Court Opinion

ID: 4014911
Source: CourtListenerOpinion
Date Created: 2016-07-12 15:18:01.365928+00
Date Added: 2024-06-11T14:29:40.553718
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

                                                                                (—3        O- I-
KEVIN E. EDMUNDSON and MECHE                        No. 74016-4-1               CS3        —i C

D. EDMUNDSON, husband and wife,
                                                                                           r>"C-
                                                    DIVISION ONE
                     Respondents,
                                                                                  a~-*

                                                                                      up
BANK OF AMERICA, N.A., successor                    PUBLISHED
by merger to BAC Home Loans
Servicing, LP, fka Countrywide Home                 FILED: July 11, 2016
Loans Servicing, LP; CARRINGTON
MORTGAGE SERVICES, LLC, as
servicer and attorney in fact for Bank of
America, N.A.; and MTC FINANCIAL,
INC., a Washington corporation, dba
TRUSTEE CORPS, as trustee,

                     Appellants.

       Cox, J. — The primary issue before us is whether the lien of a deed of

trust on property that secures payment of a promissory note is discharged when

the personal obligation of the note is discharged in bankruptcy. Settled law holds

that such a lien is not discharged and remains enforceable after such a

discharge.

       The other question that we decide in this case is whether the enforcement

of the deed of trust was timely commenced. We hold that it was.

       The trial court erred as a matter of law in granting summary judgment to

Kevin Edmundson and Meche Edmundson, the borrowers who signed the
No. 74016-4-1/2

promissory note and the deed of trust that secures the note in this case.

Accordingly, we reverse and remand with directions.

      The material facts are undisputed. The Edmundsons obtained a loan in

July 2007 to purchase real property. The loan was documented by a promissory

note dated July 12, 2007 in the amount of $313,381.00. The note is payable in

monthly installments of $1,980.78, the first of which was due on September 1,

2007. The remaining installments were due on the first of each month thereafter.

The last payment was to become due on a maturity date of August 1, 2037.

      A deed of trust, also dated July 12, 2007, secured the promissory note.

The deed of trust is a lien on the real property that the Edmundsons purchased

with the loan. The deed of trust was duly recorded in the auditor's records of

King County, Washington.

      The Edmundsons made the monthly payments on the promissory note

through October 2008. They failed to make the November 1, 2008 payment or

any of the monthly payments due since then.

       In June 2009, the Edmundsons filed a petition for relief under the United

States Bankruptcy Code. On October 22, 2009, the bankruptcy court confirmed

their Amended Chapter 13 Plan. On December 31, 2013, the bankruptcy court

discharged their debts, noting certain exceptions to the discharge.

       Based on the failure to pay the monthly payments due under the note and

deed of trust, a notice of default dated October 23, 2014 was transmitted by first

class and certified mail to the Edmundsons. Thereafter, the successor trustee

under the deed of trust scheduled a trustee's sale. The purpose of the sale was
No. 74016-4-1/3

to satisfy the unpaid monthly obligations and other delinquencies under the note

and deed of trust. The Notice of Trustee's Sale dated January 16, 2015 was

recorded on January 21, 2015. The trustee's sale was originally scheduled for

May 22, 2015, but later postponed to August 28, 2015.

       In March 2015, the Edmundsons commenced this action. They sought to

restrain the then scheduled trustee's sale and to quiet title to the property. They

claimed the lien of the deed of trust to the property was no longer enforceable.

      On cross-motions for summary judgment by the Edmundsons and

Carrington Mortgage, the trial court granted summary judgment to the

Edmundsons. As part of that relief, the court permanently enjoined the trustee's

sale. The court also ruled that the Edmundsons were entitled to an award of

reasonable attorney fees under the terms of the deed of trust. The court denied

Carrington's motion for reconsideration.

       Carrington appeals.

                              DEED OF TRUST LIEN

       The trial court granted summary judgment to the Edmundsons based on

the conclusion that the deed of trust that secured their promissory note was

unenforceable. This was based on the initial conclusion that the discharge of

their personal liability on the note in bankruptcy also discharged the deed of trust

lien. As a matter of law, this was error.
No. 74016-4-1/4

      Courts may grant summary judgment if there is no genuine issue as to any

material fact and the moving party is entitled to judgment as a matter of law.1

When ruling on summary judgment, the trial court considers the evidence in the

light most favorable to the nonmoving party.2 We review de novo the grant of

summary judgment.3

      The United States Supreme Court has made clear the relationship

between a deed of trust4 or mortgage and a discharge of debt in bankruptcy. In

Johnson v. Home State Bank, the Supreme Court stated:

      A mortgage is an interest in real property that secures a creditor's
      right to repayment. But unless the debtor and creditor have
      provided otherwise, the creditor ordinarily is not limited to
      foreclosure on the mortgaged property should the debtor default on
      his obligation; rather, the creditor may in addition sue to establish
      the debtor's in personam liability for any deficiency on the debt and
      may enforce any judgment against the debtor's assets generally. A
      defaulting debtor can protect himself from personal liability by
      obtaining a discharge [through bankruptcy]. However, such a
      discharge extinguishes only "the personal liability of the
      debtor." Codifying the rule of Long v. Bullard, the
       [Bankruptcy] Code provides that a creditor's right to foreclose
       on the mortgage survives or passes through the bankruptcy.^

       1 Wash. Fed, v. Harvey, 182 Wn.2d 335, 340, 340 P.3d 846 (2015)
(quoting Lvbbert v. Grant County, 141 Wn.2d 29, 34, 1 P.3d 1124 (2000)).

       2 Young v. Key Pharm.. Inc., 112 Wn.2d 216, 226, 770 P.2d 182(1989).

       3 Wash. Fed.. 182 Wn.2d at 339.

       4 A deed of trust "is a species of mortgage." Rustad Heating & Plumbing
Co. v. Waldt, 91 Wn.2d 372, 376, 588 P.2d 1153 (1979).

       5 501 U.S. 78, 82-83, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (1991) (emphasis
added) (citations omitted); accord Dewsnup v. Timm, 502 U.S. 410, 418-20, 112
S. Ct. 773, 116 L. Ed. 2d 903 (1992).
No. 74016-4-1/5

       Here, the Edmundsons petitioned for relief under the Bankruptcy Code.

They obtained a discharge of their debts after the completion of their amended

plan under Chapter 13 of the Bankruptcy Code. Consistent with Johnson and

other cases, the Discharge of Debtor dated December 31, 2013 was limited to

their personal liability for their debts. As that document states, the Edmundsons

are discharged from their liability for these debts. But it also expressly states:

       "[A] creditor may have the right to enforce a valid lien, such as a mortgage

or security interest against the debtor's property after the bankruptcy, if that lien

was not avoided or eliminated in the bankruptcy case."6

       Accordingly, the Edmundsons' bankruptcy court discharge was limited to

the discharge of their personal liability on the promissory note. The lien of the

deed of trust securing the promissory note in this case was neither avoided nor

eliminated in the bankruptcy proceeding. As the discharge plainly states, the

right to foreclose the lien of the deed of trust on the Edmundsons' property was

not affected by the bankruptcy discharge.

       Based on this settled law, the trial court erred in granting summary

judgment to the Edmundsons.

       The trial court also concluded, on state law grounds, that the deed of trust

became unenforceable once the underlying note that it secured became

unenforceable due to the bankruptcy discharge.7 There simply is no authority for

that legal conclusion.

       6 Clerk's Papers at 77.

       7 Id. at 355.
No. 74016-4-1/6

      The plain terms of the deed of trust require the borrowers to "pay when

due the principal of, and interest on" the note.8 Both this deed of trust and case

law provide for the remedy of foreclosure in the event of the borrowers' failure to

comply with this covenant of the deed of trust.

       Nothing in the Deeds of Trust Act supports the conclusion that the lien of a

deed of trust on real property is discharged under state law when the note or

other secured obligation is no longer enforceable. Moreover, we have found no

case under the law of mortgages, to which deeds of trust are generally subject, to

support this result under the circumstances of this case.9 Similarly, respected

commentators' discussions about the discharge of deeds of trust and mortgages

do not support this result.10

       Rather, the trial court's ruling fails to recognize that enforcement of a

promissory note and foreclosure of a deed of trust securing that note are

separate remedies of a creditor in the event of a borrower's default.11 The
inability to pursue one remedy does not bar the other.

       The trial court's ruling in this case has a practical effect. That effect is that

the Edmundsons retain ownership of property without repaying the loan used to

       8 Id, at 10.

      9 RCW 61.24.020 ("Except as provided in this chapter, a deed of trust is
subject to all laws relating to mortgages on real property.").
       1018 William B. Stoebuck & John W. Weaver, Washington Practice:
Real Estate Transactions! 18.1-18.35 (2nd ed. 2004); 1 Grants. Nelson &
Dale A. Whitman, Real Estate Finance Law § 6.16-6.19 (4th ed. 2001).

      11 Am. Fed. Sav. & Loan Ass'n of Tacoma v. McCaffrey, 107Wn.2d 181,
189, 728P.2d 155(1986).
                                               6
No. 74016-4-1/7

purchase it. The loss shifts to the lender because the Edmundsons no longer

have any personal obligation on the promissory note due to the discharge in

bankruptcy. Under the trial court's ruling, the lender also has no right to realize

on the collateral for the loan. Neither the equity nor logic of this result is apparent

to this court.

        In sum, nothing in this record and nothing under either federal or state law

supports the conclusion that the discharge of personal liability on the note also

discharges the lien of the deed of trust securing the note. The deed of trust is

enforceable.

                            STATUTE OF LIMITATIONS

        Carrington next argues that the statute of limitations does not bar

foreclosure of the deed of trust in this case. We agree.

       As an agreement in writing, the deed of trust foreclosure remedy is subject

to a six-year statute of limitations.12 When the underlying facts are undisputed,

we review de novo whether a statute of limitations bars an action.13

        Here, the trial court relied on Walckerv. Benson & McLaughlin, P.S.,14 for

its ruling. That reliance is misplaced.

       12 RCW 4.16.040; 18 William B. Stoebuck & John W. Weaver,
Washington Practice: Real Estate Transactions § 18.34, at 369 (2nd ed.
2004).

      13 Bennett v. Computer Task Grp., Inc., 112Wn. App. 102, 106, 47 P.3d
594 (2002).

        14 79 Wn. App. 739, 904 P.2d 1176 (1995).
No. 74016-4-1/8

        In that case, the borrowers executed a demand promissory note dated

September 4, 1986 in favor of the lender.15 The borrowers also executed a deed

of trust on their property to secure payment of the note.16 The borrowers never

made any payments on the note. The lender never took legal action to obtain a

judgment on the note.

       On December 23, 1993, the lender commenced a nonjudicial foreclosure

proceeding. This was more than six years after the execution of the demand

promissory note.17 The borrowers responded by commencing an action to

restrain the trustee's sale and to quiet title to their property.18 The trial court

denied the borrowers' motion for summary judgment and dismissed their action.19

       On appeal, Division Three of this court reversed. The court held that a

six-year statute of limitations applied to written agreements, including demand

notes.20 The statute of limitations began to run on the demand note when it was

executed.21 Because the lender commenced the nonjudicial foreclosure

       15
            id. at 741.

       16
            ig\

       17
            \±

       18
            Id,

       19
            jd.

       20
            Id,

       21
            Id. at 742.

                                                8
No. 74016-4-1/9

proceeding more than six years after the borrowers executed the note, the

statute of limitations barred the action.22

       That case does not control here. That is because the promissory note that

the Edmundsons signed is not a demand note. Rather, it is an installment note

payable in monthly installments over a period of 30 years.

       As a line of cases makes clear, "A demand note is payable immediately on

the date of its execution."23 As this court explained in GMAC v. Everett

Chevrolet, Inc., the general rule is that:

       "An instrument is payable immediately if no time is fixed and no
       contingency specified upon which payment is to be made. A
       demand note is payable immediately on the date of its execution—
       that is, it is due upon delivery thereof; and, unless a statute
       declares otherwise, or a contrary intention appears expressly or
       impliedly upon the face of the instrument, a right of action against
       the maker of a demand note arises immediately upon delivery and
       no express demand is required to mature the note or as a
       prerequisite to such right to action, commencement of a suit being
       sufficient demand for enforcement purposes."[24]

       The promissory note in this case expressly states that it is payable in

monthly installments. Moreover, it has a maturity date of August 1, 2037. In

sum, it is not a demand note as in Walcker. Rather, it is an installment note.

       Although their note is an installment note, not a demand note, the

Edmundsons argue that the statute of limitations for their failure to pay the

       22 Id, at 746.

      23 GMAC v. Everett Chevrolet, Inc.. 179 Wn. App. 126, 135, 317 P.3d
1074, review denied, 181 Wn.2d 1008 (2014).

       24 jd, at 135-36 (quoting Allied Sheet Metal Fabricators, Inc. v. Peoples
Nat'l Bank of Wash., 10 Wn. App. 530, 536, 518 P.2d 734 (1974)).
No. 74016-4-1/10

November 1, 2008 installment accrued on that date and ran on November 1,

2014, six years later. We disagree.

        First, this argument is based on the incorrect premise that there was no

resort to the remedies under the Deeds of Trust Act before November 1, 2014.

The record plainly shows otherwise. Specifically, a written notice of default dated

October 23, 2014 was transmitted by first class and certified mail to the

Edmundsons.25 Pursuant to RCW 61.24.030(8), this notice is evidence of resort

to the remedies of the Deeds of Trust Act for the defaults of the Edmundsons

under this deed of trust. This preceded the running of the six-year period of the

statute of limitations. That is all that is required under the circumstances of this

case.

        Second, even if we were to accept this incorrect premise, that would not

end the inquiry. Settled law from the supreme court explains why.

        In Herzoq v. Herzog, the supreme court addressed when the six-year

statute of limitations on a written agreement accrues.26 The court first

distinguished a demand note from an installment note. The court stated that the

statute of limitation accrues on a demand note when it is executed.

        But the obligation before the supreme court in that case was not a

demand note. The note before the court provided for installment payments.

Accordingly, the court held that "when recovery is sought on an obligation

payable by installments, the statute of limitations runs against each installment

        25 Clerk's Papers at 83-84.

        26 23 Wn.2d 382, 161 P.2d 142 (1945).

                                             10
No. 74016-4-1/11

from the time it becomes due; that is, from the time when an action might be

brought to recover it."27

       Here, the statute of limitations accrued for each installment from the time it

became due. Thus, the statute accrued on November 1, 2008 for that missed

payment only. November 1, 2014 was six years later.

       Correspondingly, the statute of limitations for each subsequent monthly

payment accrued on the first day of each month after November 1, 2008 until the

Edmundsons no longer had personal liability under the note. They no longer had

such liability as of the date of their bankruptcy discharge, December 31, 2013.

Thus, from December 1, 2008 through December 1, 2013, the statute of

limitations accrued for each monthly payment under the terms of the note as

each payment became due.

       Accordingly, each of these missed payments accrued within six years of

the resort to the remedies under the Deeds of Trust Act.28 The statute of

limitations did not bar enforcement of the deed of trust for these missed

payments.

       27 Id, at 388; accord 25 David K. DeWolf, Keller W. Allen & Darlene
Barrier Caruso, Washington Practice: Contract Law and Practice § 16:21,
at 511 (3rd ed. 2014) ("Where a contract calls for payment of an obligation by
installments, the statute of limitations begins to run for each installment at the
time such payment is due.").

        28 RCW 61.24.030 ("It shall be requisite to a trustee's sale: ... (8) That at
least thirty days before notice of sale shall be recorded, transmitted or served,
written notice of default shall be transmitted by the beneficiary or trustee to the
borrower and grantor. . . .").

                                             11
No. 74016-4-1/12

      The trial court also appears to have ruled that the statute barred

enforcement of the deed of trust partially on the basis that the lender declared

the entire unpaid balance of the note due. Because there is no evidence that the

lender accelerated the maturity date of the note, this was error.

      The trial court misapplied the provisions of the deed of trust titled

"Groundsfor Acceleration of Debt," paragraph 9 of that instrument.29 By its plain

terms, these provisions allow the lender to declare immediate payment in full of

all unpaid sums secured by the deed of trust. This option of the lender is limited

to certain circumstances. Among them is the failure of the borrower to pay any

monthly installment under the note and deed of trust. The lender may also do so

ifthe borrower fails to perform any other obligation under the deed of trust for a

period of 30 days. "Default in payment alone does not work an acceleration."30
       The trial court misapplied this option of the lender to this case. First, this

record lacks any evidence that the lender exercised this option to accelerate the

maturity date of the note. As the note plainly states, that maturity date was

August 1, 2037. Second, to the extent the trial court ruled that some event

during the bankruptcy proceeding triggered this provision, the court is wrong.

Under the plain terms of the deed of trust, this is an option to be exercised by the

lender, not something triggered by events in bankruptcy proceedings.

       29 Clerk's Papers at 12.

       30 A.A.C. Corp. v. Reed, 73 Wn.2d 612, 616, 440 P.2d 465 (1968).

                                              12
No. 74016-4-1/13

      Accordingly, as we previously discussed, the statute of limitations for each

monthly payment accrued as the payment became due. There was no

acceleration of the maturity date of the note.

       On remand, we direct the trial court to dissolve the permanent injunction

against the trustee's sale and enter judgment in Carrington's favor.

       Because we have resolved the case on these grounds, we decline to

address the parties' remaining arguments.

                                  ATTORNEY FEES

       Carrington argues that it is entitled to the award of attorney fees on appeal

under the terms of the deed of trust. For the same reason, it argues that it was

also entitled to an award of attorney fees below and that the trial court ruling to

the contrary was erroneous. We agree.

       Parties in Washington may recover attorney fees if a statute, contract, or

recognized ground of equity authorizes the award.31 "'A contractual provision for

an award of attorney's fees at trial supports an award of attorney's fees on

appeal under RAP 18.1.'"32

       Here, paragraph 18 of the deed of trust provides, in relevant part:

       Lender shall be entitled to collect all expenses incurred in pursuing
       the remedies provided in this paragraph 18, including, but not
       limited to, reasonable attorneys' fees and costs of title evidence.[33]

      31 LK Operating. LLC v. Collection Grp.. LLC, 181 Wn.2d 117, 123, 330
P.3d 190(2014).

       32 Thompson v. Lennox, 151 Wn. App. 479, 491, 212 P.3d 597 (2009)
(quoting W. Coast Stationary Eng'rs Welfare Fund v. City of Kennewick, 39 Wn.
App. 466, 477, 694 P.2d 1101 (1985)).

       33 Clerk's Papers at 13.
                                             13
No. 74016-4-1/14

      This provision applies because this action arises out of Carrington's

pursuit of the foreclosure remedies permitted by the deed of trust. Accordingly, it

is entitled to an award of reasonable attorney fees at trial and on appeal. The

award to the Edmundsons of their reasonable attorney fees below was incorrect

and must be set aside on remand.

      Pursuant to RAP 18.1 (i), we direct the trial court on remand to determine

the amount of reasonable attorney fees, both at the trial court and on appeal,

together with expenses on appeal to award to Carrington.

      We reverse the grant of summary judgment to the Edmundsons and direct

entry of summary judgment in favor of Carrington on remand. We also direct the

trial court on remand to dissolve the permanent injunction against the trustee's

sale. The court is also directed to award reasonable attorney fees, for trial and

appeal, and expenses on appeal to Carrington, pursuant to RAP 18.1(i).

                                                         ^J>

WE CONCUR:

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                                            14