Deutsche Bank Nat'l Trust Co. v. Slotke

• Decision Date: 11 January 2016
• Docket Number: No. 73631–1–I.,73631–1–I.
• Citation: 367 P.3d 600,192 Wash.App. 166
• Parties: DEUTSCHE BANK NATIONAL TRUST COMPANY, As Trustee for Ixis Real Estate Capital Trust 2006–HE3 Mortgage Pass Through Certificates, Series 2006–HE3, Respondent, v. Valerie J. SLOTKE, Appellant.
• Court: Washington Court of Appeals

192 Wash.App. 166

367 P.3d 600

DEUTSCHE BANK NATIONAL TRUST COMPANY, As Trustee for Ixis Real Estate Capital Trust 2006–HE3 Mortgage Pass Through Certificates, Series 2006–HE3, Respondent,

v.Valerie J. SLOTKE, Appellant.

No. 73631–1–I.

Court of Appeals of Washington, Division 1.

Jan. 11, 2016.

James A. Wexler, Attorney at Law, Sammamish, WA, for Appellant.

Cara Christensen, Robert W. Norman, Jr., Houser & Allison APC, Seattle, WA, Emilie Ka-aw Edling, Houser & Allison APC, Portland, OR, for Respondent.

VERELLEN, A.C.J.

¶ 1 The holder of a promissory note secured by a deed of trust has authority to elect to commence a judicial foreclosure of that deed of trust. After Valerie Slotke defaulted on her promissory note, Deutsche Bank National Trust Company elected to commence an action to judicially foreclose the deed of trust securing her delinquent note. Slotke appeals the order granting Deutsche Bank summary judgment and the decree of foreclosure. She argues Deutsche Bank was not entitled to foreclose in the absence of proof that it was the owner of the beneficial interest in the note. She also argues Deutsche Bank improperly sued simultaneously to enforce the note and to foreclose the deed of trust.

¶ 2 The holder of a note may commence a judicial foreclosure of the deed of trust in the same manner as a mortgage. As the holder of the note, Deutsche Bank had authority to enforce the note after Slotke defaulted. Because it both enforced the note and foreclosed the deed of trust in this single action, the statutory bar against simultaneous actions does not apply. Accordingly, we affirm.

FACTS

¶ 3 Valerie Slotke borrowed $253,575 from First NLC Financial Services, LLC, doing business as The Lending Center on May 16, 2006. This loan was evidenced by a promissory note dated May 16, 2006 under which The Lending Center is designated as "Lender" and "Note Holder."¹ The face amount of the note is $253,575.00. It provides for Slotke to make periodic payments. It also provides for acceleration of the maturity of the debt evidenced by the note in the event Slotke failed to make payments under the note.

¶ 4 The promissory note was secured by a deed of trust also dated May 16, 2006, which Slotke signed. The deed of trust encumbered real property that she owned. The real property is located in Pierce County, Washington. This deed of trust was recorded on May 24, 2006 with the Pierce County Auditor's Office.

¶ 5 Thereafter, The Lending Center both indorsed the promissory note and assigned the deed of trust to Deutsche Bank. The assignment of deed of trust is dated March 3, 2011 and was recorded on August 5, 2011 with the Pierce County Auditor's Office.

¶ 6 Slotke defaulted on her loan obligations on April 1, 2010 by failing to make the payment due under the promissory note. Deutsche Bank exercised the terms of the note permitting acceleration of the maturity of the note in the event of any default. The unpaid balance of the debt was then $247,875.98.

¶ 7 After Slotke failed to cure the default, Deutsche Bank commenced this judicial foreclosure action in Pierce County Superior Court. The bank sought a money judgment for the amounts owed under the promissory note and also sought to foreclose the deed of trust securing the note.

¶ 8 On May 27, 2014, Deutsche Bank moved for summary judgment. In support of its motion, Deutsche Bank filed an affidavit attesting to its possession of the note bearing the indorsement by The Lending Center payable to Deutsche Bank. At the hearing on the motion for summary judgment, Deutsche Bank also produced the original promissory note signed by Slotke for inspection by the court.

¶ 9 The court granted summary judgment to the bank, dismissing all of Slotke's claims with prejudice. The court concluded

(a) That the conditions precedent to foreclosure of the Promissory Note and Deed of Trust executed by Valerie J. Slotke have occurred;

(b) That Deutsche Bank is the holder of the Note and [beneficiary] of the Deed of Trust[;]

(c) That Deutsche Bank is entitled to foreclosure of the Promissory Note and Deed of Trust on the Subject Property.^[2]

¶ 10 On September 19, 2014, the superior court entered a judgment and decree of foreclosure in favor of Deutsche Bank. The decree includes a monetary judgment against Slotke in favor of the bank. It also provides for foreclosure of the deed of trust and a sheriff's sale of the property encumbered by the deed of trust, followed by a redemption period of eight months.

¶ 11 Slotke appeals.

ANALYSIS

¶ 12 This court reviews an order granting summary judgment de novo, engaging in the same inquiry as the superior court.³ "Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law."⁴ The initial burden is on the moving party to show there is no genuine issue of any material fact.⁵ The burden then shifts to the nonmoving party to " ‘set forth specific facts which sufficiently rebut the moving party's contentions and disclose the existence of a genuine issue as to a material fact.’ "⁶ This court reviews the facts and all reasonable inferences from those facts in the light most favorable to the nonmoving party.⁷

Deutsche Bank's Authority to Commence a Judicial Foreclosure

¶ 13 A deed of trust may be judicially foreclosed by commencing an action in superior court.⁸ Specifically, the deeds of trust act, chapter 61.24 RCW, expressly provides, "This chapter shall not supersede nor repeal any other provision now made by law for the foreclosure of security interests in real property."⁹

¶ 14 Where a deed of trust is foreclosed as a mortgage, the law of mortgages applies.¹⁰ That is because a deed of trust is a species of mortgage.¹¹ These two principles have been the law since the deeds of trust act was enacted in 1965.

¶ 15 Here, Deutsche Bank commenced a judicial foreclosure of the deed of trust. Slotke's primary argument on appeal is that Deutsche Bank was not entitled to summary judgment and a decree of foreclosure "in the absence of proof that it was the ‘owner’ of the beneficial interest in the [n]ote."¹² But because Washington State Supreme Court expressly rejected this proposition decades ago in John Davis & Co. v. Cedar Glen No. Four, Inc., Slotke's argument fails.¹³

¶ 16 John Davis & Co. was an appeal of a case in which John Davis had judicially foreclosed a mortgage on real property to satisfy delinquent notes of a corporation.¹⁴ The Scotts held mortgages against the same real property.¹⁵ The superior court decided that the John Davis mortgage had lien priority over the mortgages held by the Scotts.¹⁶ They appealed.

¶ 17 On appeal, the Scotts contested the priority of the John Davis mortgage lien.¹⁷ In support of that argument, they maintained that John Davis did not have authority to foreclose the mortgage.¹⁸ This was based on the fact that a corporation other than John Davis was the original lender of the funds evidenced by the note and secured by the mortgage that John Davis held at the time of the action.¹⁹

¶ 18 The Supreme Court rejected that argument, stating:

[John Davis] is the holder and owner of the notes and mortgages of the corporation. The holder of a negotiable instrument may sue thereon in his own name, and payment to him in due course discharges the instrument. See RCW 62.01.051. It is not necessary for the holder to first establish that he has some beneficial interest in the proceeds.^{[20 ]}

¶ 19 We conclude that the plain words of that case apply to a judicial foreclosure of a deed of trust. Specifically, it is the holder of a note who is entitled to enforce it. It is not necessary for the holder to establish that it is also the owner of the note secured by the deed of trust.

¶ 20 In Trujillo v. Northwest Trustee Services, Inc., this court observed that the law stated in John Davis & Co. had not changed since that case was decided.²¹ This court also observed in Trujillo that the "beneficial interest" to which the Supreme Court referred in John Davis & Co. has been characterized as "ownership."²² These common law principles were incorporated into Article 3, Negotiable Instruments, of the Uniform Commercial Code (UCC) when it was enacted in Washington.²³ Specifically, RCW 62A.3–301 states:

"Person entitled to enforce" an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to RCW 62A.3–309 or 62A.3–418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.^{[24 ]}

¶ 21 At oral argument, counsel for Slotke cited RCW 61.24.030, the nonjudicial remedy section of the deeds of trust act, as a basis for Slotke's "ownership" argument. This argument is unpersuasive for two reasons.

¶ 22 First, RCW 61.24.030 states the requisites for a trustee's sale for a nonjudicial foreclosure of a deed of trust.²⁵ More specifically, the language in RCW 61.24.030(7)(a) states that "the trustee shall have proof that the beneficiary is the owner of any promissory note or other obligation secured by the deed of trust."²⁶ But this provision has no bearing on a judicial foreclosure of a deed of trust because such a foreclosure, as the statutes make clear, is controlled by the law of mortgages.

¶ 23 Here, for example, the trial court properly ordered in its decree of foreclosure that a sheriff's sale of the property would take place to satisfy the money judgment and that a redemption period of eight months would follow that sale. But there is no sheriff's sale and no redemption period that follows a trustee's sale in a nonjudicial foreclosure of a deed of trust.²⁷

¶ 24 Second, even if the statute governing nonjudicial foreclosure of a deed of trust had some bearing on this particular judicial foreclosure, the argument would still fail. Even in...