Boeing Employees' Credit Union v. Burns

• Decision Date: 19 March 2012
• Docket Number: No. 66420–4–I.,66420–4–I.
• Citation: 272 P.3d 908
• Court: Washington Court of Appeals
• Parties: BOEING EMPLOYEES' CREDIT UNION, Appellant, v. Russ E. BURNS and Suzanne K. Burns, husband and wife, Respondents.

272 P.3d 908

BOEING EMPLOYEES' CREDIT UNION, Appellant,

v.Russ E. BURNS and Suzanne K. Burns, husband and wife, Respondents.

No. 66420–4–I.

Court of Appeals of Washington, Division 1.

March 19, 2012.

John Du Wors, Newman & Newman Attorneys at Law LLP, Seattle, WA, for Appellant.

N. Brain Hallaq, Attorney at Law, Renton, WA, Jan Gossing, BTA Law Group, Federal Way, WA, for Respondent.

COX, J.

¶ 1 Entry of a judgment on a promissory note does not extinguish the lien of a security interest in real property that secures that note.¹ And the homestead exemption is unavailable for debts secured by deeds of trust that have been executed and acknowledged by the owners of the encumbered premises.²

¶ 2 Here, Boeing Employees' Credit Union (BECU) is the holder of a subordinate deed of trust for property sold at a trustee's sale at the direction of Wells Fargo Bank, the holder of a senior deed of trust. The lien of the BECU deed of trust against the real property sold at this trustee's sale was transferred to and attached in first priority to the surplus funds deposited into the court registry.³ The homestead claimed by Russ and Suzanne Burns, husband and wife, is not available against the BECU obligation secured by that deed of trust.⁴ Accordingly, BECU is entitled to the surplus sales funds that are sufficient to satisfy the Burnses' unpaid debt to BECU.⁵ We reverse and remand for further proceedings.

¶ 3 In December 2004, the Burnses executed and delivered a promissory note in the face amount of $220,000.00 to Wells Fargo. In order to secure payment of that note, the Burnses also executed and delivered to Wells Fargo a deed of trust dated December 7, 2004, that encumbered their residential property. The deed of trust was recorded on December 13, 2004.

¶ 4 In October 2005, the Burnses also executed and delivered to BECU a promissory note in the face amount of $85,000.00. In order to secure payment of that note, the Burnses executed and delivered to BECU a deed of trust dated October 24, 2005, that also encumbered their residential property. The deed of trust was recorded on November 3, 2005. This deed of trust is subordinate in priority to the lien of the Wells Fargo deed of trust on the Burnses' residence.

¶ 5 The Burnses defaulted on the note to BECU. Based on these defaults, the successor trustee for the deed of trust in favor of BECU recorded a notice of trustee's sale on December 5, 2008.⁶ Thereafter, on February 24, 2009, the successor trustee recorded a notice of discontinuance of this scheduled sale.⁷

¶ 6 BECU then commenced an action against the Burnses on the delinquent promissory note. On April 14, 2009, the superior court entered its Order of Default and Default Judgment in favor of BECU against the Burnses for $81,986.52.⁸

¶ 7 BECU began garnishment proceedings against the Burnses. Due to the Burnses' filing of a petition in bankruptcy, BECU ultimately failed to collect any payments to satisfy the Burnses' debt.⁹

¶ 8 On November 20, 2008, the successor trustee for Wells Fargo's deed of trust recorded a notice of trustee's sale because of the Burnses' delinquencies under their promissory note to the bank. The sale was originally scheduled for February 20, 2009. Following several continuances, the sale occurred on August 20, 2010.¹⁰ This sale generated net surplus sales funds in the amount of $100,648.42, which were deposited into the registry of the court.¹¹

¶ 9 Following the deposit of the surplus funds from the trustee's sale into the King County Superior Court Clerk's registry, BECU moved for an order directing payment of a portion of these funds to satisfy the Burnses' unpaid debt. The Burnses also moved for disbursement of these funds, claiming that the BECU deed of trust was extinguished by entry of the default judgment. According to the Burnses, the claimed extinguishment of BECU's deed of trust lien entitled them to the funds under the homestead provisions of state law. In sum, each side claimed a superior right to the funds under RCW 61.24.080.

¶ 10 A court commissioner ruled that “BECU's deed of trust and promissory note merged when BECU obtained a judgment” on the promissory note.¹² ACCORDINGLY, THE COmmissioner ruled that the burnses were entitLed to the surplus funds.

¶ 11 BECU moved for revision of the court commissioner's ruling. The superior court denied the motion.

¶ 12 BECU appeals.

STANDARD OF REVIEW

¶ 13 We review de novo questions of legal interpretation of the Deeds of Trust Act.¹³ A court's primary duty in interpreting any statute is to discern and implement the intent of the legislature.¹⁴ A court will look to the statute's plain language.¹⁵ If the statute is unambiguous, the inquiry ends.¹⁶ A statute is unambiguous when it is not susceptible to two or more reasonable interpretations.¹⁷

¶ 14 Where the superior court has made a decision on a motion for revision, the appeal is from the superior court's decision, not from the commissioner's decision.¹⁸

¶ 15 Here, the dispositive question is whether BECU's deed of trust was extinguished by entry of judgment in its favor on the Burnses' promissory note. If the deed of trust was not extinguished, then it is undisputed that the homestead exemption is not effective to defeat BECU's claim to the surplus funds.¹⁹ Conversely, if the deed of trust was extinguished, the homestead exemption is effective with respect to BECU's judgment lien. ²⁰ We review de novo this question of law regarding interpretation of the deed of trust act.²¹

¶ 16 The Burnses argue that we should review the lower court's decision for abuse of discretion. They are mistaken.

¶ 17 They cite to our decision in Wilson v. Henkle.²² That case is distinguishable. In Wilson, funds held in a court registry were awarded to the plaintiffs in an unlawful detainer action.²³ Prior to the actual disbursement of these funds, the defendant's attorney brought a separate action to garnish the same funds.²⁴ A commissioner then signed an order vacating the prior judgment, based on the order requiring garnishment in the attorney's favor.²⁵ Thus, in a case where there were two different and contradictory judgments and orders, we held that “[a] motion to vacate a judgment is addressed to the sound discretion of the trial court, whose judgment will be undisturbed absent a showing of a manifest abuse of discretion.” ²⁶

¶ 18 Here, BECU has not moved to vacate the judgment. It has appealed the superior court's decision. Wilson is inapposite.

TRUSTEE'S SALE SURPLUS FUNDS

¶ 19 BECU argues that its deed of trust was not extinguished by entry of judgment on the delinquent Burnses' promissory note. It also argues that the doctrine of merger does not defeat its claim to the surplus sales proceeds. In sum, it claims that it has a right under RCW 61.24.080(3) to so much of the sales proceeds as are necessary to satisfy the Burnses' unpaid debt. We agree.

Washington Case Law and the Deeds of Trust Act

¶ 20 Our examination of the questions before us begins with consideration of relevant Washington case law regarding mortgages. First, the state supreme court has stated that a deed of trust is “in general a species of mortgage.” ²⁷ This principle is expressly memorialized in the Deeds of Trust Act, which states “[e]xcept as provided in this [act], a deed of trust is subject to all laws relating to mortgages on real property.” ²⁸ Thus, case law respecting mortgages generally can be useful in deciding issues regarding deeds of trust, except where the Deeds of Trust Act dictates otherwise.

¶ 21 Second, a note is a separate obligation than the deed of trust or mortgage that secures that note.²⁹ Thus, entry of judgment on a note does not necessarily affect the rights or remedies provided for a deed of trust or mortgage securing that note.

¶ 22 Hanna v. Kasson,³⁰ which the supreme court decided in 1901, is particularly instructive in applying these two principles. There, Savage executed a note that was secured by a mortgage on property purchased in 1890. ³¹ The note matured of its own terms, and the holder of the note and mortgage obtained a judgment solely on the note in superior court.³² THEREAFTER, SAVAGE made partiaL payments on that debt.³³ When no further payments were made, the mortgagee commenced a judicial action to foreclose the mortgage to collect the balance due.³⁴ The mortgagee sought to establish “said [mortgage] lien as prior to any claim of respondents in [the] land.” ³⁵

¶ 23 At issue was whether the suit on the note that led to the entry of a personal judgment against Savage affected the later foreclosure of the mortgage that secured that note.³⁶ If so, foreclosure of the mortgage would not have been permitted.

¶ 24 The court held that entry of the judgment did not extinguish the lien of the mortgage:

[N]otwithstanding the fact that a personal judgment only was taken upon the note ... still the right of action upon the mortgage as a lien securing the debt remains.... [N]either the entry of the judgment nor the subsequent proceedings were in any sense a bar to the right to foreclose the mortgage lien for the portion of the original debt which is unpaid.³⁷

¶ 25 Most recently, in American Federal Savings & Loan v. McCaffrey ³⁸ the supreme court reiterated the rule of Hanna, citing that decision among others:

In transactions involving both notes and mortgages, the notes represent the debts, the mortgages security for payment of the debts. Either may be the basis of an action. The mortgagee may sue and obtain a judgment upon the notes and enforce it by levy upon any property of the debtor. If the judgment is not satisfied in this manner, the mortgagee still can foreclose on the mortgaged property to collect the balance.³⁹

¶ 26 Thus, Washington case law makes clear that the entry of a judgment on a promissory note secured by a real property security interest does not extinguish the lien of that security interest in the collateral. Specifically, the holder of the real property security...