Mahalko v. Arctic Trading Co., Inc., 48176-8

• Citation: 659 P.2d 502,99 Wn.2d 30,41 A.L.R. 4th 280
• Decision Date: 24 February 1983
• Docket Number: No. 48176-8,48176-8
• Parties: , 41 A.L.R.4th 280 Julia MAHALKO, a single woman, Respondent, v. ARCTIC TRADING CO., INC., a Washington corporation, and Daniel Brink, in his capacity as successor trustee, Petitioners.
• Court: United States State Supreme Court of Washington

Page 30

99 Wn.2d 30

659 P.2d 502, 41 A.L.R.4th 280

Julia MAHALKO, a single woman, Respondent, v. ARCTIC TRADING CO., INC., a Washington corporation, and Daniel Brink, in his capacity as successor

trustee, Petitioners.

No. 48176-8.

Supreme Court of Washington,

En Banc.

Feb. 24, 1983.

Witherspoon, Kelley, Davenport & Toole, Kristine A. Chrey, Seattle, for petitioners.

Smith, Brucker, Winn & Ehlert, Norman L. Winn, Seattle, for respondent.

UTTER, Justice.

Does title acquired by a judgment creditor upon an execution sale of homestead property relate back to the date of entry of judgment, giving the judgment creditor priority over the holder of a deed of trust acquired and recorded before the sale but after entry of the creditor's judgment? The Court of Appeals answered this question in the affirmative. Mahalko v. Arctic Trading Co., 29 Wash.App. 411, 628 P.2d 859 (1981). We reverse the Court of Appeals and affirm the trial court.

William and Laura DeRuyter bought a home in 1963 and filed a homestead on October 28, 1970. On May 30, 1973, Julia Mahalko obtained a judgment of $8,000 against the DeRuyters and others in King County Superior Court. On February 10, 1976, Westinghouse Credit Corporation (Westinghouse) obtained judgment of just over $35,000 against the DeRuyters in King County Superior Court, and thereafter attempted to execute by levying against their household furnishings. On September 16, 1976, Westinghouse agreed to forbear execution against the DeRuyters' personal property in return for the promise to satisfy part of the judgment in installment payments. The DeRuyters also agreed to execute a deed of trust to Westinghouse on their home. The deed of trust was recorded the next day and recited that its purpose was to secure performance of the agreement and payment of just over $30,000 under a negotiated schedule.

On July 23, 1977, William DeRuyter and his marital community filed a bankruptcy petition in federal court. The residence was scheduled, but allowed exempt. Westinghouse was listed as a creditor holding security pursuant to its deed of trust, and Westinghouse and Mahalko were listed as creditors having unsecured claims without priority. The Westinghouse judgment was discharged in this proceeding, but Mahalko's judgment was not.

On September 27, 1978, William DeRuyter reaffirmed the Westinghouse agreement in an amended agreement setting out a new payment schedule. Westinghouse promised not to execute on the household goods because of DeRuyter's failure in part to meet the old payment plan. The amended agreement said that all other terms and conditions of the former agreement would remain in full force and effect.

On about March 9, 1979, Mahalko bought the DeRuyter residence for $27,781.28 at a sale she caused pursuant to her judgment under the excess value sections of the homestead act, RCW 6.12.140-.280. The order setting homestead fixed the amount of the exemption at $10,000, which was paid to the DeRuyters out of the proceeds of the exemption sale.

Westinghouse assigned its deed of trust to Arctic Trading Company on May 21, 1979. By agreement dated May 23, 1979, Westinghouse also assigned its judgment to Arctic for a recited consideration of $7,500. Arctic knew about Mahalko's execution sale through a title report it had obtained prior to the assignments.

On September 17, 1979, Daniel Brink, as successor trustee of the deed of trust to Westinghouse/Arctic, gave notice that the property would be sold on January 4, 1980, to satisfy the obligations secured by the deed of trust. In response, Mahalko commenced this action by filing a complaint for injunction against the trustee sale. A hearing was held on January 3, 1980, and an order was entered the next day which said that Arctic's deed of trust was a valid, specific lien on the property superior to any interest of Mahalko. The DeRuyters were authorized to intervene as additional plaintiffs, and the sale was restrained for 28 days.

Mahalko moved for reconsideration, and Arctic moved for summary judgment of dismissal. Mahalko filed an amended complaint, which Arctic answered. Mahalko also filed motion to impose an equitable lien on the property. These motions were heard on January 15, 1980, and the trial court entered an order denying the motion for reconsideration, denying the motion to impose an equitable lien, and granting summary judgment of dismissal. The order incorporated the court's earlier order. The DeRuyters and Arctic filed a stipulated order of dismissal as to the DeRuyters' claim, which order was not opposed by Mahalko. The DeRuyters are therefore no longer parties to this action and they have withdrawn any objection to the deed of trust sale.

The Court of Appeals reversed the trial court, holding that the title obtained by Mahalko upon the execution sale related back to the date of entry of her judgment, even though no judgment lien had attached, and therefore gave her priority over Arctic's later deed of trust. Arctic now petitions for review.

Article 19, section 1 of the Washington State Constitution provides:

The legislature shall protect by law from forced sale a certain portion of the homestead and other property of all heads of families.

In response to this constitutional mandate, the Legislature passed RCW 6.12, the homestead act. The act exempts from execution or forced sale the homestead property, except as provided by the statute. RCW 6.12.090. The statute states the value of the homestead shall not exceed $20,000. RCW 6.12.050. The 1981 amendments to the statute establish the creation of a homestead from "the time the property is occupied as a permanent residence by the owner" or if the property is unimproved, from the time a declaration of homestead is filed for record. RCW 6.12.080.

Generally speaking, personal judgments become liens upon the real property of the judgment debtor. RCW 4.56.190-.200. Such judgments do not become liens upon real property to which the homestead exemption applies. RCW 6.12 does provide two means by which a creditor may execute against homestead property. RCW 6.12.100 subjects the homestead to execution or forced sale in satisfaction of judgments obtained on debts secured in various specified manners, including "debts secured by ... mortgages on the premises, executed and acknowledged by the husband and wife ..." RCW 6.12.100(2). The homestead exemption does not apply to the types of secured creditors covered by RCW 6.12.100. See RCW 6.12.045.

All other creditors may only reach the homestead property through the excess value provisions of the statute. RCW 6.12.140-.280. These sections set out the procedures by which an appraisement of the homestead property may occur. If the value of the property exceeds the value of the homestead exemption, an appraiser must determine if the property is divisible. RCW 6.12.200. If the property is indivisible, the court must make an order directing the sale of the property under execution, RCW 6.12.230, with the proceeds going first to the judgment debtor in the amount of the homestead exemption; second, to satisfaction of the execution; and third, if there is a remaining balance, to the judgment debtor. RCW 6.12.250.

The Court of Appeals held, consistent with the act, that since a homestead existed at the time Mahalko's judgment was entered, no judgment lien attached to the homestead property. Nonetheless, the Court of Appeals focused on the "relative priority of interest acquired by execution sale as against the interest reflected by the trust deed." 29 Wash.App. at 414, 628 P.2d 859. It held that Mahalko's title obtained through execution sale related back to her 1973 judgment, rendering the 1976 deed of trust junior. The Court of Appeals finding that Mahalko had no judgment lien and its application of the relation back doctrine cannot be reconciled.

The Court of Appeals cited several cases for the proposition that the title acquired by execution sale relates back to the entry of judgment so as to exclude subsequent adverse interests. See, e.g., Black v. Miller, 219 So.2d 106 (Fla.Dist.Ct.App.1969); Onyx Ref. Co. v. Evans Prod. Corp., 182 F.Supp. 253 (N.D.Tex.1959); Conard v. Atlantic Ins. Co., 26 U.S. (1 Pet.) 386, 7 L.Ed. 189 (1828). These cases do so hold, but only in the context of a judgment creditor whose judgment creates a lien. Thus, in Onyx Ref. Co. the court stated, at page 256:

A judgment lien does not create any right of property or interest in the lands upon which it is a lien. It gives the right to foreclosure, either by execution or independent suit, which, when done, will relate back so as to exclude adverse interests subsequent to the fixing of the lien.

(Italics ours.) The cases say nothing about the rights of creditors who have no lien protection but seek appraisal and execution pursuant to special statute.

While the Court of Appeals held judgment against a homesteader does not create a lien on the excess value of the homestead property, its application of the relation back doctrine depended upon just such a lien attaching to the real property as of the time of Mahalko's 1973 judgment.

In Washington, a judgment lien usually attaches to the debtor's real property in the trial court's county at the time the judgment is entered. RCW 4.56.190. However, as long ago as 1898, this court stated in Traders' Nat'l Bank v. Schorr, 20 Wash. 1, 8-9, 54 P. 543 (1898) that:

Provision is made by our statutes for reaching the excess in value of real estate claimed as a homestead over the amount exempted, but it is not the ordinary enforcement of the lien or a sale under execution. It is a special mode of sale after an appraisement. We think it is apparent, from an examination of the legislation creating and protecting the homestead in this state, and the construction placed upon such statutes by this court, that a general judgment lien does not operate upon, and does not attach to, premises which constitute a...