Thomas F. Merry v. Northwest Trustee Services, Inc. And Nationstar Mortgage, LLC ( 2015 )

FILED
JUNE 4, 2015
In the Office of the Clerk of Court
W A State Court of Appeals, Division III
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
THOMAS F. MERRY, )
) No. 32474-5-111
Appellant, )
)
v. )
)
NORTHWEST TRUSTEE SERVICES, ) PUBLISHED OPINION
INC., )
)
and )
)
NATIONSTAR MORTGAGE, LLC, )
)
Respondents. )
SIDDOWAY, C.J. - Thomas Merry appeals the dismissal of a declaratory judgment
action in which he sought to establish the priority of his deed of trust on a residential
property after a trustee, claiming to act on behalf of Nationstar Mortgage, LLC,
commenced nonjudicial foreclosure. Relying on Rain v. Metropolitan Mortgage Group,
175 Wash. 2d 83, 93, 285 P.3d 34 (2012), Mr. Merry contends that Nationstar had no
enforceable deed of trust and that the promissory note it held had been rendered void.
But Mr. Merry took no action to restrain the trustee's sale. After the sale was completed,
Nationstar and the trustee successfully argued that Mr. Merry's interest was eliminated
by the sale and he had waived any right to set it aside.
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Merry v. NW Trustee Services
Mr. Merry argues that recent decisions of the Washington Supreme Court and this
court hold that waiver will not be applied to prevent a plaintiff from seeking to set aside a
completed trustee's sale where the plaintiff demonstrates a failure to strictly comply with
the requirements of Washington's deeds of trust act (DTA), chapter 61.24 RCW. We
agree that Albice v. Premier Mortgage Services of Washington, Inc., 174 Wash. 2d 560, 568,
276 PJd 1277 (2012) and Schroeder v. Excelsior Management Group, LLC, 177 Wash. 2d
94, 104, 297 P.3d 677 (2013) are controlling authority that if the conduct of a foreclosure
sale does not strictly comply with the DTA, a court can set aside a sale if it would be
inequitable under the circumstances and inconsistent with the goals of the DTA to apply
the defense of waiver.
But Mr. Merry relies on technical, formal, likely correctable and non-prejudicial
violations of the DTA arising because Nationstar, and its predecessors in interest, were
members of Mortgage Electronic Registration Systems, Inc. (MERS), a privately-
operated mortgage registry whose practices in creating and transferring beneficial
interests conflicted with requirements of the DTA. While Bain recognized that those
practices had the potential to prejudice Washington borrowers-particularly those
needing to identify their lender to explore modification of their loans-Mr. Merry's claim
is not that MERS's practices harmed him. It is instead that MERS's practices have
somehow rendered void a bona fide, senior $235,000-plus obligation secured by the
subject property.
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The longstanding elements of the doctrine of waiver are ptesent: Mr. Merry
received notice of his right to enjoin the trustee's sale, had actual knowledge that MERS
had acted as an unlawful beneficiary under the deed of trust interest asserted by
Nationstar, and failed to bring action to enjoin the sale. For that reason, and because it is
not inequitable nor is it inconsistent with the goals of the DTA to apply waiver, we hold
that the trial court properly applied waiver and dismissed Mr. Merry's complaint. We
affirm.
FACTS AND PROCEDURAL BACKGROUND
In 2007, Sharon Weirich borrowed $205,440 from Countrywide Home Loans, Inc.
and executed a deed of trust on her real property located in Dryden, Washington, as
security. The deed of trust identified Countrywide as the lender, Landsafe Title of
Washington as the trustee, and MERS as "a separate corporation that is acting solely as a
nominee for Lender and Lender's successors and assigns." Clerk's Papers (CP) at 41. It
stated, "MERS is the beneficiary under this Security Instrument." Id.
In December 2011, MERS executed an assignment of deed of trust as "holder,"
transferring "all beneficial interest" under the 2007 Weirich-to-Countrywide deed of trust
to Bank of America, N.A. CP at 61. The assignment was recorded in Chelan County on
December 8, 2011.
According to a notice of trustee's sale later filed in Chelan County, Northwest
Trustee Services, Inc. (Northwest Trustee), acting on behalf of Bank of America, mailed
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and personally served Ms. Weirich with a notice of default on October 31, 2012. The
notice of default identified the owner of the note as the Federal National Mortgage
Association (Fannie Mae) and identified Bank of America as the loan servicer.
In November 2012, Bank of America, as "present beneficiary under [the Weirich­
to-Countrywide] deed of trust" appointed Northwest Trustee as successor trustee under
the deed of trust. CP at 66.
Meanwhile, on the borrower's side of the transaction, and also in November 2012,
Ms. Weirich executed a deed of trust to the appellant, Thomas Merry. According to its
terms, it secured payment of a $68,000 promissory note. Ms. Weirich executed a power
of attorney and assignment of legal claims to Mr. Merry in the same timeframe.
Shortly after these November dealings, Ms. Weirich received a notice of trustee's
sale dated December 12,2012, informing her that her property would be sold to satisfy
her promissory note obligation to MERS, as nominee for Countrywide, which had been
assigned to Bank of America. The notice identified the date of the trustee's sale as April
19,2013. The sale did not occur on that date, however, and the l20-day statutory
timeline for conducting a sale following service of notice passed without any rescheduled
sale. Ms. Weirich's arrears on her promissory note continued to grow.
In May 2013, Bank of America executed an assignment, transferring its beneficial
interest under the deed of trust together with the note to Nationstar. The assignment was
recorded in Chelan County on June 6, 2013.
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On October 8, 2013, Northwest Trustee recorded an amended notice of trustee's
sale in Chelan County, identitying the date of the trustee's sale as November 15,2013.
The notice indicated that over $235,000 was then owed on the note Ms. Weirich had
given Countrywide in 2007. 1 Although no evidence of service of the notice of trustee's
sale is included in the record on appeal, the notice was required by the DTA to be served
on Ms. Weirich, as grantor, and Mr. Merry, as holder of a junior deed of trust, at or about
the same time. RCW 61.24.040(1)(b). Consistent with RCW 61.24.040(1)(1), which
prescribes the form of notice, the notice of trustee's sale stated:
Anyone having any objection to the sale on any grounds whatsoever will be
afforded an opportunity to be heard as to those objections if they bring a
lawsuit to restrain the sale pursuant to RCW 61.24.130. Failure to bring
such a lawsuit may result in a waiver of any proper grounds for invalidating
the Trustee's sale.
CP at 81.
Before the scheduled sale date, Mr. Merry commenced legal action against
Northwest Trustee and Nationstar in Chelan County by serving both with a "Complaint to
Declare Lien Priority, and to Declare Deed of Trust Void and Promissory Note
Unenforceable." CP at 3. Among matters alleged by Mr. Merry's complaint were a
1 According to the notice, the amount owed to reinstate the obligation as of
October 1, 2013, was $43,291.67 and the principal balance owing was $193,592.47. CP
at 80.
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number of technical violations of the DTA in the form of actions by entities who had
been improperly designated or appointed or otherwise lacked authority.
It is clear from Mr. Merry's pro se complaint that he was aware of the trustee's
sale scheduled for November 15. 2 His complaint stated that in response to a request for a
true copy of the promissory note signed by Ms. Weirich, Northwest Trustee had provided
her with a photocopy that appeared to bear Countrywide's endorsement in blank.
The complaint sought the court's declaration that Northwest Trustee was not
trustee at the time it issued the notice of default; that Nationstar lacked standing to
enforce the note, initiate nonjudicial foreclosure, or appoint a substitute trustee; that Ms.
Weirich's promissory note and deed of trust to Countrywide were unenforceable and
void; that the note was a lost or stolen instrument; and that Mr. Merry's deed of trust was
in first position on the property.
Mr. Merry did not attempt to enjoin the trustee's sale of the property. After one
brief postponement, Northwest Trustee proceeded with the sale on January 3, 2014,
selling the property to Nationstar, which immediately conveyed its interest to Fannie
Mae.
2 Given Mr. Merry's clear awareness ofthe trustee's sale reflected in the
complaint, his candid confirmation at oral argument in this court that he received notice
of the sale, and the absence of any argument from him at any time that notice of the
trustee's sale was deficient, we deny the respondents' joint motion asking us to take
judicial notice of documents outside the record that would demonstrate that he was
served with notice. The evidence has proved unnecessary.
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Nationstar and Northwest Trustee then answered Mr. Merry's complaint and in
February Northwest Trustee moved for judgment on the pleadings under CR 12(c),
arguing that Mr. Merry waived his right to challenge the completed sale by failing to seek
an order restraining it.
In March 2014, having reviewed the parties' briefing, documents referenced by
Mr. Merry's complaint and that Northwest Trustee attached to its motion, and having
heard argument from the parties, the court granted the motion and dismissed the
complaint with prejudice. Mr. Merry's motion for reconsideration was denied.
ANALYSIS
Mr. Merry argues that the trial court erred in granting the motion to dismiss his
complaint because he presented "issues of material fact" as to the invalidity of the
interests in the Weirich property asserted by MERS, Bank of America, Northwest
Trustee, and Nationstar, possibly leaving his deed of trust as the only valid encumbrance
against the property. Br. of Appellant at 14. While Northwest Trustee framed its motion
as a motion for judgment on the pleadings under CR 12(c),3 one document submitted
with its motion and critical to the dismissal relief was the trustee's deed, establishing that
3Documents whose contents are alleged in a complaint and whose authenticity no
party questions but that are not physically attached to the complaint may be considered in
ruling on a motion to dismiss. Rodriguez v. Loudeye Corp., 144 Wash. App. 709, 726 n.45,
189 PJd 168 (2008); Trujillo v. Northwest Trustee Services, Inc., 181 Wash. App. 484,
491,326 PJd 768 (2014), review granted 182 Wn.2d 1020,345 PJd. 784, (2015).
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the trustee's sale had taken place. Because that document was not mentioned in Mr.
Merry's complaint (it postdated his complaint), the fact that it was presented and was not
excluded by the court converted the defendants' CR 12(c) motion into one for summary
judgment. City o/Moses Lake v. Grant County, 39 Wn. App. 256,258,693 P.2d 140
(1984).
The fact that the foreclosure sale had taken place was not disputed by Mr. Merry
and the motion presented a pure legal issue: whether, even if Mr. Merry is right about
ineffective assignments and appointments, the trial court properly applied waiver because
he failed to pursue a presale injunction authorized by RCW 61.24.130 and failed to allege
any basis on which waiver would not apply. We review questions of law and summary
judgment rulings de novo. Lyons v. U.S. Bank Nat. Ass 'n, 181 Wash. 2d 775, 783, 336 P.3d
1142 (2014).
Failure to seek the presale injunction authorized by RCW
61.24.130 can operate as a waiver
In obtaining a loan, a borrower, as "grantor," may execute a deed of trust to
encumber his or her interest in real property as security for the performance of its
obligation. RCW 61.24.005(7) (defining "grantor"). When the deed of trust grants the
trustee the power of sale if the borrower defaults on repaying the underlying obligation,
the trustee may usually foreclose the deed of trust and sell the property without judicial
supervision-a "significant power." Bain, 175 Wash. 2d at 93.
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To protect interested parties against an improper exercise of this significant power,
the DTA provides affected parties with a broad opportunity to challenge the sale before it
occurs. RCW 61.24.130(1) states that nothing contained in the DTA shall prejudice "the
right of the borrower, grantor ... or any person who has an interest in, lien, or claim of
lien against the property ... to restrain, on any proper legal or equitable ground, a
trustee's sale." Before conducting a nonjudicial foreclosure, the trustee is required to
draw the attention of affected parties to their right to restrain the sale and the possible
consequence of waiver should they fail to do so with the form of notice provided by
Northwest Trustee, described above.
It has long been held that "RCW 61.24.130 sets forth the only means by which a
grantor may preclude a sale once foreclosure has begun with"receipt of the notice of sale
and foreclosure." Cox v. Helenius, 103 Wash. 2d 383, 388, 693 P.2d 683 (1985). A party
will be deemed to have waived his or her right to challenge a trustee's sale when the
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) see also Frizzel v. Murray, 179 Wash. 2d 301, 306-07, 313 P.3d 1171 (2013).
In CHD, Inc. v. Boyles, 138 Wash. App. 131, 157 P.3d 415 (2007), we held that a plaintiff
waives the right to seek a declaratory judgment establishing his entitlement to a portion
of the proceeds of the trustee's sale ifhe or she fails to restrain the sale.
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Because all of the elements of waiver were present here, the superior court
properly dismissed Mr. Merry's complaint.
In some situations, courts have not applied waiver to deny an
interested party's effort to set aside the trustee's sale.
Mr. Merry nonetheless relies on recent case law holding that a trustee's
noncompliance with the DTA is a sufficient basis for allowing a challenge to a completed
trustee's sale. And during the same timeframe, our Supreme Court decided in Bain that
common mortgage banking practices following the creation ofMERS fail to comply with
the DTA, with the result that many completed trustee sales are potentially subject to
invalidation. It is the noncompliant mortgage banking practices traceable to designating
MERS as beneficiary on which Mr. Merry relies in contending that his was the only valid
encumbrance on Ms. Weirich's Dryden property. He claims that two decisions by the
Court of Appeals-Rucker v. NovaStar Mortgage, Inc., 177 Wn. App. 1,311 P.3d 31
(2013) and Bavand v. One West Bank, F.S.B., 176 Wn. App. 475,309 P.3d 636 (2013),
abrogated in part on other grounds by Frias v. Asset Foreclosure Services, Inc., 181
Wn.2d 412,334 P.3d 529 (20 14)4-support his challenge to the dismissal of his claims.
4Frias holds, contrary to one of the holdings of Bavand, that the DTA does not
give rise to an implied cause of action for monetary damages premised on DTA
violations absent a completed foreclosure sale. Compare Frias, 181 Wash. 2d at 422-23
with Bavand, 176 Wash. App. at 496 (restating its holding in Walker v. Quality Loan
Service Corporation of Washington, 176 Wash. App. 294, 308 P.3d 716 (2013) that a cause
of action for wrongful institution of foreclosure proceedings exists beyond that provided
by RCW 61.24.127).
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We begin with our Supreme Court's decisions in AIMee and Schroeder. In Albice,
homeowners who had fallen behind in payments on a loan and received a notice of
trustee's sale negotiated a forbearance agreement under which they would pay seven
agreed monthly payments. AIMee, 174 Wash. 2d at 564. The trustee named by their deed of
trust continued the date of the foreclosure sale each time the first six monthly payments
required by the forbearance agreement were made, even though each of the six payments
was made late. When the seventh and last forbearance agreement payment was made,
however (and was also made late), the trustee rejected it and proceeded with the sale.
The price at which the property was sold was a small fraction of the homeowners' equity.
The first issue accepted by the Supreme Court for review in Albice was whether a
trustee's sale taking place beyond the 120 days for a sale permitted by RCW 61.24.040(6)
warranted invalidating the sale. 5 ld. at 566. A primary consideration for the court, as in
all cases construing the DTA, were the three basic objectives the act is deemed to further:
"( 1) that the nonjudicial foreclosure process should be efficient and inexpensive, (2) that
the process should result in interested parties having an adequate opportunity to prevent
wrongful foreclosure, and (3) that the process should promote stability of land titles." ld.
at 567 (citing Cox, 103 Wash. 2d at 387).
5 RCW 61.24.040(6) provides in relevant part that the trustee "may, for any cause
the trustee deems advantageous, continue the sale. for a period or periods not exceeding a
total ofone hundred twenty days" by giving the statutorily required notice. (Emphasis
added.)
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The Albice court observed that "[b]ecause the act dispenses with many protections
commonly enjoyed by borrowers under judicial foreclosures, lenders must strictly
comply with the statutes" and that "[p]rocedural irregularities, such as those divesting a
trustee ofits statutory authority to sell the property, can invalidate the sale," placing
principal reliance on Udall v. T.D. Escrow Services, Inc., 159 Wash. 2d 903, 915-16, 154
P.3d 882 (2007). Albice, 174 Wash. 2d at 567. It concluded:
When a party's authority to act is prescribed by a statute and the
statute includes time limits ... failure to act within that time violates the
statute and divests the party of statutory authority. Without statutory
authority, any action taken is invalid. As we have already mentioned and
held, under this statute, strict compliance is required.
Id. at 568.
The successful bidder at the trustee's sale argued that even if the DTA had been
violated, the homeowners waived their right to bring a postsale challenge because they
could have, but did not, seek to restrain the sale under RCW 61.24.130. The Albice court
observed, however, that the statute says'" [f]ailure to bring ... a lawsuit may result in
waiver of any proper grounds for invalidating the Trustee's sale,'" and thereby "neither
requires nor intends for courts to strictly apply waiver. Under the statute, we apply
waiver only where it is equitable under the circumstances and where it serves the goals of
the act." Id. at 570 (quoting RCW 61.24.040(l)(f)(IX) (alteration in original).6
6 A concurring opinion inAlbice expressed concern that because the DTA's
procedural requirements are "extensive," and because "it is hard to imagine a claim for
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In Schroeder, decided one year after Albice, the owner of allegedly agricultural
land located in Stevens County challenged the nonjudicial foreclosure of a deed of trust
and sale of his property. The DTA does not pennit the nonjudicial foreclosure ofland
principally used for agricultural purposes; where agricultural ground is pledged as
security, the deed of trust must be foreclosed judicially. 177 Wash. 2d at 105. Mr.
Schroeder initially obtained a temporary order restraining sale of his property based on its
asserted agricultural character but the order was later dissolved because Mr. Schroeder
had "knowingly" agreed with his lender, in resolving a prior attempted foreclosure, to
"waive[] any and all right he may have to judicial foreclosure of the subject property on
the grounds it is used for agricultural purposes." Id. at 100.
The Supreme Court held that Mr. Schroeder could not contractually waive
compliance with the DTA, explaining that it "is not a rights-or-privileges-creating statute.
Instead, it sets up a list of 'requisite[s] to a trustee's sale.'" Id. at 106 (quoting RCW
61.24.030). "These ... are limits on the trustee's power to foreclose without judicial
supervision." Id. at 107
In later addressing the trustee's argument that Mr. Schroeder had waived his
challenge by failing to exercise his right to seek to restrain the sale, the court did not
relief not based on a violation of some legal obligation ... the majority's approach would
actually permit postsale challenges to foreclosure sales as a general rule, at least where
'the claims are promptly asserted. '" Albice v. Premiere Mort. Servs. o/Wash., Inc., 174
Wash. 2d 560, 581 & n.13, 276 P.3d 1277 (2012) (Stephens, 1., concurring).
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explicitly discuss why it would be inequitable under the circumstances or contravene
goals of the DTA to apply the doctrine of waiver. The court did state that if the land was
agricultural, then the statute did not apply. Jd at Ill. The Supreme Court vacated the
order dissolving the temporary injunction and held that "the trial court must hold a
hearing to determine whether the property was primarily agricultural at relevant times."
Jd at 115. "[I]f it was," the court held, "the nonjudicial foreclosure sale shall be
vacated." Jd.
The implications ofBainfor vacatingforeclosure sales
Within a couple of months after deciding Albice and six months before deciding
Schroeder, our Supreme Court was called upon to decide whether business practices of
members of MERS in transferring beneficial interests in borrowers' notes and deeds of
trust through the MERS registry, without any public recording, might themselves violate
the DTA. MERS was established in the 1990s by entities in the mortgage banking
industry to create a central registry that would facilitate the tracking and transfer of
mortgage rights and interests. See Bain, 175 Wash. 2d 94-98. To that end, members of
MERS included it as an additional party to a traditional deed of trust transaction so that
MERS could later effect transfers within its registry on its members' behalf. The MERS
system "changes 'a traditional three party deed of trust [grantor, trustee, and
lenderibeneficiary] [into] a four party deed of trust, wherein MERS would act as the
contractually agreed upon beneficiary for the lender and its successors and assigns.' "
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Bain, 175 Wash. 2d at 96. Bain cited the observation ofa New York bankruptcy court that
while MERS was created to alleviate perceived problems of delay created by state and
local recording processes, '" in effect the MERS systems was designed to circumvent
these procedures. MERS, as envisioned by its originators, operates as a replacement for
our traditional system of public recordation of mortgages.'" Id. at 97 (emphasis added)
(quoting In re Agard, 444 B.R. 231, 247 (Bankr. E.D.N.Y. 2011), vacated in part on
other grounds sub nom. by In re Agard v. Select Portfolio Servicing, Inc., 2012 WL
1043690 (Mar. 28, 2012) (court order».
The Supreme Court was presented in Bain with three questions certified by the
federal district court for the Western District of Washington. The first asked:
Is Mortgage Electronic Registration Systems, Inc., a lawful "beneficiary"
within the terms of Washington's Deed of Trust Act, [RCW §]
61.24.005(2), ifit never held the promissory note secured by the deed of
trust?
Id. at 91. The Supreme Court construed the plain language and the purpose of the DTA
as requiring that the beneficiary of a deed of trust be the party who holds the promissory
note from the mortgagor. Bain, 175 Wash. 2d at 110. MERS does not hold the promissory
notes given to and generally resold by its members. The court's answer to the first
certified question was, "[s]imply put, ifMERS does not hold the note, it is not a lawful
beneficiary." Id. at 89.
The second question asked was whether, ifMERS was an unlawful beneficiary,
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[W]hat is the legal effect of Mortgage Electronic Registration Systems,
Inc., acting as an unlawful beneficiary under the terms of Washington's
Deed of Trust Act?
Id. at 91. The Supreme Court declined to answer the second question, explaining that
resolution "depends on what actually occurred with the loans before us, and that evidence
is not in the record." Id. at 114. The court did reject MERS's argument that at most,
MERS would simply need to assign its interest in the deed of trust to the lender or
perhaps the holder of the note. The problem, according to the court, was "it is unclear
what rights, if any, [MERS] has to convey." Id. at 111.
The Bain decision has presented problems for foreclosure of deeds of trust like
Ms. Weirich's, in which lenders designated MERS as a nominee or mortgagee of record.
Because MERS does not hold the underlying promissory notes, banks who are assigned a
"beneficial interest" in a deed of trust by MERS do not thereby acquire a beneficial
interest within the meaning of the DTA nor are they able, legally, to appoint a successor
trustee.
Division One of this court addressed whether infirmities with deed of trust
interests and appointments traced to an unlawful beneficiary can be the basis for an action
to set aside a completed trustee's sale in Rucker v. NovaStar Mortgage, Inc., 177 Wn.
App. 1, 311 P.3d 31 (2013). In that case, the borrowers and grantors of a deed of trust,
relying on Bain, argued that because NovaStar, a purported beneficiary of the deed of
trust, did not hold their promissory note, it could not be a beneficiary within the meaning
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of the DTA; that it lacked the power to appoint the successor trustee who had proceeded
with a nonjudicial foreclosure; and that the trustee's sale was therefore invalid. 177 Wn.
App. at 14-15. Division One agreed with the borrowers that the actions of the improperly
appointed trustee constituted a material violation of the DTA and that its sale of the
property was therefore improper. It recognized that a vacation of the trustee's sale was a
potentially available remedy. [d. at 17-18.
Turning to whether the borrowers waived their right to challenge the sale by
failing to bring an action to restrain it, the court discussed AIMee's holding that "waiver is
applicable 'only where it is equitable under the circumstances and where it serves the
goals of the act. '" [d. at 18-19. Viewing the evidence in the light most favorable to the
borrowers, the court pointed to the fact that one of the borrowers claimed to have been
told by an employee of the trustee that the trustee's sale would be postponed. [d. at 8.
Because there were genuine issues of material fact whether this false representation was
made, and if so, whether the borrowers reasonably relied on it in failing to bring a lawsuit
to restrain the sale, the court held that summary judgment had been improperly granted.
One month later, in Bavand, Division One applied similar reasoning to reverse, for
the most part, trial court orders dismissing a postsale challenge to a trustee's sale. It
pointed out that One West Bank, FSB, a self-proclaimed beneficiary at the time it
appointed a successor trustee, relied for its authority on an assignment of the deed of trust
that was executed the day after it had appointed the trustee. Bavand, 176 Wash. App. at
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483. The court concluded that MERS could not cure the defective appointment of a
trustee because it is not a proper beneficiary under the DTA. Id. at 488. It held the fact
that the successor trustee's lack of authority was "a material procedural defect and not a
mere technicality." Id. at 490.
In response to the argument by the bank and MERS that Ms. Bavand waived any
claim by failing to restrain the sale under RCW 61.24.130, the court disagreed, although
in this case it construed Schroeder as holding that waiver does not occur where the
trustee's actions in a nonjudicial foreclosure are unlawful.
Both Rucker and Bavand support Mr. Merry's argument that his effort to
invalidate a trustee's sale based on MERS-related violations of the DTA might not be
waived by a failure to restrain a trustee's sale. But for reasons we turn to next, they do
not provide germane or persuasive guidance on whether the trial court erred in applying
waiver here.
We hold that waiver by failure to restrain a trustee's sale
remains a defense to claimed DTA violations ifapplying waiver
is not inequitable and is consistent with the purposes ofthe act.
If Bavand reads Schroeder as holding that any lapse from strict compliance with
the DTA immunizes an action to set aside a completed trustee's sale from the defense of
waiver, then we disagree. The Schroeder decision never suggested that it was overruling
or modifying the court's earlier decisions in Plein and Albice; it merely distinguished
them. Schroeder presented an apparent flouting of the DTA. If Mr. Schroeder's property
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was used principally for agricultural purposes, then the deed of trust he executed was
never eligible for nonjudicial foreclosure. The case presented unique facts and the court
resolved it on a unique basis:
We emphasize the obvious. If Schroeder's land was agricultural, then not
only did the trustee not have authority to proceed with an nonjudicial
foreclosure, but the very statute on which the trustee relies to support its
five-day notice requirement, RCW 61.24.l30(2), is inapplicable.
177 Wash. 2d at 111.
Distinguishing Plein, the Schroeder court said:
Nothing in Plein suggests that waiver might cause the deed of trust act to
apply to transactions to which the deed of trust act does not apply. If
Schroeder's 200 acres were used primarily for agricultural purposes, Plein
is inapplicable.
ld. at 112. Our Supreme Court recently reiterated this distinguishing aspect of Schroeder
in Frizzell, 179 Wash. 2d at 311-12, stating that in Schroeder, "the statutory provisions for
enjoining a nonjudicial foreclosure sale, including the waiver provision, were
inapplicable."
It was in Plein that our Supreme Court first recognized the three elements 7 that
give rise to what it characterized as a "waiver rule" that "appropriately effectuates [a]
statutory directive." Plein, 149 Wash. 2d at 229. Its source for the elements were decisions
by this court, which had relied in tum on a law review comment by now-Professor, then
7 Notice of the right to restrain the sale, knowledge of the defense, and failure to
restrain the sale.
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law student, Joseph Hoffmann: Joseph L. Hoffmann, Comment, Court Actions Contesting
the Nonjudicial Foreclosure ofDeeds of Trust in Washington, 59 WASH. L. REv. 323
(1984).8 Notably, the Court of Appeals decisions on which Plein relied included two
decisions in which attempts to set aside a completed trustee's sale based on violations of
the DTA were held to have been waived: Koegel v. Prudential Mutual Savings Bank, 51
Wash. App. 108, 114, 752 P.2d 385 (1988) and Steward v. Good, 51 Wash. App. 509, 515­
17,754 P.2d 150 (1988).
In Koegel, the original and amended notices of default served on the borrower and
grantor incorrectly described the subject property, and the notice of sale was sent less
than 30 days after the amended notice of default. 51 Wash. App. at 109. While the court
discussed the duty of trustees to strictly comply with the DTA and the strict construction
of the act's requirements in favor of the borrower, neither deterred the court from
8 The Hoffmann law review comment has been cited in all of the following
reported Washington decisions: Cox, 103 Wash. 2d at 387; Savings Bank ofPuget Sound v.
Mink, 49 Wash. App. 204, 208,741 P.2d 1043 (1987); Glidden v. Municipal Authority of
Tacoma, 111 Wash. 2d 341, 346, 758 P.2d 487 (1988); Queen City Sav. & Loan Ass 'n v.
Mannhalt, 111 Wash. 2d 503, 508, 760 P.2d 350 (1988); Koegel v. Prudential Mut. Sav.
Bank, 51 Wash. App. 108,115,752 P.2d 385 (1988); Stewardv. Good, 51 Wash. App. 509,
512, 754 P.2d 150 (1988); Country Exp. Stores, Inc. v. Sims, 87 Wash. App. 741, 751, 943
P.2d 374 (1997); Plein, 149 Wash. 2d at 227; Udall v. TD. Escrow Servs., Inc., 132 Wn.
App. 209,302, 130 P.3d 908 (2006), rev'd on other grounds by Udall v. TD. Escrow
Servs. Inc., 159 Wash. 2d 903, 154 P.3d 882 (2007); Brown v. Household Realty Corp., 146
Wash. App. 157, 170, 189 P.3d 233 (2008); Bain, 175 Wash. 2d at 94; Schroeder, 177 Wash. 2d
at 104 (2013); and Mellon v. Regional Trustee Services Corp., 182 Wash. App. 476, 498,
334 P.3d 1120 (2014).
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applying waiver. It held that a party should be required to establish prejudice in order to
void a sale "where, as here, the trustee's error was a technical, formal error ... and
correctable." Id. at 113. In the case before it, "[t]he trustee's error was nonprejudicial
and the debtor could have invoked judicial protection prior to the sale but failed to do
so." Id.
In Steward, a successor trustee mailed a notice of default to the borrowers nine
days before his appointment and failed to record the notice of sale 90 days before the
actual sale. But the court endorsed Koegel's holding that technical, formal, correctable
errors must be prejudicial to justify setting aside a trustee's sale. Steward, 51 Wash. App.
at 515. The court held, "Each of the alleged wrongdoings could or should have been
known to them, therefore the Stewards should have brought a timely action to contest the
default or restrain the sale. As the Stewards did not avail themselves of the statutory
remedies available to them, they are precluded from doing so now." Id. at 517.
The Supreme Court in Plein "agree[d] that the waiver rule applied by the Court of
Appeals in ... Steward, Koegel and like cases appropriately effectuates the statutory
directive that any objection to the trustee's sale is waived where presale remedies are not
pursued." 149 Wash. 2d at 229. The Supreme Court also cited to the following discussion
in the law review comment on which the Koegel and Steward courts had relied, stating
that the doctrine of waiver
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should preclude an action by a party to set aside a completed trustee's sale
whenever the party (1) received notice of the right to enjoin the trustee's
sale, (2) had actual or constructive knowledge of a defense to foreclosure
prior to the sale, and (3) failed to bring an action to enjoin the sale. In most
cases, the statutory notices of foreclosure and trustee's sale should be
sufficient to inform a party of the right to enjoin the sale. Furthermore,
most substantive defenses to foreclosure arise early enough to permit the
filing of a presale injunction action. Therefore, in most cases, a party's
failure to bring a presale injunction action should be held to constitute a
waiver of the right to contest the completed sale.
Hoffman, 59 WASH. L. REv. at 335 (cited by Plein at 149 Wash. 2d at 227).
There is no textual basis in the DTA for concluding that its liberal allowance of
presale injunctions was not intended to include injunctions for failure by the trustee or
beneficiary to strictly comply with the DTA. RCW 61.24.130(1) speaks of the right to
restrain the sale "on any proper legal or equitable ground." The notice provided by RCW
61.24.040(1)(t)(lX) informs recipients that the opportunity to restrain the sale extends to
"[ a]nyone having any objection to the sale on any grounds whatsoever" and that failure to
bring such a lawsuit may result in a waiver "of any proper grounds for invalidating
the ... sale."
Plein discussed provisions ofthe DTA that signal its disfavor for attacks on
completed sales, explaining:
The Deed of Trust Act discourages the use of postsale remedies in three
ways. First, the Act does not expressly provide for any court actions to
contest a completed trustee's sale. Second, the Act indicates that the right
to contest a completed sale may be waived by a party's failure to bring a
presale injunction action. Finally, the Act requires that the trustee's deed
issued to the purchaser "recite the facts showing that the sale was
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Merry v. NW Trustee Services
conducted in compliance with all of the requirements" of the Act and the
particular deed of trust. This recital of statutory compliance is "prima facie
evidence of such compliance and conclusive evidence thereof in favor of
bona fide purchasers and encumbrancers for value." [RCW 61.24.040(7).]
149 Wash. 2d at 228 (alteration in original) {quoting Hoffman, 59 WASH. L. REv. at 329
(footnotes omitted)). At the same time, the DTA "manifests a legislative preference for
the presale injunction remedy by reserving to ... interested parties the right to restrain
the trustee's sale on 'any proper ground.'" Hoffman, 59 WASH. L. REv. at 327.
This legislative preference for presale remedies is even more clear following the
legislature's enactment in 2009 of a provision explicitly identifying claims for damages
arising out of foreclosures of owner-occupied residential real property that are not waived
by a failure to enjoin a foreclosure sale. LAWS OF 2009, ch. 292, § 6, codified as RCW
61.24.127. The legislature's primary purpose in enacting the new provision was to
supersede the holding in Brown v. Household Realty Corp., 146 Wash. App. 157, 189 P.3d
233 (2008), which held that an action seeking damages for wrongful foreclosure is
waived if the borrower does not seek to enjoin the foreclosure sale. Frias, 181 Wash. 2d at
425.
Among the postsale claims for damages that the 2009 act recognizes is a
borrower's or grantor's claim for damages "asserting ... [fJailure of the trustee to
materially comply with the provisions of this chapter." But the nonwaived claim is
subject to the limitation (among others) that the claim may not seek any remedy other
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Merry v. NW Trustee Services
than monetary damages. RCW 61.24.127(2). Notably, while the legislature explicitly
recognized that a grantor's or borrower's claim for damages for a material violation of
the DTA could survive completion of the foreclosure sale, it did not explicitly recognize
a grantor's or borrower's claim to set aside the sale for a material DTA violation as
surviving the sale. Not only that, but it showed a general disapproval for the latter type
of legal challenge by providing that a grantor or borrower hoping to recover postsale
damages may not include any claim that would affect the validity or finality of the sale or
operate to encumber or cloud title to the property.
Even after Albice and Schroeder, Washington law continues to support the
application of waiver to individuals like Mr. Merry who, with knowledge of a material
violation of the DTA, fail to restrain a sale-as long as courts heed Albice's admonition
that "we apply waiver only where it is equitable under the circumstances and where it
serves the goals of the act." Albice, 174 Wash. 2d at 570. 9
9 The Hoffmann comment suggests the following circumstances under which
waiver should not apply:
[B]ecause waiver can occur only when a party has actual or constructive
knowledge of the right waived, a party should not be held to have waived the right
to cohtest the completed sale if that party was not provided with the proper
statutory notices or was justifiably unaware of a defense to foreclosure until after
the sale was completed. In addition, a party who unsuccessfully attempted to
enjoin the sale should not be held to have waived the right to contest the
completed sale. Under such circumstances, an action to set aside the trustee's sale
may be appropriate.
Hoffman, 59 WASH. 1. REv. at 335-36 (footnote omitted).
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As a matter oflaw, there is nothing inequitable or inconsistent
with the purposes ofthe DTA in applying waiver to Mr. Merry.
To conclude our analysis, we address why the trial court could summarily
conclude that there was no reason not to apply the waiver rule. In Frizzell, our Supreme
Court affirmed the summary judgment dismissal of a postsale challenge to a trustee's sale
and in doing so, rejected an argument for exceptional treatment under the principles of
Albice by examining the absence of evidence that waiver would be inequitable or
inconsistent with the purposes of the DTA.
Mr. Merry's complaint alleged that Northwest Trustee lacked standing to act as
trustee because it was appointed by MERS, an unlawful beneficiary. He alleged that
Nationstar lacked standing to enforce the note because it was not the holder of the note,
and finally that the note is unenforceable because it is a lost or stolen instrument. His
prayer for relief asked that the court declare the Weirich-to-Countryside note lost or
stolen and the deed of trust interest claimed by Nationstar to be unenforceable.
Mr. Merry's complaint did not identify any respect in which Countrywide's use of
a deed of trust form that included MERS as a purported beneficiary and mortgagee
harmed him. He did not identify how Bank of America's, Northwest Trustee's, or
Nationstar's actions taken in an effort to foreclose the problematic MERS-inclusive deed
of trust harmed him. Instead, he attempted to seize on what proves to have been
Countrywide's mistake in identifying MERS as beneficiary as a basis for asking the
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Merry v. NW Trustee Services
Chelan County Superior Court to treat the more than $235,000 owed by Ms. Weirich on a
bona fide obligation as unenforceable, resulting in a priority windfall to him.
The Bain court was unable to determine the effect ofMERS's identification as an
unlawful beneficiary on the parties to the federal action due to insufficient information.
But Justice Chambers' decision for the court signaled disapproval of the type of
hypertechnical, inequitable result requested by Mr. Merry's complaint. The opinion
states that "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." Bain, 175 Wash. 2d at 111.
Responding to the argument of one of the federal plaintiffs, Kevin Selkowitz, that his
obligation under his promissory note should be invalidated, the Supreme Court said,
"[Mr. Selkowitz] offers no authority in his opening brief for the suggestion that listing an
ineligible beneficiary on a deed of trust would render the deed void and entitle the
borrower to quiet title." Id. at 112. Distinguishing a case cited by Mr. Selkowitz in
which no mortgagee or obligee had been identified in a security agreement, the Bain
court stated "the deeds of trust before us name all necessary parties and more." Id.
MERS had argued in Bain the violation of the deed of trust act '" should not result
in a void deed of trust, both legally and from a public policy standpoint,'" and the Bain
court answered, "[W]e tend to agree." Id. at 114. But it noted the insufficient record.
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The trial court in this case had before it no evidence that Ms. Weirich's $235,000­
plus obligation was not due and owing. It had before it no evidence that Nationstar was
not acting as the agent for a successor to the original lender. It had before it only Mr.
Merry's identification of formal, technical, nonprejudicial violations of the DTA with no
suggestion that they could not have been corrected if timely raised. The trial court
appropriately applied waiver.
Affirmed.
WE CONCUR:
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