Daily Development for Thursday, August 16, 2007
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

MORTGAGES; FORECLOSURE; NON-JUDICIAL FORECLOSURE; PROCEDURE; STATUTE OF LIMITATIONS: Failure to take advantage of injunction remedy provided by statute to prevent foreclosure of deed of trust bars trustor from asserting statute of limitations defense to debt, even when defense is raised not to set aside foreclosure sale, but to make a claim for refund of sale proceeds, and even when trustor in fact had filed a declaratory relied action raising defense prior to foreclosure.

CHD, Inc., v. Boyles, 157 P.3d 415 (Wash. App. 2007)

This may be another of those “cheated widows never lose” cases.  But the court appears to be making relatively clear precedent for situations not so laden with equitable considerations.

CHD, a developer, had acquired land on a purchase money deed of trust from Boyles and her husband.  The husband died and Boyles was left to deal with CHD in the collection.  A lengthy song and dance ensued, marked by constant reassurances that the check was on its way and, ultimately, by two successive bankruptcies. 

Ultimately, Boyle’s lawyer got relief from the stay on the second bankruptcy and noticed a non-judicial foreclosure sale.  Trustor CHD then filed a declaratory action and recorded a lis pendens.  The trustee postponed the sale several times, but ultimately a successor trustee proceeded with the sale, and Boyles bid in her debt and acquired the property at the auction.   The trustor never enjoined the sale, as Washington law permits in connection with disputes as to validity of the beneficiary’s claim to foreclose.

About six months later, CHD brough an action alleging that at the time of the sale the debt was barred by the six year statute of limitations in Washington, it was entitled to the proceeds of the sale.  Boyles vigorously defended, and the trial court entered summary judgment for her and awarded her $7500 in attorney’s fees. 

The appeals court affirmed, agreeing that Washington statutes make plain that “the sole method to contest an enjoin a foreclosure sale is to file an action to enjoin or restrain the sale in accordance with [Washington statutes.} Failure to bring such an injunction lawsuit may result in a waiver of any proper grounds for invalidating the trustee’s sale.  The statutes require a notice of the right to enjoin and the  possibility of waiver in connection with the notice of the sale itself. 

CHD argued that it was not contesting the validity of the sale, but rather contesting the existence of the debt at the time of the sale, due to the running of the statute of limitations.  If the debt was barred, CHD argued, it was entitled to the money paid for the property at the sale (coincidentally, of course, the amount of the debt.)

The court found this argument “unsustainable.” 

“A debt is not extinguished by the expiration of the statute of limitation on its remedy for enforcement of the contract . . . Similarly, the trust deed securing the obligation is voidable, not void, upon the expiration of the contract’s statute of limitation . . . thus, CHD’s debt was not extinguished and power of sale was merely subject to challenge-as provided for in the statute.  And that challenge is subject to waiver - also noted in the statute. . . . CHD argues that it need not restrain the sale under the trust deed in order to claim the proceeds.  But in order to prevail on its claim for the proceeds, CHD would need to litigate the statute of limitations defense, which challenges the underlying debt. . . . This is not a sensible interpretation of the statute. .  . . A person waives the right to contest the underlying obligations on the property in foreclosure proceedings when there is no attempt to employ the [injunction remedy.”

The court also upheld the awarding of attorney’s fees against CHD’s argument that the non-judicial foreclosure was already completed and constituted an election of remedies, barring further claims on the instruments.

Comment: Veteran readers will know that the editor frequently quotes extensively from the reasoning of the case when he doesn’t get it.  The editor hasn’t read the underlying statutes, and of course any thoughtful analysis would require that.  But the editor simply notes that the apparent purpose, to him, of barring claims concerning foreclosures that the trustor fails to enjoin is to protect the security of the title coming out of the foreclosure sale.  That policy is not at stake here.

Further, the editor suspects that many of the precedent cases involve situations where the trustor did not raise any defense until after foreclosure.  Here, the trustor had already filed a lawsuit and a lis pendens asserting the statute of limitations defense.  So it is hard to decide what exact policy is furthered by the judgment for the trustor here except finality following a non-judicial foreclosure.  As that’s sort of the same policy behind statutes of limitations, perhaps that’s enough. 

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