortagee to take a first-priority but still enforce
the previously bargained-for terms. He gains the security ofa first-priority loan, while keeping the
favorable conditions of a second-priority loan." Prestance, 160 Wash. 2d at 564, n.4.

                                                    10
No. 71544-5-1/11

children was "not merely an extension of the maturity date or stretching out the

installment payments of the existing mortgage; rather, it was a new mortgage

and the change was from a 6-year maturity date to a 30-year maturity date." Id.

The court found that these modifications materially prejudiced Kim, because they

affected the loan's payoff time and Kim's ability to move into first priority. Id.

Here, however, there was no modification or replacement of the Mortgagelt loan

and, as noted above, B&B does not explain how subrogating the City to first

position puts B&B in any worse position than before.

       We affirm the trial court's ruling and find that equitable subrogation should

be applied in this case. Accordingly, the City shall have an equitable lien with

priority over the B&B's deed of trust to the extent of the City's payment of the

Mortgagelt note.

                          Foreclosure of the Eguitable Lien

       The City argues that if it is entitled to equitable subrogation, it must

necessarily be entitled to foreclose on the resulting equitable lien because

"[wjithout the ability to foreclose, a lien is meaningless." Supp. Br. of Respondent

at 1. According to the City, Ch. 6.21 RCW and case law allow an equitably

subrogated party to foreclose its equitable lien, citing Olson v. Chapman, 4
Wash. 2d 522, 104 P.2d 344 (1940), Worden v. Smith, 178 Wash. App. 309, 332, 314
P.3d 1125 (2013), and a string of earlier cases allowing tenants in common to

                                           11
No. 71544-5-1/12

acquire and foreclose upon equitable liens.4 The cited cases are inapposite. For

example, in Olson and Worden, the principle cases on which the City relies, the

county had a tax lien on the subject properties and the parties seeking

subrogation to the lien had paid the taxes. In each case, the court permitted

subrogation and ordered foreclosure to recover the amounts owed. In neither

case did the subrogee, as the City does here, pursue foreclosure for the sole

purpose of eliminating a subordinate lien.

        Chapter 6.21 RCW, Sales Under Execution, is likewise unavailing. That

statute allows a creditor to seek a sheriff's sale to execute against property

owned by a debtor to satisfy a money judgment. But here, the City has no money

judgment to enforce, nor could it have. It is uniformly recognized that a subrogee

has no right to a personal judgment against a mortgagor as a mortgagee would.

See 107A.L.R. 785.5Thus, Ch. 6.21 RCW is inapplicable under the facts of this

case.

        4 These cases include Buraet v. Carolina. 31 Wash. 62, 71 P.724 (1903) (tenant in
common paid taxes on property and court found she had stated a cause of action for declaring a
lien on the land in that amount, and to have the lien foreclosed); Stone v. Marshall, 52 Wash. 375,
100 P. 858 (1909) (co-owneracquired a lien on the interests of others that could be foreclosed by
a suit in equity, but not by a tax sale); and City of Spokane v. Sec. Savings Soc, 46 Wash. 150,
89 P.466 (1907) (court invalidated a local assessment lien to the City but awarded ita lien for
delinquent general taxes).

        5"A subrogee is, generally speaking, placed in the precise position of the one to whose
rights he is subrogated, and is entitled to all the rights and securities and to the benefit of all the
remedies which were available to such person. Itfollows from the very principles of the doctrine
of subrogation that one cannot thereby succeed to or acquire any claim or right which the person
for whom he is substituted did not have, the extent of his remedies and the measure of his rights
being controlled by those possessed by the creditor, and those rights, claims, and securities to
which he succeeds are taken subject to the limitations, burdens, and disqualifications incident to
them in the hands of his predecessor. Beyond this he has no right and no valid claim for
protection."

                                                   12
No. 71544-5-1/13

       Nor does the City explain how its position, that it may properly foreclose

on its equitable lien, is consistent with controlling authority. As previously

discussed our supreme court has adopted in full Restatement (Third) § 7.6,

which permits equitable subrogation under the circumstances presented here,

but only "to the extent necessary to prevent unjust enrichment."

       SourceCorp, Inc. v. Norcutt, 229 Ariz. 270, 274 P.3d 1204 (2012), a case

cited by the City, is instructive. There, Sourcecorp obtained a substantial

judgment against the Shills in September 2004. Ia\ at 272. The Shills owned

property that was then subject to a first mortgage in favor of Zions National Bank

(Zions Bank) that secured a debt of nearly $689,000. JU Sourcecorp recorded its

judgment lien against this property, jd. Accordingly, the property was then subject

to both the first mortgage in favor of Zions Bank and the subordinate judgment

lien in favor of Sourcecorp.

       In November 2004, the Shills sold their property to the Norcutts for

$657,000. Id Zions Bank accepted $621,000 of these proceeds in full

satisfaction of the note secured by the first mortgage. ]d\ While the opinion does

not expressly say so, it appears the Shills told neither the closing agent nor the
Norcutts about the substantial judgment lien also encumbering the property.

Although the Norcutts purchased title insurance, the title insurance company

failed to discover the judgment lien in favor of Sourcecorp in the public records.

Id,

       After closing of the sale, Sourcecorp sought a sheriff's sale of the
Norcutts' property based on the judgment lien against it. Id at 276. The Norcutts
sued to enjoin the sale, and the trial court granted that relief. Id. The Norcutts

                                           13
No. 71544-5-1/14

then argued that they were equitably subrogated to the first lien position of Zions

Bank, which was prior to the judgment lien of Sourcecorp. jd. The trial court

rejected this position. Id. at 272.

       When the case reached the Supreme Court of Arizona, the Court noted

there was some ambiguity in that state's case law regarding the proper test for

equitable subrogation. But the Court resolved that ambiguity by adopting

Restatement (Third) of Property: Mortgages, § 7.6. Sourcecorp, 229 Ariz, at

273.

       When the court applied § 7.6 to the facts of the case, it concluded that the

Norcutts were entitled to be equitably subrogated to the first mortgage lien

position formerly held by Zions Bank. The extent of the subrogation was for the

$621,000 they paid to that bank from the proceeds of sale at closing to fully

satisfy the debt then owed by the Shills to the bank.

       In addressing the argument of Sourcecorp that foreclosure of the equitable

subrogation lien in favor of the Norcutts would be improper, the court stated:

       Recognizing that equitable subrogation depends on the facts of the
       particular case, see Mosher, 45 Ariz, at 468, 46 P.2d at 112, we conclude
       that it is not appropriate to confer on the Norcutts a right to "foreclose" on
       the interest to which they are subrogated. Instead, the purposes of
       equitable subrogation are fully served by deeming the Norcutts to have a
       priority to proceeds from any sale of the property in the amount they paid
       to satisfy the debt, $621,000.

jd, at 276. The court remanded the case to the trial court for entry of summary

judgment in favor of the Norcutts, the subrogees of Zion Bank's first lien. But that

relief was without the power to eliminate the subordinate judgment lien of

Sourcecorp.

                                          14
No. 71544-5-1/15

       The similarities between Sourcecorp and this case are striking. There, the

Shills' failed to disclose to the purchasers of their property the subordinate

judgment lien in favor of Sourcecorp. Here, the City purchased the property from

the Borrowers, who failed to disclose the existence of the subordinate deed of

trust held by B&B. There, the title insurance company failed to discover the

judgment lien that was subordinate to the first mortgage in favor of Zions Bank.

Here, the title insurance company failed to discover the second deed of trust that

was recorded in the public records at the time of the closing of the sale. There,

the closing agent disbursed part of the purchase price funds to satisfy the first

mortgage to Zions Bank without paying the subordinate lien. Here, the closing

agent disbursed part of the purchase funds to satisfy the first mortgage without

paying the debt secured by the second deed of trust. And, notably, both

jurisdictions have adopted the same provision of Restatement (Third) of

Property: Mortgages, § 7.6.

       Applying the Restatement and the reasoning from Sourcecorp, we find

that the prevention of unjust enrichment does not extend so far as to grant the

City the right to foreclose on its equitable lien. The equitable purpose of

subrogation is fully served by permitting the City to succeed to first position with

priority of right to proceeds, in the amount of its equitable lien, from any sale.

Equity is preserved by allowing B&B to retain its second position lien. To the

extent that B&B's lien adversely affects the City's equity or renders the Property

less marketable, we neither address nor foreclose any claims the City may have

against its title insurer.

                                          15
No. 71544-5-1/16

       We affirm the grant of equitable subrogation and creation of an equitable

lien to the extent of the City's payment of the Mortgagelt loan. The City's lien has

priority over B&B's deed of trust. We reverse the order permitting the City to

foreclose on its equitable lien and remand to the trial court for entry of judgment

consistent with this opinion.

       Affirm in part, reverse in part, and remand for entry of judgment.

WE CONCUR:                                            ft
                                                           L££LL   -c^x-
                                                                       J
                                                                           ££

        ^y-^;

                                         16
              Bel Air & Briney. et al. v. City of Kent. No. 71544-5-1

       Cox, J. (concurring) — I concur. I write separately to address additional

aspects of the City's attempt to clear title to its property by use of a sheriff's sale.

Namely, the City seeks to extinguish the subordinate deed of trust held by Bel Air

& Briney that encumbers the property.

       The trial court's amended judgment ordering foreclosure states that:

       "upon completion of such Sheriff's Sale, Bel Air & Briney's Lien
       upon the Property shall be extinguished and Bel Air & Briney, and
       any and all persons claiming by, through, or under them, shall be
       forever barred and foreclosed from any right, title, interest, lien, or
       estate in and to the [City's] Property . . . ."[1]

       The question is whether it is proper to use the sheriff's sale statutes to

extinguish the lien of the Bel Air & Briney deed of trust against the City's

property. Specifically, may the City enforce its equitable subrogation lien arising

from the former Mortgagelt, Inc. deed of trust, which has a higher lien priority,

against the subordinate Bel Air & Briney deed of trust?

       The lead opinion discusses why the City is entitled to be equitably

subrogated to the lien priority of the former Mortgagelt, Inc. deed of trust, to the

extent the City paid the obligation secured by that encumbrance. Moreover, the

opinion correctly concludes that the City is not entitled to foreclose its equitable

subrogation lien due to prejudice to Bel Air & Briney.

       In seeking to obtain clear title to its property in this case, the City ignores

the fact that it holds two distinct interests in its property. First, it holds title to the

property by virtue of the deed from Ms. Hoang Tran, the former owner. Second,

         Clerk's Papers at 410-11 (emphasis added).
No. 71544-5-1/2 (concurring)

it also holds a first lien by equitable subrogation because it paid off the obligation

to Mortgagelt, Inc., which was secured by a deed of trust held by that lender.

Distinct rights are associated with these distinct property interests.

       These distinct interests in the property do not merge, as the City properly

concedes. As the City correctly states "the merger doctrine [does not] defeat the

equitable subrogation rights of the City of Kent."2 Specifically, because merger is

a question of intent, there is a presumption that the City did not intend its two

interests in the property to merge. This is consistent with long-standing case law:

       the existence of a junior, or intervening, encumbrance or equity will,
       in the absence of a showing of an intention to the contrary, prevent
       a merger of a prior mortgage in the fee, where the continued
       existence of the mortgage is necessary to protect the mortgagee
       against the intervening, junior claims.131
       Any right to clear title that the City may have arises from its interest as the

holder of title to the property. This stems from the warranties arising from the

statutory warranty deed that Ms. Tran, the former owner of the property,

presumably signed and delivered at the closing ofthe sale.4
       Of course, Bel Air & Briney was not a party to the deed given by Ms. Tran.

And Bel Air &Briney never represented to the City that title to the property was

clear of encumbrances. To the contrary, Bel Air & Briney always claimed the

property was subject to its deed of trust.

       2Respondent's Statement ofAdditional Authorities Pursuant to RAP 10.8 at 1.
       3 Gill v. Strouf. 5 Wash. 2d 426, 431, 105 P.2d 829 (1940).

        4RCW 64.04.030(2) ("that the [property is] then free from all encumbrances"); Ensberq v.
Nelson, 178 Wash. App. 879, 886, 320 P.3d 97 (2013), review denied, 180 Wash. 2d 1012 (2014).
No. 71544-5-1/3 (concurring)

       Accordingly, the claim of a right to clear title by the City primarily arises

from its status as title holder to the property. This status is distinct from the grant

of an equitable subrogation lien against its property. It is the status of lien holder

that would, ordinarily, permit foreclosure under the sheriff's sale statutes. The

status of title holder does not. There simply is no authority for the City to use the

sheriff's sale statutes to extinguish the lien of Bel Air & Briney's deed of trust

against the City's property under the circumstances of this case.

       For the reasons discussed in the lead opinion and here, I concur.

                                                            £&*> J.