Washington Federal v. Gentry
319 P.3d 823
Wash. Ct. App.2014Background
- Three commercial loans were made to entities controlled by Kendall Gentry; all three were secured by the Little Mountain deed of trust, and one loan was also secured by the Blackburn Road deed of trust. Kendall and Nancy Gentry each executed guaranties of payment for all three loans.
- Borrowers defaulted when the notes matured in 2010; Horizon Bank failed and the FDIC assigned the notes, deeds of trust, and guaranties to Washington Federal.
- Washington Federal purchased the properties at trustees’ sales in 2011 but did not credit-bid the full debt amounts, leaving alleged deficiencies. The bank sued the Gentrys for deficiency judgments to enforce their guaranties.
- The Gentrys moved for summary judgment arguing RCW 61.24.100 (Deeds of Trust Act) bars deficiency actions against guarantors following nonjudicial trustees’ sales when the guaranty is secured by the foreclosed deed of trust; the trial court granted that motion and dismissed the bank’s claim.
- The bank appealed, arguing the statute allows deficiency actions against guarantors of certain commercial loans (subject to statutory notice requirements) and that the deeds of trust here do not, in any event, secure the Gentrys’ guaranties.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether RCW 61.24.100(3)(c) permits unlimited deficiency suits against guarantors of commercial loans given proper notice | Bank: (Washington Federal) says (3)(c) allows suit against guarantors of qualifying commercial loans if guarantors received RCW 61.24.042 notice | Gentrys: argue (3)(c) must be read "subject to this section" and limited by (3)(a)/(b) so only claims for waste, wrongful retention of rents/proceeds, etc., are allowed | Court: Rejected trial court’s narrow reading; (3)(c) is "subject to this section" meaning consider the whole §61.24.100, but (3)(c) allows an action against a guarantor (with required notice); not limited solely to (3)(a)/(b) categories |
| Whether RCW 61.24.100(10) precludes deficiency suits against guarantors when the guaranty was secured by the foreclosed deed of trust | Gentrys: (10) forbids actions to collect guaranty obligations where the guaranty (or its equivalent) was secured by the deed of trust foreclosed nonjudicially | Bank: (implicit) (10) is permissive—it preserves actions when the obligation was not secured by the foreclosed deed; it does not bar suits where the guaranty was unsecured by that deed | Court: (10) does not bar this action; the Gentrys’ interpretation improperly reads out "not" and incorrectly infers the inverse; (10) is permissive, not prohibitory |
| Whether the deeds of trust at issue secured the Gentrys’ guaranties (i.e., whether the guaranties were "Related Documents" secured by the deeds) | Gentrys: deeds’ definitions of "Related Documents" (which include guaranties) mean the guaranties were secured, so trustee’s sale extinguished guaranty claims | Bank: deeds’ payment/performance clauses limit security to the Borrower and Grantor only; guarantors are distinct and not secured by these deeds | Court: Deeds, read as a whole, secure payment/performance of Borrower/Grantor only; the Gentrys’ guaranties are not secured by these deeds, so they are not barred on that ground |
| Whether trial court correctly applied contra proferentem and found ambiguity in the deeds to construe against drafter | Gentrys: deed language ambiguous; interpret against drafter to include guaranties as secured | Bank: deed language is clear that security covers Borrower/Grantor obligations only; no ambiguity | Court: Deeds are not ambiguous when read as a whole; contra proferentem does not apply |
Key Cases Cited
- Donovick v. Seattle-First Nat’l Bank, 111 Wn.2d 413 (Wash. 1988) (discussing Deeds of Trust Act history and borrower-lender quid pro quo)
- In re Detention of Lewis, 163 Wn.2d 188 (Wash. 2008) (statutory text can and should expressly state inverse rules when intended)
- First-Citizens Bank & Trust Co. v. Cornerstone Homes & Dev., LLC, 178 Wn. App. 207 (Wash. Ct. App. 2013) (Division Two decision holding RCW 61.24.100(10) barred deficiency suits where guaranty was secured by foreclosed deed; court here disagreed with its reasoning)
- In re Tr.’s Sale of Real Prop. of Burns, 167 Wn. App. 265 (Wash. Ct. App. 2012) (context on scope of Deeds of Trust Act)
- City of Spokane v. Rothwell, 166 Wn.2d 872 (Wash. 2009) (standard for reviewing statutory construction)
- Cornish Coll. of Arts v. 1000 Va. Ltd. P’ship, 158 Wn. App. 203 (Wash. Ct. App. 2010) (summary judgment review principles)