Klem v. Wash. Mut. Bank

• Citation: 295 P.3d 1179,176 Wash.2d 771
• Decision Date: 28 February 2013
• Docket Number: No. 87105–1.,87105–1.
• Parties: Dianne KLEM, as Administrator of the Estate of Dorothy Halstien, Petitioner, v. WASHINGTON MUTUAL BANK, a Washington Corporation, Defendant, Quality Loan Service Corporation of Washington, a Washington Corporation; and Quality Loan Service Corporation, a California Corporation, Respondents.
• Court: United States State Supreme Court of Washington

176 Wash.2d 771

295 P.3d 1179

Dianne KLEM, as Administrator of the Estate of Dorothy Halstien, Petitioner,

v. WASHINGTON MUTUAL BANK, a Washington Corporation, Defendant,Quality Loan Service Corporation of Washington, a Washington Corporation; and Quality Loan Service Corporation, a California Corporation, Respondents.

No. 87105–1.

Supreme Court of Washington, En Banc.

Argued Oct. 16, 2012.

Decided Feb. 28, 2013.

Frederick Philip Corbit, Seattle, WA, for Petitioner.

Edgar I. Hall, Washington Debt Law, PLLC, Seattle, WA, Kenneth Wendell Masters, Shelby R. Frost Lemmel, Masters Law Group PLLC, Bainbridge Island, WA, Mary Stearns, McCarthy & Holthus, LLP, Poulsbo, WA, for Respondents.

Jane T. Sugarman, Attorney at Law, Falls Church, VA, amicus counsel for Attorney General of State of Washington.

Alan Lynn McNeil, Gonzaga University School of Law, Spokane, WA, amicus counsel for University Legal Assistance.

Katherine George, Harrison Benis & Spence, LLP, Seattle, WA, Stephen Robert Crossland, Crossland Law Offices, Cashmere, WA, amicus counsel for Washington State Bar Association.

CHAMBERS, J.^*

[176 Wash.2d 774]¶ 1 Dorothy Halstien, an aging woman suffering from dementia, owned a home worth somewhere between $235,000 and $320,000. At about the time she developed dementia, she owed approximately $75,000 to Washington Mutual Bank (WaMu), secured by a deed of trust on her home. Because of the cost of her care, her guardian did not have the funds to pay her mortgage, and Quality Loan Services (Quality), acting as the trustee of the deed of trust, foreclosed on her home. On the first day it could, Quality sold her home for $83,087.67, one dollar more than she owed, including fees and costs. A notary, employed by Quality, had falsely notarized the notice of sale by predating the notary acknowledgment. This falsification permitted the sale to take place earlier than it could have had the notice of sale been dated when it was actually signed.

¶ 2 Before the foreclosure sale, Halstien's court appointed guardian secured a signed purchase and sale agreement from a buyer willing to pay $235,000 for the house. Unfortunately,there was not enough time before the scheduled foreclosure sale to close the sale with that buyer. In Washington, the trustee has the discretion to postpone foreclosure sales. This trustee declined to consider exercising that discretion, and instead deferred the decision to the lender, WaMu. Despite numerous requests by the guardian, WaMu did not postpone the sale. A jury found that the trustee was negligent; that the trustee's acts or practices violated the Consumer Protection Act (CPA), chapter 19.86 RCW; and that the trustee breached its contractual obligations. The Court of Appeals reversed all but the negligence claim. We reverse the Court of Appeals in part and restore the award based upon the CPA. We award the guardian reasonable attorney fees and remand to the trial court to order appropriate injunctive relief.

FACTS

¶ 3 The issues presented require a detailed discussion of the facts. In 1996, Halstien bought a house on Whidbey Island for $147,500. In 2004, she borrowed $73,000 from WaMu, secured by a deed of trust on her home. That loan was the only debt secured by the property, which otherwise Halstien owned free and clear. Unfortunately, by 2006, when Halstien was 74 years old, she developed dementia. At the time, Halstien's daughter and her daughter's boyfriend were living at the home with her.

¶ 4 Washington State's Adult Protective Services became concerned that Halstien was a vulnerable adult being neglected at home. After an investigation, protective services petitioned the court for the appointment of a professional guardian to protect Halstien. The court granted the petition and Dianne Klem, executive director of Puget Sound Guardians, was appointed Halstien's guardian in January 2007. Klem soon placed Halstien in the dementia unit of a skilled nursing facility in Snohomish County.

¶ 5 Halstien's care cost between $3,000 and $6,000 a month. At the time, Halstien received about $1,444 a month in income from Social Security and a Teamsters' pension. The State of Washington paid the balance of her care and is a creditor of her estate.

¶ 6 Halstien's only significant asset was her Whidbey Island home, which at the time was assessed by the county at $257,804. WaMu also had an appraisal indicating the home was worth $320,000, nearly four times the value of the outstanding debt. Klem testified that if she had been able to sell the home, she could have improved Halstien's quality of life considerably by providing additional services the State did not pay for.

¶ 7 Selling the home was neither quick nor easy. Even after Halstien was placed in a skilled care facility, her daughter still lived in the home (without paying rent) and both the daughter and her brother strongly opposed any sale. The record suggests Halstien's children expected to inherit the home and, Klem testified, getting the daughter and her family to leave “was quite a battle.” Verbatim Report of Proceedings (VRP) (Jan. 13, 2010) at 94. Ultimately, Puget Sound Guardians prevailed, but before it could sell the home, it had to obtain court permission (complicated, apparently, by the considerable notice that had to be given to various state agencies and to family members, and because some of those entitled to notice were difficult to find), remove abandoned animals and vehicles, and clean up the property.¹

¶ 8 During this process Halstien became delinquent on her mortgage. Quality, identifying itself as “the agent for Washington Mutual,” posted a notice of default on Halstien's home on or around October 25, 2007. Ex. 3, at 3. The notice demanded $1,372.20 to bring the note current. The record establishes that the guardianship did not have available funds to satisfy the demand.

¶ 9 A notice of trustee sale was executed shortly afterward by Seth Ott for Quality. The notice was dated and, according to the notary jurat of “ R. Tassle,” notarized on November 26, 2007. VRP (Jan. 13, 2010) at 89–90. However, the notice of sale was not actually signed that day. The sale was set for February 29, 2008.

¶ 10 This notice of sale was one of apparently many foreclosure documents that were falsely notarized by Quality and its employees around that time. There was considerable evidence that falsifying notarizations was a common practice, and one that Quality employees had been trained to do. While Quality employees steadfastly refused to speculate under oath how or why this practice existed, the evidence suggests that documents were falsely dated and notarized to expedite foreclosures and thereby keep their clients, the lenders, beneficiaries, and other participants in the secondary market for mortgage debt happy with their work. Ott acknowledged on the stand that if the notice of sale had been correctly dated, the sale would not have taken place until at least one week later.

¶ 11 On January 10, 2008, Puget Sound Guardians asset manager David Greenfield called Ott in his capacity as trustee. Greenfield explained that Halstien was in a guardianship and that the guardianship intended to sell the property. Greenfield initially understood, incorrectly, that the trustee would postpone the sale if Puget Sound Guardians presented WaMu with a signed purchase and sale agreement by February 19, 2008. Puget Sound Guardians sought, and on January 31, 2008, received, court permission to hire a real estate agent to help sell the house.

¶ 12 Unknown to Greenfield, Quality, as trustee, had an agreement with WaMu that it would not delay a trustee's sale except upon WaMu's express direction. This agreement was articulated in a confidential “attorney expectation document” that was given to the jury. This confidential document outlines how foreclosures were to be done and billed. It specifically states, “Your office is not authorized to postpone a sale without authorization from Fidelity² or Washington Mutual.” Ex. 12, at 5. This agreement is, at least, in tension with Quality's fiduciary duty to both sides and its duty to act impartially. Cox v. Helenius, 103 Wash.2d 383, 389, 693 P.2d 683 (1985) (citing George E. Osborne, Grant S. Nelson & Dale A. Whitman, Real Estate Finance Law § 7.21 (1979) (“[A] trustee of a deed of trust is a fiduciary for both the mortgagee and mortgagor and must act impartially between them.”)).³

¶ 13 Regardless of what Washington law expected or required of trustees, David Owen, Quality's chief operations officer in San Diego, testified that Quality did what WaMu told it to do during foreclosures. Owen testified that there were two situations where Quality would postpone a sale without bank permission: if there was a bankruptcy or if the debt had been paid. Owen could not remember any time Quality had postponed a sale without the bank's permission.

¶ 14 By February 19, 2008, Puget Sound Guardians had a signed purchase and sale agreement, with the closing date set for on or about March 28, 2008. This was almost a month after the scheduled foreclosure sale, but well within the 120 day window a trustee has to hold the trustee's sale under RCW 61.24.040(6). Quality referred the guardians to the bank “to find out the process for making this happen.” VRP (Jan. 14, 2010) at 127; Ex. 25. Klem testified Quality “told us on two occasions that they unequivocally could not assist us in that area, that only the bank could make the decision.” VRP (Jan. 14, 2010) at 131.

[176 Wash.2d 779]¶ 15 Puget Sound Guardians contacted WaMu, which instructed them to send copies of the guardianship documents and a completed purchase and sale agreement. Over the next few days, WaMu instructed the guardians to send the same documents to WaMu offices in Seattle, Washington, southern California, and Miami, Florida. Klem testified that Puget Sound Guardians called WaMu on “[m]any occasions,” and that if the bank ever made a decision, it did not share what it...