Brown v. Department of Commerce
184 Wash. 2d 509
| Wash. | 2015Background
- Darlene Brown defaulted on a promissory note secured by a deed of trust; Countrywide originally made the loan, Freddie Mac owns the note, and M&T Bank services and holds the physical note.
- Brown requested mediation under Washington’s Foreclosure Fairness Act (FFA), RCW 61.24.163, after a notice of default; the Department of Commerce denied mediation because it treated M&T (the note holder/servicer) as the “beneficiary” and M&T qualified for the statutory exemption, RCW 61.24.166.
- Key statutory text: DTA defines “beneficiary” as the holder of the instrument (RCW 61.24.005(2)); mediation proof provisions require proof that the “entity claiming to be the beneficiary is the owner” but allow a declaration that the beneficiary is the actual holder as sufficient proof (RCW 61.24.163(5)(c); RCW 61.24.030(7)(a)).
- Under the UCC, holder/PETE (person entitled to enforce) and owner can differ: a holder in possession (or identified methods under RCW 62A.3-301) has authority to enforce and modify the note even if not the economic owner (articles 3 and 9, RCW Title 62A).
- Procedural posture: Brown sought judicial review under the Administrative Procedure Act; the superior court affirmed the Department, and the Washington Supreme Court likewise affirmed.
Issues
| Issue | Plaintiff's Argument (Brown) | Defendant's Argument (Department/M&T) | Held |
|---|---|---|---|
| Who is the “beneficiary” for purposes of the FFA exemption (RCW 61.24.166) — owner or holder? | "Beneficiary" should mean the owner of the note (Freddie Mac); Brown is therefore entitled to mediation because Freddie Mac is not an exempt federally insured depository. | "Beneficiary" means the holder/PETE (M&T); the holder’s certification triggers the exemption if it meets the 250-sales threshold. | The beneficiary for the exemption is the note holder/PETE; M&T qualified as the exempt beneficiary. |
| Whether an undisputed declaration under penalty of perjury that a party is the actual holder satisfies DTA proof provisions (RCW 61.24.030(7)(a), RCW 61.24.163(5)(c)) | Such a declaration is insufficient if it conflicts with ownership information or if the statute requires proof of ownership. | A declaration that unambiguously states the party is the actual holder satisfies the statutory proof requirements. | An undisputed penalty-of-perjury declaration that a party is the actual holder satisfies those proof provisions. |
| Whether interpreting "beneficiary" as the holder conflicts with the DTA text requiring proof the beneficiary is the owner | Brown contends the statutes read together require owner status and the holder declaration language would be superfluous otherwise. | The apparent textual tension is resolved by UCC principles and legislative purpose: holder/PETE has authority to modify/enforce and is the relevant party for mediation and exemption. | The statutes are ambiguous in split-owner/holder cases; resolving ambiguity by statutory purpose and UCC yields holder/PETE as beneficiary for these provisions. |
| Constitutional challenge (equal protection/due process): is it irrational to base exemption on servicer/holder identity (i.e., creates unequal treatment for borrowers whose notes are owned by GSEs)? | Brown argues the result treats similarly situated homeowners differently based on servicer identity with no rational basis. | The distinction is rational: mediation targets larger servicers (those involved in >250 trustee sales) who may have greater impact on foreclosure rates; holder/PETE is the party with modification/ enforcement authority. | Rejected. Rational basis review applies and the statutory classification is conceivably rational. |
Key Cases Cited
- Bain v. Metro. Mortg. Grp., Inc., 175 Wn.2d 83 (Wash. 2012) (holds beneficiary under the DTA must hold the promissory note)
- Lyons v. U.S. Bank Nat’l Ass’n, 181 Wn.2d 775 (Wash. 2014) (clarifies permissible beneficiary declarations — an ambiguous declaration invoking multiple UCC grounds is insufficient)
- Trujillo v. Nw. Tr. Servs., Inc., 183 Wn.2d 820 (Wash. 2015) (rejects reliance on ambiguous beneficiary declarations; aligns with Lyons)
- Cashmere Valley Bank v. Dep’t of Revenue, 181 Wn.2d 622 (Wash. 2014) (distinguishes economic ownership of mortgage-backed interests from legal authority to enforce; holder may enforce though not owner)