CHRISTA L. ALBICE, ET AL., Respondents, v. PREMIER MORTGAGE SERVICES OF WASHINGTON, INC., ET AL., Defendants, RON DICKINSON ET AL., Petitioners.
No. 85260-0
En Banc.
Decided May 24, 2012.
Argued September 22, 2011.
174 Wn.2d 560
Douglas N. Kiger and Jonathan W. Blado (of Blado Kiger Bolan PS), for respondents.
¶1 C. JOHNSON, J. — This case involves interpretation of the deeds of trust act,
¶2 The trial court ruled that despite procedural noncompliance, the purchaser was a BFP under the statute and quieted title in the purchaser. The Court of Appeals reversed, holding that failure to comply with the statutory requirements was reason to set the sale aside and that factually, the purchaser did not qualify as a BFP. We affirm the Court of Appeals.
FACTS
¶3 Christa Albice and Karen Tecca (hereinafter Tecca) inherited the property at issue here. In 2003, Tecca borrowed $115,500 against the property. Clerk‘s Papers (CP) at 305. The property was appraised at $607,000 in 2003 (CP at 1038) and at $950,000 in 2007. CP at 394. The loan was serviced by Option One Mortgage Corporation (Option One), and Premier Mortgage Services of Washington (Premier) acted as the trustee. Option One and Premier shared databases, having access to the same loan information, and everyone who worked for Premier was an employee of Option One.
¶4 In 2006, Tecca defaulted on the loan and received a notice of trustee‘s sale, setting the foreclosure sale for September 8, 2006. CP at 460. Tecca then, in July 2006, negotiated and entered into a forbearance agreement to cure the default. The total reinstatement amount was for $5,126.97, which included $1,733.79 for estimated foreclosure fees and costs. CP at 471. Under the agreement, payments were due the 16th of each month, ending January 16, 2007. CP at 472. Although Tecca tendered each payment late, Option One accepted each payment, except for the last. The last payment was sent on February 2, 2007, but was rejected by Option One. During a deposition, Premier‘s
¶5 The trustee‘s sale originally set for September 8, 2006 was continued six times. Each continuance was tied to the payments Tecca made under the Forbearance Agreement. The foreclosure sale took place on February 16, 2007. CP at 352-59. Through an agent, the petitioner, Ron Dickinson, successfully bid $130,000 for the property.1
¶6 Dickinson has purchased about 9 of his 13 properties at nonjudicial foreclosure sales. CP at 418-19. Dickinson buys and sells houses as a business. He has familiarized himself with foreclosure law to some extent to keep himself out of “trouble.” CP at 428. When Dickinson learned that the Tecca property was for sale, he researched the property and obtained a copy of the notice of trustee‘s sale, which listed the amount in arrears as $1,228.03. CP at 526, 530. About a week before the originally scheduled sale, Dickinson visited Karen Tecca‘s home and offered to buy the property. She refused and told him the sale would not happen. CP at 421. Dickinson attended the first scheduled sale, kept track of postponements, and phoned Premier to determine the next sale date. He was surprised when the property did finally come up for sale.
¶7 Tecca first learned the property was sold when Dickinson told Tecca they no longer owned it and needed to leave. Dickinson then filed an unlawful detainer action and sought to quiet title. Tecca countersued, seeking to quiet title in an action to set aside the nonjudicial sale. Tecca also brought suit against Option One and Premier, but the trial court dismissed the action based on an arbitration clause. Tecca‘s and Dickinson‘s actions were consolidated. Dickinson cross claimed against Option One and Premier, but he voluntarily dismissed those claims.
¶8 Dickinson moved for summary judgment to establish that he was a BFP and entitled to quiet title. Tecca also moved for summary judgment, arguing the foreclosure sale should be set aside because the sale occurred after the statutory deadline and Premier was not a qualified trustee with authority to conduct the sale. The trial court granted Dickinson‘s motion, ruling that Dickinson was a BFP and, despite procedural noncompliance by the trustee, the recitations in the trustee‘s deed were conclusive evidence of statutory compliance in favor of BFPs. The issue of whether Premier was a qualified trustee was left for trial. Following trial, the court concluded Premier was authorized to act as the trustee,2 quieted title in Dickinson, and awarded Dickinson damages.
¶9 Tecca appealed. The Court of Appeals reversed, setting the sale aside. It reversed the trial court‘s award of damages and instead awarded Tecca costs and fees as the prevailing party under
¶10 Dickinson petitioned for review. We granted review. Albice v. Premier Mortg. Servs. of Wash., Inc., 170 Wn.2d 1029, 249 P.3d 623 (2011).
ISSUES
¶11 1. Whether a trustee‘s sale taking place beyond the 120 days permitted by
¶13 3. Whether a bona fide purchaser can prevail despite an otherwise invalid sale.
ANALYSIS
¶14 This case raises questions of law and statutory interpretation on appeal from summary judgment. Our review is de novo. Lamtec Corp. v. Dep‘t of Revenue, 170 Wn.2d 838, 842, 246 P.3d 788 (2011) (citing Dreiling v. Jain, 151 Wn.2d 900, 908, 93 P.3d 861 (2004)).
¶15 The deeds of trust act,
1. Procedural Irregularities
¶16 Throughout the proceedings, Tecca has argued that the trustee‘s failure to comply with certain statutory requirements renders the sale invalid. These procedural irregularities or defects include that Premier had no authority to conduct the sale 161 days after the original sale date under
¶17
¶18 When a party‘s authority to act is prescribed by a statute and the statute
¶19 Here, Premier issued the notice of trustee‘s sale listing the sale date as September 8, 2006. Premier held the actual sale on February 16, 2007, 161 days from the original sale date in violation of the statute and divesting its statutory authority to sell. The sale was invalid.
2. Waiver
¶20 Though undisputed that Premier failed to strictly comply with its statutory obligations, Dickinson nevertheless contends Tecca waived their right to bring a postsale challenge by failing to pursue the presale remedies provided for in
¶21 We have found waiver in a foreclosure setting where the facts support its application. In Plein, we established that waiver of any postsale challenge occurs where a party (1) received notice of the right to enjoin the sale, (2) had actual or constructive knowledge of a defense to foreclosure prior to the sale, and (3) failed to bring an action to obtain a court order enjoining the sale. Plein v. Lackey, 149 Wn.2d 214, 227, 67 P.3d 1061 (2003) (quoting Cox, 103 Wn.2d at 388). In that case, the borrower received the notices of foreclosure and trustee‘s sale, notifying him of his presale right to seek a restraining order. Almost two months before the scheduled sale, the borrower sought a permanent injunction barring the trustee‘s sale on grounds that there was no default on the underlying debt. In addition, the parties were involved in a lawsuit disputing corporate dealings and other actions. The borrower failed to seek a temporary injunction, which would have halted the sale pending a hearing on the merits of the permanent injunction. As a result, the sale proceeded as scheduled, on the date listed in the notices, and the property was sold before the hearing. Plein, 149 Wn.2d at 220-21. Under these circumstances, in finding waiver, we recognized that allowing the borrower to delay asserting a defense until after the sale would have defeated the spirit and intent of the act.4 Plein, 149 Wn.2d at 228 (quoting Peoples Nat‘l Bank of Wash. v. Ostrander, 6 Wn. App. 28, 32, 491 P.2d 1058 (1971)). Given that the borrower had adequate opportunity
¶22 Waiver, however, cannot apply to all circumstances or types of postsale challenges.
¶23 Under the facts of this case, we conclude waiver cannot be equitably established. Dickinson seemingly argues that Tecca‘s presale remedies were triggered the moment they received notice of the trustee‘s sale. Yet this argument assumes the borrower can challenge the underlying debt. Although this was correct in Plein, because the borrower believed the debt had been paid, here, when Tecca received the notice, they had no grounds to challenge the underlying debt. In fact, by entering into the Forbearance Agreement, they were acknowledging default on their loan payment. This postponed the foreclosure sale, and tendering each monthly payment gave them additional time to cure the default. While making these payments, Tecca had no reason to seek an order restraining a sale that may not even proceed.6
¶24 Further, unlike in Plein, where the borrower had a defense almost two months prior to the sale, here, Tecca had no knowledge of their alleged breach in time to restrain the sale. Tecca tendered all payments, albeit late, under the Forbearance Agreement. Option One accepted all of those late payments and permitted Premier to continue the sale each time, except for the last. By repeatedly accepting the prior late payments, Option One created expectancy in Tecca that their last late payment would also be accepted. Tecca could not have known Option One would consider their last late payment a breach of the agreement, having never done so before. They reasonably believed their last payment cured the default. While the Forbearance Agreement stated they would receive a 10-day written notice upon breach, Tecca never received this notice.7 They rightly assumed the sale would be canceled after they tendered their last payment.8 And after learning their property had been sold, Tecca promptly brought their
¶25 Additionally, and equally important, to ensure trustees strictly comply with the requirements of the act, courts must be able to review postsale challenges where, like here, the claims are promptly asserted. Although Dickinson contends this defeats the third goal, the goal is to promote the stability of land titles. Cox, 103 Wn.2d at 387. Enforcing statutory compliance encourages trustees to conduct procedurally sound sales. When trustees strictly comply with their legal obligations under the act, interested parties will have no claim for postsale relief, thereby promoting stable land titles overall. Under the facts here, we hold that Tecca did not waive their rights.
3. Bona Fide Purchaser
¶26 Despite the trustee‘s failure to strictly comply with the statutory requirements and in addition to the waiver argument, Dickinson contends he is a BFP and should receive title. While the trial court concluded that Dickinson was a BFP, the Court of Appeals disagreed. We agree with the Court of Appeals.
¶27 Under
¶28 The facts pertaining to Dickinson‘s status are undisputed. We give, as did the Court of Appeals, substantial weight to Dickinson‘s real estate experience. Dickinson has extensive experience with nonjudicial foreclosure sales, purchasing 9 of his 13 properties at such sales. He familiarized himself with foreclosure law and knew enough about the process to obtain the notice of trustee‘s sale from a title company.
¶29 Dickinson had within his knowledge sufficient facts to put an experienced real estate purchaser, such as himself, on inquiry notice. He had a copy of the notice of trustee‘s sale, which listed the amount in arrears
CONCLUSION
¶30 The nonjudicial foreclosure proceedings here were marred by repeated statutory noncompliance. The financial institution acting as the lender also appeared to be acting as the trustee under a different name; the lender repeatedly accepted late payments and, at its sole discretion, rejected only the final late payment that would have cured the default; and the trustee conducted a sale without statutory authority. Equity cannot support waiver given these procedural defects and the purchaser‘s status as a sophisticated real estate investor or buyer who had constructive knowledge of the defects in the sale.
¶31 We conclude the trustee sale was invalid. We affirm the Court of Appeals and remand to the trial court to enter an order declaring the sale invalid and quieting title in Tecca as against Dickinson. We also affirm the Court of Appeals’ decision reversing the trial court‘s judgments for rent, costs, and statutory attorney fees in favor of Dickinson.
MADSEN, C.J.; CHAMBERS, OWENS, J.M. JOHNSON, and WIGGINS, JJ.; and ALEXANDER, J. PRO TEM., concur.
¶32 STEPHENS, J. (concurring) — Washington‘s deed of trust act,
¶33 I would resolve this case on narrow equitable grounds and leave the deed of trust system intact. Washington courts recognize that a foreclosure sale may be set aside based on a grossly inadequate sales price coupled with unfair circumstances or procedural irregularities surrounding the sale. Udall v. T.D. Escrow Servs., Inc., 159 Wn.2d 903, 914, 154 P.3d 882 (2007). While there is no firm benchmark for when a sale price is inadequate, courts frequently set aside sales for less than 20 percent of property value, especially when the surrounding circumstances suggest that irregular procedures may have contributed to the low price. RESTATEMENT (THIRD) OF PROPERTY: MORTGAGES § 8.3 cmt. b (1997) (“Generally, however, a court is warranted in invalidating a sale where the price
¶34 The low sales price and unfair circumstances in this case provide equitable grounds to invalidate the sale despite the Teccas’ failure to seek an injunction before the sale. Like the majority, I find it significant that the string of sale continuances made it difficult for potential buyers to participate. Four or five bidders appeared at the initial sale, but only Ron Dickinson and one other bidder were present at the eventual sale 161 days later. Dickinson himself had to do a fair amount of legwork to determine if the sale was going to happen. And, he paid far less than he was prepared to pay for the property. For their part, the Teccas tendered the final payment under the forbearance agreement more than 11 days before the sale, supporting their argument that it should have been canceled or rescheduled with additional public notice.
¶35 Moreover, in light of the clear procedural irregularities and the low sale price, Dickinson cannot claim the status of a bona fide purchaser, though not for all the reasons the majority articulates.10 “A bona fide purchaser for value is one who without notice of another‘s claim of right to, or equity in, the property prior to his acquisition of title, has paid the vendor a valuable consideration.” Glaser v. Holdorf, 56 Wn.2d 204, 209, 352 P.2d 212 (1960). Notice of another‘s claim can be imputed when the buyer has “such information as would excite apprehension in an ordinary mind and prompt a person of average prudence to make inquiry . . . .” Id. When such a circumstance would put a person of reasonable prudence on inquiry notice, however, that circumstance “is only notice of what a reasonable inquiry would reveal.” Id. (citing Paganelli v. Swendsen, 50 Wn.2d 304, 311, 311 P.2d 676 (1957)). Here, Dickinson obtained the original notice of sale; he therefore had actual notice the sale had been continued for more than 120 days. The procedural irregularities surrounding the sale, combined with the extremely low sale price, would put a person of reasonable prudence on inquiry notice. A reasonable inquiry would have revealed the Teccas’ efforts to cure.
¶36 Accordingly, I would affirm the Court of Appeals based solely on the Teccas’ equitable argument arising from these facts. I would not reach beyond these particular circumstances, however. I am concerned that the majority‘s resolution of this case greatly unsettles reasonable expectations in the arena of nonjudicial foreclosures. In particular, the majority declares that a trustee‘s violation of timelines in the act renders a foreclosure sale invalid, thereby allowing a grantor to set aside the sale after-the-
fact, notwithstanding the grantor‘s failure to use the presale remedies under
Procedural Irregularities
¶37 Initially, I disagree with the majority that a violation of statutory timelines by a
¶38 The majority erodes these protections for reasons that cannot withstand scrutiny. First, the majority assumes that property owners such as the Teccas are not in a position to restrain a sale when they have acknowledged their default by entering into a forbearance agreement. Majority at 571 (“Dickinson seemingly argues that [the owners‘] presale remedies were triggered the moment they received notice of the trustee‘s sale. Yet this argument assumes the borrower can challenge the underlying debt.“). But an owner can seek to enjoin the sale even while acknowledging the underlying debt. See Steward v. Good, 51 Wn. App. 509, 514-15, 754 P.2d 150 (1988) (noting owners in default waived right to contest a procedurally defective sale where they failed to enjoin the sale). The second reason the majority declines to find waiver is that the owners had no opportunity to restrain the sale. See majority at 571. This contention is belied by the uncontested facts. The Teccas were given notice that their property was subject to a foreclosure sale unless they moved to enjoin. Given that the trustee did not file a notice of discontinuance or reinstate the deed of trust, see
¶39 The majority makes much of the forbearance agreement, suggesting that the sale itself violated its terms and that the owners were therefore taken by surprise when the sale occurred in breach of contract. See majority at 571-72. A breach of contract, however, is not unforeseeable. The statutory means for grantors to protect themselves against the contingency of a scheduled, recorded judicial foreclosure sale going forward is by enjoining it.
¶40 The majority claims this case is unlike Plein — where the borrower had a defense
¶41 This court in Plein held that waiver applies when the borrower has notice of the right to enjoin the sale, knows the asserted defense before the sale, and fails to pursue presale remedies. Plein, 149 Wn.2d at 229 (citing
lenges” promptly brought “to ensure trustees strictly comply with the requirements of the act.” Majority at 572. In fact, the majority concludes that seeking an injunction is merely permissive. Id. at 570 (noting use of the word “‘may‘“).
¶42 This line of reasoning effectively ends the doctrine of waiver and overrules Plein. The majority concludes that “[w]hen trustees strictly comply with their legal obligations under the act, interested parties will have no claim for postsale relief . . . .” Id. at 572. Of course, it is hard to imagine a claim for relief not based on a violation of some legal obligation. Therefore, the majority‘s approach would actually permit postsale challenges to foreclosure sales as a general rule, at least where “the claims are promptly asserted.” Id.13
¶43 There may be some merit to creating a system that allows courts to broadly review procedural irregularities in foreclosure proceedings after a sale is complete, but this is not the system our legislature created in the act. The legislature ranked finality of land sales over entertaining the postsale grievances of grantors. This valuing of sale finality is evidenced by the conclusive presumption given to deed recitals showing statutory compliance when the buyer is a bona fide purchaser.
the Trustee‘s sale.”
¶44 The majority would undo this risk allocation. Its insistence that the goal of
¶45 Although avoiding the sale may benefit the individual grantor, allowing such postsale challenges will weaken the reliability of nonjudicial foreclosure sales to the detriment of landowners and purchasers alike. Indeed, if a trustee‘s sale can be challenged after the fact, “‘title insurers will not insure, secured lenders will not lend on, and buyers will not purchase real property with title tracing to a trustee‘s deed.‘” Plein, 149 Wn.2d at 228 n.5 (quoting amicus memorandum).
Bona Fide Purchaser Doctrine
¶46 I also disagree with the majority‘s analysis of the bona fide purchaser doctrine. The breadth of circumstances the majority considers to conclude Dickinson was not a bona fide purchaser will make it very difficult for buyers at foreclosure sales to qualify for this status. ¶47 Building on Dickinson‘s real estate experience, the majority finds significance in Dickinson‘s brief conversation with Karen Tecca, during which he offered to buy the property and she insisted the foreclosure sale would not happen. From this exchange, which lasted about one minute, the majority draws the remarkable conclusion that Dickinson was on inquiry notice that the sale may have violated the forbearance agreement. The majority‘s implicit reasoning goes like this: Tecca‘s refusal to sell would suggest to the reasonably prudent person that Tecca intended to cure her default; a reasonable person, learning the property had come up for sale, would contact Tecca again to see if she had tried to cure the default; this conversation would likely reveal the forbearance agreement and its terms; and a reasonable person would then discern the fact that the sale was not in accordance with the agreement.
¶48 Not only does this chain of reasoning pile inference upon inference, it promotes a duty of inquiry previously unknown in this area of the law. Under the majority‘s view, a potential buyer must approach foreclosure proceedings with an inquisitiveness verging on the paranoid. He is no longer entitled to rely on the notice of sale as establishing default if the owner has said something that implies an intent to cure. If such a verbal statement puts a potential buyer on notice that the owner may not actually be in default, what about the owner‘s written statement of intent to make payments? After all, a trust deed grantor has promised to make timely payments to the beneficiary, so is the existence of a recorded trust deed a circumstance putting a reasonable person on notice to ask the grantor whether the default referred to in the notice of sale actually exists? Apparently so, because the majority holds that Dickinson was not entitled to rely on the deed recitals here.
¶49 As to the deed recitals, the majority acknowledges that a recital of statutory compliance constitutes prima facie evidence of such compliance, which is conclusive in favor of a bona fide purchaser. Majority at 571 & n.5; see
¶50 Moreover, the specific recitals in this deed follow the form set out in the real property desk book and undoubtedly repeated in countless deeds recorded in Washington. 4 WASH. STATE BAR ASS‘N, WASHINGTON REAL PROPERTY DESKBOOK § 47.11(16), at 39-40 (3d ed. Supp. 2001). There is no precedent for the majority‘s conclusion that the drafters of deeds of trust fail to “recite the facts showing [statutory compliance],”
¶51 In sum, I depart from the majority‘s reasoning. I would reject the argument that a trustee‘s failure to strictly comply with the procedural requirements of the act invalidates a sale and opens the door to a postsale challenge. I would also be more circumspect in considering when a buyer at a foreclosure sale may rely on the recitals in a trust deed to claim the status of a bona fide purchaser. Instead, I would resolve this case on the narrow equitable ground that courts may invalidate an unfair foreclosure sale based on the combination of a grossly inadequate sale price and procedural irregularities. The combination of these circumstances cannot be known before the sale, and so it is appropriate — in exceptional circumstances — for a court to grant relief even after the sale has occurred. On this basis alone, I would affirm the Court of Appeals.
FAIRHURST, J., concurs with STEPHENS, J.