Brown v. Wash. State Dep't of Commerce

• Decision Date: 22 October 2015
• Docket Number: No. 90652–1.,90652–1.
• Court: Washington Supreme Court
• Parties: Darlene BROWN, Appellant, and Brian A. Longworth and John Michael Lewis, Plaintiffs, v. WASHINGTON STATE DEPARTMENT OF COMMERCE, Respondent.

184 Wash.2d 509

359 P.3d 771

Darlene BROWN, AppellantandBrian A. Longworth and John Michael Lewis, Plaintiffs

v.WASHINGTON STATE DEPARTMENT OF COMMERCE, Respondent.

No. 90652–1.

Supreme Court of Washington, En Banc.

Argued June 23, 2015.

Decided Oct. 22, 2015.

Amy Louise Crewdson, Columbia Legal Services, Olympia, WA, John Matthew Geyman, Columbia Legal Services, Seattle, WA, Meredith O. Bruch, Northwest Justice Project, Yakima, WA, Ariel Jasmine Speser, Northwest Justice Project, Port Angeles, WA, for Appellant.

Sandra Christine Adix, Attorney General's Office/Agriculture Di., Mark Hodgeman Calkins, Attorney Generals Office, Dept. of Agriculture & Health A.g. Office, Attorney at Law, Callie Anne Castillo, WA State Attorney General Office, Olympia, WA, for Respondent.

Opinion

STEPHENS, J.

¶ 1 In 2011, the legislature enacted the foreclosure fairness act (FFA), Laws of 2011, ch. 57, to amend the deeds of trust act (DTA), ch. 61.24 RCW. Under the FFA, the Department of Commerce (Department) administers a mediation program to encourage home loan modifications in lieu of foreclosures. In that program, a beneficiary of a deed of trust must mediate with a residential borrower before the borrower's home may be foreclosed. RCW 61.24.163. The FFA exempts from mediation certain beneficiaries that are relatively small banks, specifically federally insured depository institutions that were not a beneficiary of deeds of trust in more than 250 trustee sales of owner-occupied residential homes in Washington during the prior year. RCW 61.24.166.

¶ 2 After defaulting on her home loan, Darlene Brown requested FFA mediation. The Department denied the request, reasoning the beneficiary of her deed of trust was exempt from mediation. Whether that determination was correct turns on whether the beneficiary of Brown's deed of trust for purposes of the exemption statute, id., is the holder of her promissory note (M & T Bank, an exempt entity), or its owner (Federal Home Loan Mortgage Corporation (Freddie Mac), a nonexempt entity).

¶ 3 We conclude that the Department correctly recognized the holder of the note as the beneficiary for the purposes of the mediation exemption statute, id. We further hold that a party's undisputed declaration submitted under penalty of perjury that the party is the holder of the note satisfies the DTA's proof of beneficiary provisions, RCW 61.24.030(7)(a) and RCW 61.24.163(5)(c). The holder of the note satisfies these provisions and is the beneficiary because the legislature intended the beneficiary to be the party who has authority to modify and enforce the note.

¶ 4 The Department correctly determined that Brown is not entitled to mediation because the note holder and beneficiary, M & T Bank, satisfies the conditions of the mediation exemption statute, RCW 61.24.166. We reject Brown's contention that our interpretation of the DTA renders the statute unconstitutional. We affirm the superior court's judgment.

I. BACKGROUND

1. Residential Foreclosure under the DTA

¶ 5 Prior to 1965, Washington law recognized mortgages as the only security interest in real property in the state. Mortgages must be foreclosed through the judicial process. In 1965, the legislature enacted the DTA to “supplement[ ] the time-consuming judicial foreclosure procedure [for mortgages] by providing [an] alternative private sale which results in substantial savings of time.” John A. Gose, The Trust Deed Act in Washington, 41 Wash. L.Rev. 94, 95–96 (1966) (footnotes omitted). We now recognize the DTA promotes three objectives: “ ‘First, the nonjudicial foreclosure process should remain efficient and inexpensive. Second, the process should provide an adequate opportunity for interested parties to prevent wrongful foreclosure. Third, the process should promote the stability of land titles.’ ” Bain v. Metro. Mortg. Grp., Inc., 175 Wash.2d 83, 94, 285 P.3d 34 (2012) (quoting Cox v. Helenius, 103 Wash.2d 383, 387, 693 P.2d 683 (1985) ).

¶ 6 A deed of trust creates a security interest in real property. A deed of trust transaction is “a three-party transaction in which the borrower (grantor) deeds the property to a trustee who holds the deed as security for the lender (beneficiary)” in return for the borrower having received a loan from the lender. Gose, supra, 41 Wash. L.Rev. at 96. The DTA defines the relevant parties. RCW 61.24.005(2), (3), (7), (16). In the transaction's simplest form, the borrower is the grantor and the lender is the beneficiary. The trustee acts as a neutral third party and owes a “duty of good faith to the borrower, beneficiary, and grantor.” RCW 61.24.010(4). Ultimately, if the borrower breaches the obligations owed to the beneficiary, the trustee may foreclose the home in a trustee's sale. RCW 61.24.020. But before this remedy may occur, the DTA establishes detailed procedures that must be satisfied.

¶ 7 The beneficiary must first attempt to communicate with the borrower who is in default through a series of statutorily prescribed methods. RCW 61.24.031. The beneficiary must send a letter to the borrower containing certain information, including that the borrower should contact a housing counselor to discuss mediation under the FFA. Id. at (1)(c). The beneficiary must also engage in a sequence of phone calls to attempt to communicate with the borrower, a process known in the statute as “due diligence.” Id. at (5). If the borrower responds to these communications, the notice of default cannot issue for at least 90 days. Id. at (1)(a). During that period, the parties “shall attempt to reach a resolution,” such as a loan modification. Id. at (4); see also id. at (1)(e). If the borrower never responds, however, the notice of default may issue after 30 days.Id. at (1)(a). After the relevant time period elapses and if the parties have not agreed to modify the loan, the trustee or beneficiary may then issue the notice of default. Id.

¶ 8 After the notice of default has been issued, the FFA's foreclosure mediation program becomes available to qualified parties. RCW 61.24.163. To gain access, a government-certified housing counselor or an attorney must refer the borrower to the mediation program. Id. at (1). The referring party sends a form to the borrower and the Department “stating that mediation is appropriate.” Id. at (2). Within 10 days of receiving the form, the Department must send a notice to the parties “stating that the parties have been referred to mediation” and the Department then selects a mediator. Id. at (3)(a), (b).

¶ 9 However, not all beneficiaries are subject to the mediation program. As relevant here, the FFA exempts from mediation

any federally insured depository institution, as defined in 12 U.S.C. Sec. 461(b)(1)(A), that certifies to the [D]epartment under penalty of perjury that it was not a beneficiary of deeds of trust in more than two hundred fifty trustee sales of owner-occupied residential real property that occurred in this state during the preceding calendar year.

RCW 61.24.166.

¶ 10 If the parties are referred to mediation, the statute directs the borrower and the beneficiary to exchange certain information with each other and with the mediator. The borrower provides information concerning, for example, debts, assets, and expenses. RCW 61.24.163(4). The beneficiary provides 10 items of information, including the balance of the loan, an estimate of arrearage, a list of outstanding fees and charges, and a payment history of the prior 12 months. Id. at (5). At issue in this case, the beneficiary must provide to the borrower and mediator

[p]roof that the entity claiming to be the beneficiary is the owner of any promissory note or obligation secured by the deed of trust. Sufficient proof may be a copy of the declaration described in RCW 61.24.030(7)(a).

Id. at (5)(c). The cross-referenced statute provides:

It shall be requisite to a trustee's sale:

....

... [t]hat, for residential real property, before the notice of trustee's sale is recorded, transmitted, or served, the trustee shall have proof that the beneficiary is the owner of any promissory note or other obligation secured by the deed of trust. A declaration by the beneficiary made under the penalty of perjury stating that the beneficiary is the actual holder of the promissory note or other obligation secured by the deed of trust shall be sufficient proof as required under this subsection.

RCW 61.24.030(7)(a). After the parties exchange this information, the mediator must send written notice to the parties. RCW 61.24.163(7)(b). This notice informs the parties that, among other things, a person with authority to modify the loan must be present in the mediation. Id. at (7)(b)(ii).

¶ 11 The mediation session follows. The parties “must address the issues of foreclosure that may enable the borrower and the beneficiary to reach a resolution,” such as modifying the terms of the loan. Id. at (9). The mediator may require the parties to consider the borrower's current and future economic circumstances, id. at (9)(a), and the “net present value of receiving payments pursuant to a modified mortgage loan as compared to the anticipated net recovery following foreclosure,” id. at (9)(b).

¶ 12 After the close of mediation, the mediator renders a decision with binding legal effects. The mediator sends a certification to the parties and the Department that explains his or her findings on “[w]hether the parties participated in the mediation in good faith,” id. at (12)(d), and “the result of any net present value test expressed in a dollar amount,” id. at (12)(e). If the mediator finds the beneficiary failed to act in good faith, the borrower can use that finding as “a defense to the nonjudicial foreclosure action,” though the beneficiary may later offer facts to rebut the allegation that it failed to act in good faith. Id. at (14)(a). If the mediator's certification “shows that the net present value of the modified loan exceeds the anticipated net recovery at foreclosure,” that finding...