Brown v. Household Realty Corp.
| Decision Date | 28 July 2008 |
| Docket Number | No. 60469-4-I.,60469-4-I. |
| Citation | 189 P.3d 233,146 Wn. App. 157 |
| Court | Washington Court of Appeals |
| Parties | Richard BROWN and Elva Brown, Appellants, v. HOUSEHOLD REALTY CORPORATION, Household Finance Corporation, III, Household Life Insurance Company and Does 1 through 20, inclusive, Respondents. |
Melissa Ann Huelsman, Law Offices of Melissa A. Huelsman, Seattle, WA, for Appellants.
David A. Weibel, Annette Elena Cook Bishop White & Marshall PS, Seattle, WA, for Respondents.
¶ 1 This case presents the question of whether a borrower/grantor waives any claims against a lender/beneficiary arising out of an obligation secured by a deed of trust by failing to request a preliminary injunction or restraining order enjoining a nonjudicial foreclosure sale at least five days before the sale date. We hold that a borrower waives these claims by failing to timely request this relief before the foreclosure sale.
¶ 2 Richard Brown and his mother, Elva Brown, took out a series of home loans with Household Finance Corporation (Household), secured by corresponding deeds of trust on their home. Two years after Household foreclosed the most recent deed of trust, the Browns sued Household for fraud, breach of the covenant of good faith and fair dealing, violation of the Washington Consumer Protection Act, violation of the federal Truth in Lending Act, and breach of fiduciary duty and quasi-fiduciary duty. The trial court granted summary judgment in favor of Household on all claims. Because the Browns made no attempt to use the presale remedies provided in the Deed of Trust Act, we affirm.
¶ 3 The Browns allege that Household failed to disclose the terms and conditions of their loan contracts, induced them to enter loan contracts with excessive fees and excessive interest rates, required them to purchase unwanted credit insurance for the loans, and misled them into believing that they were purchasing unemployment and disability insurance coverage for their first position loan rather than for their second position loan.
¶ 4 The Browns purchased their home in 1999 with a loan from Chase. They later obtained a second position line of credit secured by the home. On November 15, 2000, the Browns applied to refinance with Household. On November 24, 2000, the Browns signed two loan agreements: a new first position loan and a new second position line of credit, both secured by the home. The first position loan included $14,108.53 in points, which reduced the Browns' interest rate from 14.86 percent per year to 10.757 percent. The proceeds paid off the Browns' existing secured loans and $26,900 in unsecured debt. From the proceeds, they also paid $2,841.50 for a 60-month term of optional credit life insurance and received an $8,460.46 cash disbursement. The same day, the Browns took out a secured line of credit of $10,000 with an interest rate of 23.9 percent. This debt consolidation reduced the Browns' total monthly payments for home loans and consumer credit accounts.
¶ 5 On October 3, 2001, the Browns again applied to refinance their loans with Household. Richard told Household that he needed to finance $240,000 to $250,000 to complete the renovation of the residence. The appraised value of the residence was only $237,000. On October 19, 2001, the Browns obtained a new first position home loan in the amount of $237,025.64 and a secured line of credit for $15,000. The amount of the first position loan included $17,184.36 in points paid to buy down the interest rate from 13.86 percent to 10.95 percent. The proceeds were used to pay off the previous loans obtained from Household in 2000, as well as $12,831 in unsecured debt incurred by the Browns since their last refinance 10 months earlier. From these loan proceeds, they also paid $2,843.00 for 60-month term optional credit life insurance for this loan, for which they signed a disclosure notice describing the terms and limitations of the insurance contract.
¶ 6 The same day, the Browns obtained from Household a second position line of credit to consolidate additional unsecured debt. The interest rate was 19.98 percent, and the Browns paid an origination fee of $576, which was included in the loan. From the proceeds of this loan, they received a disbursement of $1,393.00. They purchased optional credit life, disability, and unemployment insurance for the line of credit and signed a disclosure notice describing the terms and limitations of this coverage. The premiums were based on the monthly account balance and billed as part of the minimum monthly payment. After Richard lost his job in late 2001, Household made several payments under the unemployment coverage.
¶ 7 The Browns made no payments on their first position loan from December 2001 through February 2002. In March 2002, Richard submitted a hardship application to have their payments reduced. Household approved the application, reducing the interest rate from 10.95 percent to 5 percent, which reduced the payments by half. The account was restructured and the past due amounts placed as a balloon payment at the end of the loan so the Browns would not incur late fees or penalties for the previously missed payments. After making some payments under the hardship program, Richard requested another restructure, which was approved in September 2002. Because the Browns made no payments after the second restructure, their hardship status was revoked and their account was referred for foreclosure in January 2003.
¶ 8 A notice of trustee's sale was recorded on March 13, 2003, setting a sale date of July 13, 2003. The Browns do not dispute that they received notice of the trustee's sale and had knowledge of the pending sale. They did not attempt to restrain the sale. Household, with its credit bid, was the highest bidder at the trustee's sale and received a trustee's deed, which was recorded on August 12, 2003. Two years after the trustee's sale, on August 10, 2005, the Browns brought this action against Household.
¶ 9 Household argues that the Browns waived their claims under the Washington Deed of Trust Act ("Act") by failing to restrain the nonjudicial foreclosure sale. The Browns respond that waiver does not apply because they did not have actual or constructive notice of their claims before the sale. They further contend that claims for money damages are not waived under the Act and that to apply waiver in these circumstances contravenes public policy.
¶ 10 The Deed of Trust Act provides a procedure by which any enumerated entity may restrain a trustee's sale on "any proper ground."1 This statutory procedure is "the only means by which a grantor may preclude a sale once foreclosure has begun with receipt of the notice of sale and foreclosure."2 The statutory notice of trustee's sale advises each recipient that
[a]nyone 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.[3]
A party waives the right to postsale remedies where 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.4
¶ 11 In Plein v. Lackey,5 Plein and others brought suit seeking a permanent injunction barring the trustee's sale and a declaration that the deed of trust was void because the underlying debt had been paid and the borrower was thus not in default.6 Although Plein's complaint asked for a permanent injunction, he did not seek a preliminary injunction or any other restraining order to bar the sale as required by the Act.7 While Plein's lawsuit was pending, the trustee's sale occurred. The trial court then dismissed the action on the buyer's motion because Plein had not requested a preliminary injunction or restraining order barring the sale. Our Supreme Court affirmed, holding that filing a lawsuit challenging the underlying obligation was insufficient to halt the sale under the Act and that the party must obtain a preliminary injunction or restraining order.8 Citing earlier Court of Appeals decisions with approval, the Supreme Court agreed that "any objection to the trustee's sale is waived where presale remedies are not pursued."9
¶ 12 The Browns argue that they did not have knowledge of their claims as required for waiver. They primarily argue that they did not have the benefit of counsel and were ignorant of the legal bases for their claims. In the context of applying the statute of limitations, our Supreme Court has held that a person is not required to have knowledge of the existence of a legal cause of action, but merely knowledge of the facts necessary to establish the elements of the claim.10 Similarly, in applying the waiver doctrine, a person is not required to have knowledge of the legal basis for his claim, but merely knowledge of the facts sufficient to establish the elements of a claim that could serve as a defense to foreclosure. In Peoples National Bank of Washington v. Ostrander,11 the plaintiff brought an unlawful detainer action to obtain possession of property purchased at a trustee's sale. The defendants alleged that the plaintiff had obtained the deed of trust by fraud, by representing that the document defendants signed was a mortgage, not a trust deed.12 However, the evidence showed that the defendants knew several months before the trustee's sale that the document they had signed was a trust deed, not a mortgage.13 Because the defendants knew the facts that formed the basis for their fraud claim but failed to bring an action to restrain the sale, they could not assert fraud as a defense.14 The court held that to allow such a claim after the sale "would be to defeat...
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