Walker v. Quality Loan Service Corp.Walker v. Quality Loan Service Corp.
- Reporters:
- Before:
- Leach, Cox, Deyer
The court, having determined a need to modify its opinion filed August 5, 2013, now, therefore, it is hereby
ORDERED that the opinion be changed as follows:
The final sentence at page 21 of the opinion shall be reworded to provide:
It is further ORDERED that the amended opinion shall replace the original opinion filed herein.
DATED this 26th day of August, 2013.
Leach, C.J.
COX, J.
FILED: August 26, 2013
Leach, C.J. — In this case we consider whether a property owner‘s preforeclosure sale remedies for alleged violations of the deeds of trust act,
Doug Walker appeals a trial court order granting the
FACTS
In February 2007, Credit Suisse Financial Corporation (Credit Suisse) loaned Doug Walker $280,000. He signed a promissory note memorializing his debt and a deed of trust to secure the note. The deed of trust named Ticor Title Company as the trustee, Credit Suisse as the lender, and Mortgage Electronic Registration Systems Inc. (MERS) as “a separate corporation that is acting solely
The deed of trust also contained a number of other statements about MERS‘s status, including,
The beneficiary of this Security Instrument is MERS (solely as nominee for Lender and Lender‘s successors and assigns) and the successors and assigns of MERS. This Security Instrument secures to Lender (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note, and (ii) the performance of Borrower‘s covenants and agreements under this Security Instrument and the Note. For this purpose, Borrower irrevocably grants and conveys to Trustee, in trust, with power of sale, the following described property.
and
Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender‘s successors and assigns) has the right to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property.
Walker defaulted on the note. On May 22, 2009, a notice of default was mailed to Walker.2 On May 28, 2009, Select, acting as “the Beneficiary,” recorded an instrument naming Quality as successor trustee under the deed of trust. Over a month later, on July 6, 2009, MERS executed a corporate
On July 21, 2009, Quality recorded a notice of trustee‘s sale for Walker‘s property. The notice recited that Walker granted the deed of trust to “secure an obligation in favor of [MERS], as Beneficiary, the beneficial interest in which was assigned by [MERS], as nominee for [Credit Suisse] to [Select].” It also identified Quality as the successor trustee.
On October 28, 2009, Walker filed an amended complaint in Snohomish County Superior Court, seeking to enjoin the trustee‘s sale, to recover damages on a variety of theories, and to quiet title. The trial court entered a temporary restraining order enjoining the trustee‘s sale while the action was pending, conditioned on Walker making note payments into the court registry.
Later, the trial court granted Quality and Select‘s
STANDARD OF REVIEW
We review de novo a trial court‘s order for judgment on the pleadings.3 “‘[W]e examine the pleadings to determine whether the claimant can prove any set of facts, consistent with the complaint, which would entitle the claimant to
ANALYSIS
Walker alleges that Quality and Select violated the DTA, FDCPA, and CPA. He also asserts a claim to quiet title to his property. We reverse the trial court‘s order dismissing his complaint and remand for further proceedings on all claims except his request to quiet title.
Deeds of Trust Act
We first consider Walker‘s DTA claim, based primarily upon the designation of MERS as beneficiary in the deed of trust. Asserting that MERS could not be a lawful deed of trust beneficiary, Walker alleges “all subsequent actions taken by any party in reliance on MERS’ actions is [sic] also unlawful.” Stated more plainly, Walker claims that MERS was not a lawful beneficiary and therefore lacked the authority to assign the deed of trust and note to Select. Because the assignment to Select was ineffective, Select‘s designation of Quality as successor trustee was also ineffective, meaning that Quality lacked authority to initiate nonjudicial foreclosure proceedings. Although no foreclosure sale
Select and Quality respond that Washington does not recognize a claim for “wrongful initiation of foreclosure when, as here, the foreclosure sale has been discontinued.” We disagree.
The DTA regulates transactions in which a borrower secures a promissory note or other debt instrument with a deed of trust. Although a statutory deed of trust conveys title to a trustee, because the borrower does this to secure credit or a loan from the lender, it is essentially an equitable mortgage.6 The beneficiary is “the holder of the instrument or document evidencing the obligations secured by the deed of trust, excluding persons holding the same as security for a different obligation.”7 The trustee is “the person designated as the trustee in the deed of trust or appointed under
The trustee may resign at its own election or be replaced by the beneficiary . . . . [U]pon the resignation, . . . or the election of the beneficiary to replace the trustee, the beneficiary shall appoint a trustee or a successor trustee. Upon recording the appointment of a successor trustee . . . , the successor trustee shall be vested with all powers of an original trustee.
While the current version of
Because the DTA “dispenses with many protections commonly enjoyed by borrowers under judicial foreclosures, lenders must strictly comply with the statutes, and courts must strictly construe the statutes in the borrower‘s favor.”14
The DTA permits a borrower or grantor, among others, “to restrain, on any proper legal or equitable ground, a trustee‘s sale.”17 But, as Walker correctly observes, the DTA includes “no specific remedies for violation of the statute in the context of pre-sale actions meant to prevent the wrongful foreclosure from occurring.” However, in response to a decision of this court,18 in 2009 the legislature explicitly recognized a cause of action for damages for failure to comply with the DTA.19 It did so by amending the DTA to include
Klem v. Washington Mutual Bank21 supports our conclusion that the specific remedies provided in the DTA are not exclusive. There, the court considered whether the violations of the DTA that the legislature identified in
Walker alleges that MERS never held his note and, therefore, never had authority to act as beneficiary under the DTA. He further alleges that Select derived its authority to act from MERS‘s assignment and Quality derived its authority to foreclose from Select. Thus, he argues that Select had no authority to proceed with a nonjudicial foreclosure and violated the DTA by starting one. He also claims that Select violated the DTA by appointing Quality as successor trustee and by recording an appointment before MERS purported to assign his note to Select. For purposes of this appeal, we must accept Walker‘s factual allegations as true. If proved, these allegations would establish material violations of the DTA.
In Bain v. Metropolitan Mortgage Group, Inc.,23 our Supreme Court held that if MERS never held the promissory note or other debt instrument, it was not a lawful beneficiary and could not appoint a successor trustee. The court also found deed of trust language identifying MERS as “acting solely as a nominee for Lender and Lender‘s successors and assigns” insufficient to establish MERS as the note holder‘s agent.24 The Supreme Court in Bain also rejected the argument
In addition to these procedural violations, Walker alleges that Quality breached its statutory duty of good faith to him imposed by the DTA.26 He contends, “If [Quality] intends to foreclose a property non-judicially it is obligated to have evidence that it is doing so on a legitimate and legal basis and not simply
We recognize our disagreement with Vawter v. Quality Loan Service Corp. of Washington,27 where the United States District Court for the Western District of Washington reached a contrary result, holding that “the DTA does not authorize a cause of action for damages for the wrongful institution of nonjudicial foreclosure proceedings where no trustee‘s sale occurs.” To reach this conclusion, the court relied upon Pfau v. Washington Mutual, Inc.28 and Krienke v. Chase Home Finance, LLC,29 which were decided before the legislature enacted
Second, the court in Vawter explained that the legislature “established a comprehensive scheme for the nonjudicial foreclosure process” and that “to the extent the legislature intended to permit a cause of action for damages, it could have said so.”32 But, the legislature has spoken and, with
Finally, the court in Vawter stated that even if it were to recognize a presale cause of action for damages under the DTA, “the court is not persuaded
Here, Walker alleges that MERS never had a beneficial interest because it never held the note. Under Bain, it could never be a lawful beneficiary. Walker also alleges damages caused by Select‘s and Quality‘s unlawful actions taken in violation of the DTA. Walker‘s allegations strongly support recognizing a presale cause of action for damages under the DTA because he pleads facts showing he has suffered prejudice from Select‘s and Quality‘s unlawful conduct.
MERS never held the note and, based on Walker‘s amended complaint, we can hypothesize that MERS never had independent authority to appoint a beneficiary. We can further hypothesize that Select did not hold Walker‘s note at the time it appointed Quality. No Washington case law relieves from liability a party causing damage by purporting to act under the DTA without lawful authority to act or failing to comply with the DTA‘s requirements.
Notably, the language of
Because the legislature recognized a presale cause of action for damages in
Fair Debt Collection Practices Act
Walker also asserts that Quality and Select violated the FDCPA. He alleges that Select meets the “debt collector” definition of
The FDCPA “applies only to ‘debt collectors,’ which are entities who regularly collect debts for others, not to ‘creditors,’ who are collecting on their own behalf.”44 The statute defines a “debt collector” as
any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another . . . . For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests.45
A debt is “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.”46
Here, Quality makes no claim that it is a creditor collecting on its own behalf. Instead, Quality argues that it is not a statutory debt collector because it does not regularly collect consumer debts owed to another. Quality also states that pursuing nonjudicial foreclosure under a deed of trust does not constitute debt collection.
“‘[M]ortgage servicer companies and others who service outstanding debts for others, [are not debt collectors] so long as the debts were not in default when taken for servicing.‘”48 Thus, “‘[a]lthough there is no statutory definition of ‘loan servicer’ under the Act, a loan servicer will become a debt collector under
In Jara v. Aurora Loan Services, LLC,50 the United States District Court for the Northern District of California recognized that most district courts within the Ninth Circuit Court of Appeals have concluded that foreclosure proceedings do not constitute “debt collection” within the meaning of the FDCPA. The court noted, however, that “acts taken in furtherance of a foreclosure proceeding can be the basis of a FDCPA claim, but only if they are alleged as violations of
[I]f “debt collection” generally included the enforcement of a security interest, the language specifying so for the purposes of
§ 1692f(6) would be surplusage, and such a construction would violate a “long standing canon of statutory construction that terms in a statute should not be construed so as to render any provision of that statute meaningless or superfluous.“[52]
Although the Ninth Circuit has not ruled on this issue, “[t]he current trend among district courts in the Ninth Circuit is to find that, at least insofar as defendant confines itself to actions necessary to effectuate a nonjudicial foreclosure, only
Here, the trial court properly dismissed Walker‘s claims under
The trial court erred, however, by dismissing Walker‘s claim under
Consumer Protection Act
Walker next claims that Quality and Select violated the CPA. The CPA declares unlawful unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.55 Generally, to prevail in a private CPA claim, the plaintiff must prove (1) an unfair or deceptive act or practice (2) occurring in trade or commerce (3) affecting the public interest, (4) injury to a person‘s business or property, and (5) causation.56 The failure to establish any of these elements is fatal to a CPA claim.57 Here, in light of our Supreme Court‘s recent decisions in Bain58 and Klem,59 Quality and Select contend only that Walker fails to meet the fourth and fifth elements.
The CPA does not define an “unfair or deceptive act or practice.” Whether an alleged act is unfair or deceptive presents a question of law.60 A consumer may establish an unfair or deceptive act by showing “either that an act or practice ‘has a capacity to deceive a substantial portion of the public,’ or that ‘the alleged act constitutes a per se unfair trade practice.‘”61 “Implicit in the definition of ‘deceptive’ under the CPA is the understanding that the practice misleads or misrepresents something of material importance.”62 Whether an unfair act has the capacity to deceive a substantial portion of the public is a question of fact.63 To establish a per se violation, a plaintiff must show “that a statute has been violated which contains a specific legislative declaration of public interest impact.”64
To meet the fourth and fifth elements, Walker must allege facts demonstrating that Quality‘s and Select‘s deceptive acts caused him harm. To
Walker alleges as his injuries “the distraction and loss of time to pursue business and personal activities due to the necessity of addressing the wrongful conduct through this and other actions” and “the necessity for investigation and consulting with professionals to address Respondents’ wrongful foreclosure and collection practices and violation of
In Panag v. Farmers Insurance Co. of Washington,68 our Supreme Court held, “[T]he injury requirement is met upon proof the plaintiff‘s ‘property interest or money is diminished because of the unlawful conduct even if the expenses caused by the statutory violation are minimal.‘” Investigative expenses, taking time off from work, travel expenses, and attorney fees are sufficient to establish injury under the CPA.69
Walker also alleges that but for Quality‘s and Select‘s deceptive acts, he would not have suffered these same injuries. Walker asserts that the deceptive documents induced him to incur expenses to investigate whether Select and
Quiet Title
Finally, Walker claims that the court erred by dismissing his action to quiet title to his property. He alleges, “As MERS was never a legitimate beneficiary under
To support his argument, Walker cites the Restatement (Third) of Property: Mortgages, which states, in a comment, that “in general a mortgage is unenforceable if it is held by one who has no right to enforce the secured obligation.”70 He also cites numerous cases outside this jurisdiction for the notion that “the segregation of the Note from the Deed of Trust through the assignment of the Deed of Trust from MERS to SELECT without a valid assignment of the Note renders the subject Deed of Trust a nullity and an improper lien against Mr. Walker‘s property.” He requests that the court clear the “improper cloud” on his
In response, Quality and Select assert that Walker has not alleged any facts demonstrating that he holds title superior to the deed of trust. They also claim that he must allege payment of his loan to sufficiently plead a claim to quiet title. For this proposition they cite Evans v. BAC Home Loans Servicing LP,71 holding that a plaintiff seeking to quiet title against a purported lender or other holder of a debt secured by a deed of trust must allege satisfaction of the secured obligation.
The logic of such a rule is overwhelming. Under a deed of trust, a borrower‘s lender is entitled to invoke a power of sale if the borrower defaults on its loan obligations. As a result, the borrower‘s right to the subject property is contingent upon the borrower‘s satisfaction of loan obligations. Under these circumstances, it would be unreasonable to allow a borrower to bring an action to quiet title against its lender without alleging satisfaction of those loan obligations. Plaintiffs have not provided any rationale that would support an alternate rule.[72]
An action to quiet title is an equitable proceeding “designed to resolve competing claims of ownership.”73
In Bain, the Supreme Court declined to decide the legal effect of MERS acting as an unlawful beneficiary under the DTA. However, the court stated its inclination to agree with MERS‘s assertion that any violation of the DTA “‘should not result in a void deed of trust, both legally and from a public policy standpoint.‘”75 The court also noted, “[I]f in fact MERS is not the beneficiary, then the equities of the situation would likely (though not necessarily in every case) require the court to deem that the real beneficiary is the lender whose interests were secured by the deed of trust or that lender‘s successors.”76 While dicta, these statements identify critical problems with Walker‘s argument.
Here Walker does not allege a claim to quiet title based upon the strength of his own title. Instead, he asks the court to void a consensual lien against his property because of a defect in the instrument creating that lien, the designation of an ineligible entity as beneficiary of the deed of trust. As previously noted, he cites no authority recognizing this defect as a basis to void a deed of trust and offers no equitable reason why a court should recognize his claim. As a matter of
Attorney Fees
Walker requests costs and reasonable attorney fees incurred on this appeal under RAP 18.1 and the deed of trust. RAP 18.1 permits a prevailing party to recover fees incurred on appeal if the party can recover such fees at trial.78 “A party must prevail on the merits before being considered a prevailing party.”79 Because Walker, at least at this point, does not prevail on the merits, he is not entitled to costs and attorney fees incurred on appeal.
CONCLUSION
Because Walker alleges facts that, if proved, would entitle him to relief, we reverse the trial court‘s order dismissing his claims under CR 12(c) for violations
Leach, C. J.
WE CONCUR:
Dwyer, J.
Cox, J.