Kim v. Lee
| Decision Date | 20 September 2001 |
| Docket Number | No. 70347-7.,70347-7. |
| Citation | 31 P.3d 665,145 Wash.2d 79 |
| Court | Washington Supreme Court |
| Parties | Hu Hyun KIM, Petitioner. v. Stanley LEE and Jane Doe Lee, Defendants, Yakima County Title Company d/b/a Yakima Title & Escrow, Respondent. |
Edwards, Sieh, Smith & Goodfriend, Howard Mark Goodfriend, Seattle, Chae & Associates, Nancy McKenney Allo, Kent, for Petitioner.
Michael Frederick Shinn, Yakima, for Respondent.
This is a discretionary review of a Court of Appeals' decision which granted Yakima Title & Escrow Company first lienholder position, through the doctrine of equitable subrogation, over a prior perfected judgment creditor. We hold under the facts of this case that the title insurer should not avoid liability through the doctrine of equitable subrogation because the title insurer had actual knowledge of a prior judgment lien and failed to disclose such a lien to its insured before issuance of the title policy. The Court of Appeals' decision is reversed, and the trial court's judgment is reinstated.
The pertinent facts in this case are not in dispute. On December 5, 1995, Kenneth and Yun Ok Chang bought a home in Yakima for their daughter and son-in-law, Sharon and Stanley Lee. Of the $165,000 purchase price, $130,000 was financed by a promissory note from Sterling Trust Company (Sterling) in the Changs' name at an interest rate of 10.5 percent per annum, maturing in six years. The promissory note was secured by a deed of trust dated December 5, 1995, and was recorded on December 11, 1995 in Yakima County Auditor's file number 3118149. Yakima Title & Escrow (Yakima Title) recorded the statutory warranty deed in favor of the Changs and the deed of trust was executed at the direction of Sterling Escrow Company. The Lees moved into the home and made payments owed by the Changs on the Sterling loan as each became due.
Meanwhile, on April 28, 1997, Hu Hyun Kim obtained a default judgment against the Lees in King County Superior Court for failure to comply with discovery orders. Judgment was entered for a total of $83,565.37. The judgment was recorded in Yakima County on May 16, 1997, under auditor's file number 7010775.
On December 22, 1997, two years after purchasing the home, the Changs quitclaimed an undivided one-half interest in the property to the Lees. The Changs and the Lees filed an excise tax affidavit claiming the one-half interest as a gift to claim the gift exemption. The home was still subject to the loan from Sterling's deed of trust. Subsequently, the Lees sought their own financing in order to take advantage of lower interest rates.
In March 1998, the Lees procured financing through Pioneer National Bank (Pioneer Bank) to pay off the underlying deed of trust granted by the Changs to Sterling. As part of the deal, the Changs agreed to quitclaim their remaining undivided one-half interest to the Lees in consideration of love and affection. The quitclaim deed was signed on April 10, 1998 and recorded on April 28, 1998. Yakima Title's employee, Rae Dawn Hawley, signed a real estate tax affidavit in which the Changs and Lees were not subject to pay excise tax by claiming that "grantor gifts property which has no underlying debt." Clerk's Papers (CP) at 156.
On April 20, 1998, the Lees executed their own promissory note and deed of trust to Pioneer Bank with an interest rate of 6.75 percent per annum, maturing in 30 years. All of the Lees' loan proceeds were used to pay off Sterling's deed of trust, plus settlement charges.
On April 28, 1998, a year after Kim had recorded the King County judgment in Yakima County, Pioneer Bank recorded its deed of trust and the second quitclaim deed.
Yakima Title issued a commitment for title insurance insuring Pioneer Bank's first lien position effective March 16, 1998, and updated it on April 22, 1998. In conducting its title search, Yakima Title failed to discover Kim's judgment lien. Thus, the commitment for title insurance did not mention Kim's judgment against the Lees.
On June 17, 1998, an assignment of Pioneer Bank's deed of trust to Countrywide Home Loans, Inc. was recorded by Yakima Title.
Once Kim learned of the new loan by Pioneer Bank, Kim's counsel informed Yakima Title of Kim's judgment, its date and recording number, and that Kim's judgment was now the first lien on the Yakima property, on July 13, 1998. Yakima Title's agent responded that he had not found an abstract with the Yakima Superior Court Clerk's Office and believed that Kim could not have held a perfected judgment lien. Later the same day, Kim's counsel confirmed the telephone conversation with Yakima Title and sent copies to Pioneer Bank and Kim.
On July 16, 1998, an assignment of deed of trust was amended to show PHH Mortgage Services Corporation (PHH) as an assignee; it was re-recorded by Yakima Title. On July 17, 1998, Yakima Title issued an ATLA title policy with PHH as the insured, showing the Lees as owners of the property and Pioneer's deed of trust in first position, with no mention of Kim's judgment.
On December 10, 1998, Kim's counsel notified PHH's counsel of Kim's judgment lien, of which they had been unaware.
On June 21, 1999, Kim's counsel notified Yakima Title that Kim would begin execution on the judgment.1 PHH had previously notified Yakima Title, on May 10, 1999, that Kim would execute on his judgment lien as soon as possible. Yakima Title, as the agent for the policy issuer, accepted this notice as a tender of defense of PHH's lien position.2
On September 9, 1999, a writ of execution was issued by King County Superior Court.
At Kim's request, King County Superior Court issued a writ of execution on the Lees' real property in Yakima. Yakima Title moved to intervene and to quash the execution sale. Kim opposed these motions and filed a motion for CR 11 sanctions against Yakima Title. On October 21, 1999, the trial court granted Yakima Title's motion to intervene, denied Kim's motion for CR 11 sanctions, and denied Yakima Title's motion to quash. Yakima Title appealed the denial of the motion to quash.
The Court of Appeals' decision reversed the King County Superior Court's order denying Yakima Title's motion to establish as a first lien on defendant Lee's real property, prior to the previously filed judgment against Lee and in favor of Kim, a deed of trust given by Lee to Yakima Title's assignee PHH.
Kim now seeks this Court's review.
Determination of a proper standard of review of whether equitable subrogation should be applied to give a mortgage lender first lien position over a prior perfected judgment creditor rests upon whether the question presented for review is one of fact, one of law, or a mixed question of law and fact. Rasmussen v. Employment Security Dep't, 98 Wash.2d 846, 850, 658 P.2d 1240 (1983). Since the pertinent facts of this case are not in dispute, the lien priority of PHH over a prior perfected lien creditor is a question of law, which is subject to de novo review. Millay v. Cam, 135 Wash.2d 193, 198, 955 P.2d 791 (1998) (citing Medcalf v. Dep't of Licensing, 133 Wash.2d 290, 297, 944 P.2d 1014 (1997)).
Under Washington's recording act, RCW 65.08.070, a subsequent mortgagee takes subject to any prior encumbrances of which the mortgagee has either actual or constructive knowledge:
The purpose of the recording statute is to make the deed first recorded superior to any outstanding unrecorded conveyance of the same property unless the mortgagee or purchaser had actual knowledge of the transfer not filed of record.
Tacoma Hotel v. Morrison & Co., 193 Wash. 134, 140, 74 P.2d 1003 (1938).
Judgment attaches automatically as a lien upon the real estate of the judgment debtor. RCW 4.56.190. A superior court judgment becomes a perfected lien against the judgment debtor's real property from the time the judgment creditor records the judgment with the recording officer of the county where the property is located. RCW 6.13.090. See In re Deal, 85 Wash.App. 580, 583, 933 P.2d 1084 (1997). Moreover, under the amendments to the law enacted by the 1999 Legislature, a judgment creditor is entitled to execute on the judgment debtor's equity in real estate, net of the homestead amount, less all liens and encumbrances senior to the creditor's judgment. RCW 6.13.010(3); Laws of 1999, ch. 403, § 1.
In the instant case, when Kim's judgment was filed in Yakima County on May 16, 1997, it became a lien on the Lees' one-half interest in the Yakima property on December 22, 1997, the date the Lees acquired their one-half interest from the Changs. The Kim judgment lien attached to the entire Yakima property when the Changs conveyed their remaining one-half interest to the Lees by quitclaim deed on April 10, 1998. Kim's judgment was perfected for almost a year before the Lees placed the Pioneer Bank deed of trust on the Yakima property. Once the Sterling deed of trust was paid, there were no liens on the Yakima property senior to Kim's judgment when the King County Superior Court issued its writ of execution in September 1999.
Generally, when the doctrine of equitable subrogation applies, its effect is to restore the first lien position of the mortgage refinance lender. Grant S. Nelson & Dale A. Whitman, Real Estate Finance Law § 10.6 (3 ed.1993). In order for the doctrine of equitable subrogation to apply, the loan must be considered a refinance.
Black's Law Dictionary defines "refinance" as follows:
To finance again or anew; to pay off existing debts with funds secured from new debt; to extend the maturity date and/or increase the amount of an existing debt; to arrange for a new payment schedule. The discharge of an obligation with funds acquired through the creation of a new debt, often at a different interest rate.
Black's Law Dictionary 1281 (...
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