Court Opinion

ID: 2653998
Source: CourtListenerOpinion
Date Created: 2014-02-21 01:04:16.983806+00
Date Added: 2024-06-11T12:55:04.937986
License: Public Domain

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                                                                                                           2014 FEB 20 AM 9: 23

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    IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

                                                    DIVISION II

In re the Trustee' s Sale of the Real Property of                                      No. 43194 -7 -II

JOHN W. BALL an unmarried individual as
his separate estate,

ESTATE OF JOHN W. BALL, deceased, by
and through LAUREEN MONETTE, Personal
Representative

                                          Appellant,

        V.

JP MORGAN CHASE BANK, N.A.,                                                        PUBLISHED OPINION

        LEE, J. —     John W. Ball'         s estate ( " Estate   ")   appeals the trial court' s summary dismissal of

the Estate' s claim that the merger doctrine should preclude a junior lienholder from receiving

excess funds from a trustee sale when the same entity also was the senior lienholder and was the

successful   bidder    at   the   sale.   Because the merger doctrine is inapplicable to this case and RCW

61. 24.080( 3) governs this situation, we affirm the trial court' s ruling.

                                                           FACTS

        In April 2001, John W. Ball               executed a       deed    of   trust ( " Senior Deed ")   encumbering his

property in favor      of   Washington Mutual Bank to                  secure a $   52, 000 loan.   Five   years   later, Ball
No. 43194 -7 -II

took    out    a $   132, 000    home equity line            of   credit,       later increased to $ 154, 700,              also   with

Washington Mutual Bank. This                credit   line was     again secured            by   a   deed   of   trust ( "Junior Deed ")

encumbering his property. JPMorgan Chase Bank ( "Chase ") later acquired both deeds of trust in

receivership, and Northwest Trustee Services, Inc. succeeded as trustee under both deeds of trust.

Ball died intestate on March 18, 2009, and Laureen Monette was, appointed as the personal

representative of his Estate.

          The Estate later defaulted on the Senior Deed ( then securing a debt of approximately

 56, 000),     and   Northwest Trustee       sold    the property          by   trustee'   s sale    in September 2011.            Home

Sales, Inc.,    a           owned subsidiary
                     wholly -                          of   Chase,    purchased       the property for $ 92, 500.              After the

amount of the Senior Deed was satisfied Northwest Trustee deposited the surplus funds

  35, 286. 22) into the court registry pursuant to RCW 61. 24. 080.

          In November 2011, the Estate moved the trial court to disburse the surplus funds to it

arguing that "[       a] ny and all other claims would                be   subordinate          to that    of   the Estate."    Clerk' s

Papers    at   31.    Chase opposed this motion arguing that it held a superior interest to the surplus

funds    by    virtue   of   the Junior Deed,       on which       the Estate        still   owed $        135, 230. 65.   Chase also

moved     the trial     court   by    cross motion     to disburse the           surplus     funds to it.         The superior court

denied the Estate' s motion, granted Chase' s cross motion, and directed that the surplus funds be

disbursed to Chase. The Estate appealed, and we stayed the appeal pending our decision in In re

Trustee' s Sale ofReal Property of Giannusa, 169 Wash. App. 904, 282 P.3d 122 ( 2012).

                                                          DISCUSSION

          The Estate         argues   that the trial   court "    erred by determining that [ Chase] is entitled to

surplus   funds,      as   junior lien holder [   sic],     despite the fact that it was the successful bidder at the

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No. 43194 -7 -II

trustee    sale"      thereby merging " its deed        of   trust [   with]   its fee title in the property."   Br. of

Appellant       at   5.   Because RCW 61. 24. 080( 3) governs this situation and the merger doctrine is

inapplicable to this case, we disagree and affirm the trial court' s ruling.

          The issues presented in this appeal are purely legal. Therefore, our review is de novo. In

re   Trustee'   s    Sale of the Real   Property     of Upton, 102 Wn.         App.   220, 223, 6 P.3d 1231 ( 2000). In

addition, we review questions of             statutory   construction      de   novo.    Beal Bank, SSB v. Sarich, 161
Wash. 2d 544, 547, 167 P.3d 555 ( 2007).

A.         DEEDS OF TRUST

           Chapter 61. 24 RCW           governs    deeds     of   trust in Washington.       Beal Bank, 161 Wash. 2d at

548.    Under this. chapter, a deed of trust holder may nonjudicially foreclose at a trustee' s sale

when a borrower defaults under the terms of the obligation and the deed of trust contains a power

of sale.    RCW 61. 24. 030.           At the trustee' s sale, anyone other than the trustee may bid on the

property.       RCW 61. 24. 070( 1).        After covering the sale' s expense, the trustee first applies the

proceeds     to the       obligation   foreclosed.    RCW 61. 24. 080( 1), (       2).   Next, the trustee deposits any

surplus funds with the superior court clerk, who may disburse those funds only by superior court

order. RCW 61. 24. 080( 3).

           Interests in the surplus funds continue in the same priority order that they attached to the

property. Specifically,

            i]nterests in, or liens or claims of liens against the property eliminated by sale
           under this section shall attach to the surplus in the order of priority that it had
           attached to the property. A party seeking disbursement of the surplus funds shall

           file a motion requesting disbursement in the superior court for the county in
           which the surplus funds are deposited.

RCW 61. 24. 080( 3).

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No. 43194 -7 -II

         In Beal Bank, the Washington Supreme Court held that, when a senior lienholder

nonjudicially forecloses on a deed of trust through a trustee' s sale, the foreclosure eliminates the

security   of   the junior lienholder ( i. e., the   deed   of   trust),   but " the debts and obligations owed to

 a]   nonforeclosing junior lienholder       are not affected       by     foreclosure."    Beal Bank, 161 Wash. 2d at

548. Thus, the beneficiary of a second deed of trust has a superior interest in the surplus over the

borrower. In re Upton, 102 Wash. App. at 224. More recently, in In re Giannusa, we held that

         the deed of trust act plainly allows a purchasing junior lienholder to recover
         surplus     funds.     Under RCW        61. 24. 080( 3),        the junior lienholder' s - interest,
         eliminated by the trustee' s sale, attaches to the surplus. The junior lienholder has
         priority to the surplus over the property owner.

In re Giannusa, 169 Wash. App. at 910.

B.       MERGER DOCTRINE

         The Estate argues that the merger doctrine precludes Chase from receiving the surplus

funds from the trustee        sale   because Chase    was    the    successful     bidder    at   the   sale.   Whether the

common law doctrine of merger applies to the disbursement of surplus funds following a

trustee' s sale appears to be an issue of first impression in Washington.

          Merger may        occur    when   the fee interest       and     a   charge,   such as a deed of trust or

encumbrance,)        vest in the possession of one person. Anderson v. Starr, 159 Wash. 641, 643, 294
P. 581 ( 1930).      For example, if a person holds a five -
                                                           year lease on a condominium but purchases

the condominium before the end of the leasehold, the merger doctrine would dictate that the

leasehold interest merges into the superior ( fee) estate. As the Anderson court explained,

1 Unlike in the mortgage context, the merger doctrine has been accepted in the context of
extinguishing real property encumbrances, such as easements. See, e. g., Radovich v. Nuzhat, 104
Wn.    App.     800, 805, 16 P.3d 687 ( 2001) ( "   one cannot     have       an easement   in   one' s own    property. ").
No. 43194 -7 -II

           The doctrine of merger springs from the fact that when the entire equitable and
         legal estates are united in the same person, there can be no occasion to keep them
         distinct ....
                 Equity does not favor the doctrine of merger; and though two or more
         rights or estates are united in one person, equity will keep them distinct where it
         appears from the intention of the person, either express or implied, that he wishes
         them to be         so   kept....        and this person will be presumed to intend that which is
         most to his advantage."

159 Wash.          at   644 (    quoting 1 CHARLES HASTINGS WILTSIE, A TREATISE ON THE LAW AND

PRACTICE OF MORTGAGE FORECLOSURE § 264 ( 4th                             ed.   1927)); Hilmes v. Moon, 168 Wash. 222,

237, 11 P.2d 253 ( 1932).           Thus, for a merger to occur, two distinct estates or property rights must

vest in the same person and that person must intend for the interests to unite.

         The doctrine of merger has been highly disfavored in Washington since at least f922.
Beecher     v.     Thompson,         120 Wash. 520,   524,    207 P. 1056 ( 1922) (   quoting McCreary v.

Coggeshall, 74 S. C. 42, 53 S.E. 978 ( 1906)) ( "`                     The view generally held is that merger is not

favored in the          courts of   law     or   equity. "').   Extensive research reveals a single appellate opinion

where a Washington court elected to apply the doctrine in the mortgage context, First State Bank

of Binford    v.    Arneson,      109 Wash. 346, 349 -50, 186 P. 889 ( 1920),     and then only because equity
                                2
called   for its    application.

2 One scholar has persuasively argued that, in the context of mortgages, the doctrine should be
eliminated altogether as "            modern title and finance practices have obviated the need for [ it]."
Ann M. Burkhart,    Freeing Mortgages of Merger, 40 VAND L. REv. 283, 285 ( 1987). The
Restatement ( Third) of Property: Mortgages § 8. 5 ( 1997), takes this same view: " The doctrine

of merger does not apply to mortgages or affect the enforceability of a mortgage obligation."
Restatement, at 608.

                                                                    E
No. 43194 -7 -II

         Here, the merger doctrine is inapplicable because Chase did not hold fee title to the

property   and   the junior security interest   secured    by   the deed   of   trust   at   the   same   time.   Once the

trustee' s sale occurred, Chase obtained fee ownership in the property upon delivery of the deed.

Simultaneously, Chase'      s   Junior Deed   of   Trust   was   extinguished.          Because the junior security

interest ceased to exist the exact moment Chase obtained fee ownership, there was no deed of

trust to merge with the fee estate. This precludes any application of the merger doctrine.

         Because the merger doctrine does not apply, RCW 61. 24. 080( 3) and Beal Bank control.

Chase Bank in its capacity as the former junior lienholder has the superior right to the excess

funds.

         Accordingly, we conclude that the trial court properly awarded the surplus funds to Chase

and affirm its ruling.

                                                                                               i

                                                                                         Lee, J.

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