Edmundson v. Bank of Am., N.A.

• Decision Date: 11 July 2016
• Docket Number: No. 74016–4–I,74016–4–I
• Citation: 378 P.3d 272,194 Wash.App. 920
• Court: Washington Court of Appeals
• Parties: Kevin E. Edmundson and Meche D. Edmundson, Husband and Wife, Respondents, v. Bank of America, N.A., successor by merger to BAC Home Loans Servicing, LP, fka Countrywide Home Loans Servicing, LP; Carrington Mortgage Services, LLC, as servicer and attorney in fact for Bank of America, N.A.; and MTC Financial, Inc., a Washington corporation, dba Trustee Corps, as trustee, Appellants.

194 Wash.App. 920

378 P.3d 272

Kevin E. Edmundson and Meche D. Edmundson, Husband and Wife, Respondents

v.Bank of America, N.A., successor by merger to BAC Home Loans Servicing, LP, fka Countrywide Home Loans Servicing, LP; Carrington Mortgage Services, LLC, as servicer and attorney in fact for Bank of America, N.A.; and MTC Financial, Inc., a Washington corporation, dba Trustee Corps, as trustee, Appellants.

No. 74016–4–I

Court of Appeals of Washington, Division 1.

FILED: July 11, 2016

Nicolas Adam Daluiso, Attorney at Law, Wesley Jude Werich, Robinson Tait, P.S., 710 2nd Avenue Suite 710, Seattle, WA, 98104–1724, Counsel for Appellants.

Thomas Henry Oldfield, Andrea J. Marquez, Oldfield & Helsdon, PLLC, 1401 Regents Blvd. Suite 102, P.O. Box 64189, Fircrest, WA, 98466–6063, Counsel for Respondents.

Peter Joseph Salmon, Aldridge Pite, LLP, 4375 Jutland Dr. Suite 200, San Diego, CA, 92117–3600, Counsel for Other Parties.

Cox, J. ¶ 1 The primary issue before us is whether the lien of a deed of trust on property that secures payment of a promissory note is discharged when the personal obligation of the note is discharged in bankruptcy. Settled law holds that such a lien is not discharged and remains enforceable after such a discharge.

¶ 2 The other question that we decide in this case is whether the enforcement of the deed of trust was timely commenced. We hold that it was.

¶ 3 The trial court erred as a matter of law in granting summary judgment to Kevin Edmundson and Meche Edmundson, the borrowers who signed the promissory note and the deed of trust that secures the note in this case. Accordingly, we reverse and remand with directions.

¶ 4 The material facts are undisputed. The Edmundsons obtained a loan in July 2007 to purchase real property. The loan was documented by a promissory note dated July 12, 2007 in the amount of $313,381.00. The note is payable in monthly installments of $1,980.78, the first of which was due on September 1, 2007. The remaining installments were due on the first of each month thereafter. The last payment was to become due on a maturity date of August 1, 2037.

¶ 5 A deed of trust, also dated July 12, 2007, secured the promissory note. The deed of trust is a lien on the real property that the Edmundsons purchased with the loan. The deed of trust was duly recorded in the auditor's records of King County, Washington.

¶ 6 The Edmundsons made the monthly payments on the promissory note through October 2008. They failed to make the November 1, 2008 payment or any of the monthly payments due since then.

¶ 7 In June 2009, the Edmundsons filed a petition for relief under the United States Bankruptcy Code. On October 22, 2009, the bankruptcy court confirmed their Amended Chapter 13 Plan. On December 31, 2013, the bankruptcy court discharged their debts, noting certain exceptions to the discharge.

¶ 8 Based on the failure to pay the monthly payments due under the note and deed of trust, a notice of default dated October 23, 2014 was transmitted by first class and certified mail to the Edmundsons. Thereafter, the successor trustee under the deed of trust scheduled a trustee's sale. The purpose of the sale was to satisfy the unpaid monthly obligations and other delinquencies under the note and deed of trust. The Notice of Trustee's Sale dated January 16, 2015 was recorded on January 21, 2015. The trustee's sale was originally scheduled for May 22, 2015, but later postponed to August 28, 2015.

¶ 9 In March 2015, the Edmundsons commenced this action. They sought to restrain the then scheduled trustee's sale and to quiet title to the property. They claimed the lien of the deed of trust to the property was no longer enforceable.

¶ 10 On cross-motions for summary judgment by the Edmundsons and Carrington Mortgage, the trial court granted summary judgment to the Edmundsons. As part of that relief, the court permanently enjoined the trustee's sale. The court also ruled that the Edmundsons were entitled to an award of reasonable attorney fees under the terms of the deed of trust. The court denied Carrington's motion for reconsideration.

Carrington appeals.

DEED OF TRUST LIEN

¶ 11 The trial court granted summary judgment to the Edmundsons based on the conclusion that the deed of trust that secured their promissory note was unenforceable. This was based on the initial conclusion that the discharge of their personal liability on the note in bankruptcy also discharged the deed of trust lien. As a matter of law, this was error.

¶ 11 Courts may grant summary judgment if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.¹ When ruling on summary judgment, the trial court considers the evidence in the light most favorable to the nonmoving party.² We review de novo the grant of summary judgment.³

¶ 12 The United States Supreme Court has made clear the relationship between a deed of trust⁴ or mortgage and a discharge of debt in bankruptcy. In Johnson v. Home State Bank

, the Supreme Court stated:

¶ 13 A mortgage is an interest in real property that secures a creditor's right to repayment. But unless the debtor and creditor have provided otherwise, the creditor ordinarily is not limited to foreclosure on the mortgaged property should the debtor default on his obligation; rather, the creditor may in addition sue to establish the debtor's in personam liability for any deficiency on the debt and may enforce any judgment against the debtor's assets generally. A defaulting debtor can protect himself from personal liability by obtaining a discharge [through bankruptcy]. However, such a discharge extinguishes only “the personal liability of the debtor.” Codifying the rule of Long v. Bullard, the [Bankruptcy] Code provides that a creditor's right to foreclose on the mortgage survives or passes through the bankruptcy .^{[5 ]}

¶ 14 Here, the Edmundsons petitioned for relief under the Bankruptcy Code. They obtained a discharge of their debts after the completion of their amended plan under Chapter 13 of the Bankruptcy Code. Consistent with Johnson and other cases, the Discharge of Debtor dated December 31, 2013 was limited to their personal liability for their debts. As that document states, the Edmundsons are discharged from their liability for these debts. But it also expressly states:

¶ 15 “[A] creditor may have the right to enforce a valid lien, such as a mortgage or security interest against the debtor's property after the bankruptcy, if that lien was not avoided or eliminated in the bankruptcy case.”⁶

¶ 16 Accordingly, the Edmundsons' bankruptcy court discharge was limited to the discharge of their personal liability on the promissory note. The lien of the deed of trust securing the promissory note in this case was neither avoided nor eliminated in the bankruptcy proceeding. As the discharge plainly states, the right to foreclose the lien of the deed of trust on the Edmundsons' property was not affected by the bankruptcy discharge.

¶ 17 Based on this settled law, the trial court erred in granting summary judgment to the Edmundsons.

¶ 18 The trial court also concluded, on state law grounds, that the deed of trust became unenforceable once the underlying note that it secured became unenforceable due to the bankruptcy discharge.⁷ There simply is no authority for that legal conclusion.

¶ 19 The plain terms of the deed of trust require the borrowers to “pay when due the principal of, and interest on” the note.⁸ Both this deed of trust and case law provide for the remedy of foreclosure in the event of the borrowers' failure to comply with this covenant of the deed of trust.

¶ 20 Nothing in the Deeds of Trust Act supports the conclusion that the lien of a deed of trust on real property is discharged under state law when the note or other secured obligation is no longer enforceable.

Moreover, we have found no case under the law of mortgages, to which deeds of trust are generally subject, to support this result under the circumstances of this case.⁹ Similarly, respected commentators' discussions about the discharge of deeds of trust and mortgages do not support this result.¹⁰

¶ 21 Rather, the trial court's ruling fails to recognize that enforcement of a promissory note and foreclosure of a deed of trust securing that note are separate remedies of a creditor in the event of a borrower's default.¹¹ The inability to pursue one remedy does not bar the other.

¶ 22 The trial court's ruling in this case has a practical effect. That effect is that the Edmundsons retain ownership of property without repaying the loan used to purchase it. The loss shifts to the lender because the Edmundsons no longer have any personal obligation on the promissory note due to the discharge in bankruptcy. Under the trial court's ruling, the lender also has no right to realize on the collateral for the loan. Neither the equity nor logic of this result is apparent to this court.

¶ 23 In sum, nothing in this record and nothing under either federal or state law supports the conclusion that the discharge of personal liability on the note also discharges the lien of the deed of trust securing the note. The deed of trust is enforceable.

STATUTE OF LIMITATIONS

¶ 24 Carrington next argues that the statute of limitations does not bar foreclosure of the deed of trust in this case. We agree.

¶ 25 As an agreement in writing, the deed of trust foreclosure remedy is subject to a six-year statute of limitations.¹² When the underlying facts are undisputed, we review de novo whether a statute of limitations bars an action.¹³

¶ 26 Here, the trial court relied on Walcker v. Benson & McLaughlin, P.S.

,¹⁴ for its ruling. That reliance is misplaced.

¶ 27 In that case, the borrowers executed a demand promissory note dated September 4, 1986 in favor of the lender.¹⁵ The borrowers also executed a deed of trust on their property to secure payment of the note.¹⁶ The borrowers never made any payments on the note. The lender never took legal...