Kevin E. Edmundson, Res. v. Carrington Mortgage Services, Llc, App. , 194 Wash. App. 920 ( 2016 )

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
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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).
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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).
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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