Jordan v. Nationstar Mortg., LLC

• Decision Date: 07 July 2016
• Docket Number: No. 92081–8,92081–8
• Citation: 185 Wash.2d 876,374 P.3d 1195
• Court: Washington Supreme Court
• Parties: Certification from the United States District Court for the Eastern District of Washington in Laura Zamora Jordan, as her separate estate, and on behalf of others similarly situated, Plaintiff, v. Nationstar Mortgage, LLC, a Delaware limited liability company, Defendant.

185 Wash.2d 876

374 P.3d 1195

Certification from the United States District Court for the Eastern District of Washington in Laura Zamora Jordan, as her separate estate, and on behalf of others similarly situated, Plaintiff

v.Nationstar Mortgage, LLC, a Delaware limited liability company, Defendant.

No. 92081–8

Supreme Court of Washington, En Banc.

Filed July 7, 2016

Clay M. Gatens, Michelle A. Green, Honea Lee Iv Lewis, Jeffers, Danielson, Sonn & Aylward, P.S., 2600 Chester Kimm Road, P.O. Box 1688, Wenatchee, WA, 98801–8116, Michael Duane Daudt, Daudt Law PLLC, 2200 6th Avenue Suite 1250, Seattle, WA, 98121–1820, Beth Ellen Terrell, Blythe H. Chandler, Terrell Marshall Law Group PLLC, 936 N 34th St. Suite 300, Seattle, WA, 98103–8869, Counsel for Plaintiff.

John Alan Knox, William Kastner & Gibbs, PLLC, 601 Union St. Suite 4100, Seattle, WA, 98101–1368, Andrew W. Noble, Jan T. Chilton, Mary Kate Sullivan, Erik Kemp, Severson & Werson PC, One Embarcadero Center, Suite 2600, San Francisco, CA, 94111, Counsel for Defendant.

Nancy Dykes Isserlis, Nathaniel Odle, Office of the Spokane City Attorney, 808 W Spokane Falls Blvd., Spokane, WA, 99201–3333, David P. Gardner, Winston & Cashatt, 601 W Riverside Avenue Suite 1900, Spokane, WA, 99201–0695, Amicus Curiae on behalf of City of Spokane.

Abraham K. Lorber, Attorney at Law, John Sterling Devlin III, Lane Powell PC, P.O. Box 91302, 1420 5th Avenue Suite 4200, Seattle, WA, 98111–9402, Amicus Curiae on behalf of Federal Home Loan Mortgage Corporation.

Sheila M. O'Sullivan, Erin Lane, Northwest Consumer Law Center, 520 E Denny Way, Seattle, WA, 98122–2138, Amicus Curiae on behalf of Northwest Consumer Law Center.

OWENS

, J.

After defaulting on her home mortgage payment, plaintiff Laura Jordan returned home from work one evening to discover she could not enter her own house: the locks had been changed without warning. A notice informed her that in order to gain access to her home, she must call defendant Nationstar Mortgage LLC to obtain the lockbox code and retrieve the new key inside. Although she eventually reentered her home, she removed her belongings the next day and has not returned since. Jordan's home loan was secured by a deed of trust, a commonly used security instrument that was created as an alternative to traditional mortgages to provide for a simpler method of foreclosure. The deed of trust contained provisions that allowed Nationstar to enter her home upon default without providing any notice to the homeowner. Today, we are asked to decide whether those provisions conflict with Washington law.

¶ 2 Jordan represents a class action proceeding in federal court, which has certified two questions to us. The first question asks whether the deed of trust provisions conflict with a Washington law that prohibits a lender from taking possession of property prior to foreclosure. We hold that it does because the provisions allow Nationstar to take possession of the property after default, which conflicts with the statute. The second question asks whether Washington's statutory receivership scheme—providing for a third party to possess and manage property in lieu of either the lender or homeowner—is the exclusive remedy by which a lender may gain access to the property. As explained below, we hold nothing in our law establishes the receivership statutes as an exclusive remedy.

FACTS

¶ 3 In 2007, Jordan bought a home in Wenatchee, Washington, with a home loan of $ 172,000 from Homecomings Financial. She secured the loan by signing a deed of trust. The original lender assigned the loan to the Federal National Mortgage Association (Fannie Mae), one of the nation's largest mortgagees that primarily participates in the secondary mortgage market, which hired Nationstar to service the loan.

¶ 4 Jordan went into default on her mortgage payments in January 2011. In March 2011, one of Nationstar's vendors came to Jordan's home and changed the locks on her front door. Jordan returned home to find a notice on the front door informing her that the property was found to be “unsecure or vacant” and that to protect her and the mortgagee's interest in the property, it was “secured against entry by unauthorized persons to prevent possible damage.” Order Certifying Questions to Wash. Supreme Ct., Jordan v. Nationstar Mortg., LLC , No. 2:14–CV–0175–TOR at 6, 2015 WL 4723941 (E.D. Wash. Aug. 10, 2015)

. While the above-noted facts are undisputed, the parties dispute whether the home was vacant. Jordan contends she was living there, left for work that morning as usual, and returned to find the lockbox and notice. On the other hand, Nationstar contends that its vendor performed an inspection of the property and determined it was vacant.

¶ 5 Upon finding the notice when she returned home, Jordan called the phone number provided and got the key from the lockbox to reenter her home. She took all of her belongings and vacated the house the next day. Since then, Nationstar's vendor has maintained the property's exterior and winterized the interior. Nationstar does not claim to have attempted to provide Jordan any notice of its intention to inspect the property and rekey it. Nationstar contends that its usual practice is to change the locks on only one door, such that it can access the home in the future, but also so that the owner can still enter the home through another door. Here, Jordan's home had only a front door and a sliding glass door in the rear of the home. Therefore, when Nationstar's vendor rekeyed the front door, she had no means of entry.

¶ 6 Jordan represents a certified class of 3,600 Washington homeowners who were locked out of their homes pursuant to similar provisions in their deeds of trust with Nationstar. This case presents an important issue for these homeowners and the thousands of others subject to similar provisions, as well as the many mortgage companies that have a concern with preserving and protecting the properties in which they have an interest. Three amicus briefs were filed in this case: Federal Home Loan Mortgage Corporation (Freddie Mac) and the city of Spokane supporting defendant Nationstar, and the Northwest Consumer Law Center supporting plaintiff Jordan. Freddie Mac tells us that the provisions such as the ones at issue here are important to the foreclosure process because they allow lenders to enter the property to maintain and secure it. It contends that such provisions help meet Freddie Mac's requirements it imposes on companies like Nationstar to preserve properties.

¶ 7 In April 2012, Jordan filed a complaint against Nationstar in Chelan County Superior Court, alleging state law claims that include trespass, breach of contract, and violations of the Washington Consumer Protection Act and the Fair Debt Collection Practices Act. Ch. 19.86 RCW; 15 U.S.C. §§ 1692

–1692p. Chelan County Superior Court certified the class action, with Jordan as the representative for the 3,600 similarly situated homeowners. Nationstar removed the action to the United States District Court for the Eastern District of Washington (District Court). The parties each filed motions for partial summary judgment. Nationstar asked the District Court to find the provisions at issue enforceable under Washington law. Jordan asked the District Court to find that before the lender can enter a borrower's property, the lender must obtain either the borrower's postdefault consent or permission from a court. Furthermore, Jordan contends that receivership is the only remedy by which a lender may gain access to the borrower's property. Finding that the case raised unresolved questions of Washington state law, the District Court certified two questions to us. We accepted the following certified questions.

CERTIFIED QUESTIONS

¶ 8 1. Under Washington's lien theory of mortgages and RCW 7.28.230(1)

, can a borrower and lender enter into a contractual agreement prior to default that allows the lender to enter, maintain, and secure the encumbered property prior to foreclosure?

¶ 9 2. Does chapter 7.60 RCW, Washington's statutory receivership scheme, provide the exclusive remedy, absent postdefault consent by the borrower, for a lender to gain access to an encumbered property prior to foreclosure?

ANALYSIS

¶ 10 Certified questions present questions of law and we review them de novo. See, e.g., Parents Involved in Cmty. Sch. v. Seattle Sch. Dist., No. 1 , 149 Wash.2d 660, 670, 72 P.3d 151 (2003)

.

1. Washington's Lien Theory and RCW 7.28.230(1)

Prevent a Borrower and a Lender from Contracting To Allow the Lender To Take Possession Based on Borrower Default

¶ 11 The District Court asks us to determine whether a predefault clause in a deed of trust that allows a lender to enter, maintain, and secure the property before foreclosure is enforceable. We must determine whether these provisions contravene Washington law, As described below, the deed of trust provisions authorize a lender to enter the borrower's property after default. The parties agree that a Washington statute prohibits a lender from taking possession of a borrower's property prior to foreclosure. The controversial issue here is whether the deed of trust provisions allowing the lender to enter constitute taking possession prior to foreclosure, such that they conflict with state law. Based on Nationstar's practices, we find that the provisions do allow the lender to take possession and thus they are in conflict with state law. As such, we answer the first certified question in the negative.

a. The Deed of Trust Provisions Allow a Lender To Enter the Borrower's Property upon Default or Abandonment

¶ 12 “[I]t is the general rule that a contract which is contrary to the terms and policy of an express legislative enactment is illegal and unenforcible [sic].” State v. Nw. Magnesite Co. , 28 Wash.2d 1, 26, 182 P.2d 643 (1947)

. While we recognize an overarching freedom to contract, provisions are unenforceable where they are prohibited by statute. State Farm Gen....