McLaughlin v. Sorensen, No. 31171-2-II (WA 3/30/2005)

• Court: Washington Supreme Court
• Writing for the Court: Armstrong
• Decision Date: 30 March 2005
• Docket Number: No. 31171-2-II,31171-2-II
• Citation: McLaughlin v. Sorensen, No. 31171-2-II (WA 3/30/2005), No. 31171-2-II (Wash. Mar 30, 2005)
• Parties: PATRICK J. McLAUGHLIN and LERAE McLAUGHLIN, Respondents, v. TIMOTHY A. SORENSEN, SHANNON E. SORENSEN, COUNTRYWIDE BANK and AMERICA'S WHOLESALE LENDER, Appellants. and TIMOTHY A. SORENSEN, SHANNON E. SORENSEN, COUNTRYWIDE BANK and AMERICA'S WHOLESALE LENDER, Third Party Plaintiffs, v. RICHARD THOMAS ZIESKE and JANE DOE ZIESKE, and the marital community composed thereof, Third Party Defendants.

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Unpublished Opinion

PATRICK J. McLAUGHLIN and LERAE McLAUGHLIN, Respondents, v. TIMOTHY A. SORENSEN, SHANNON E. SORENSEN, COUNTRYWIDE BANK and AMERICA'S WHOLESALE LENDER, Appellants. and TIMOTHY A. SORENSEN, SHANNON E. SORENSEN, COUNTRYWIDE BANK and AMERICA'S WHOLESALE LENDER, Third Party Plaintiffs, v. RICHARD THOMAS ZIESKE and JANE DOE ZIESKE, and the marital community composed thereof, Third Party Defendants.

No. 31171-2-II

Court of Appeals of Washington, Division Two.

Filed: March 30, 2005

Appeal from Superior Court of Pierce County. Docket No. 03-2-09778-6. Judgment or order under review. Date filed: 11/21/2003. Judge signing: Hon. Katherine M Stolz.

Counsel for Appellant(s), Beth Prieve Gordie, Short Cressman & Burgess PLLC, 999 3rd Ave Ste 3000, Seattle, WA 98104-4088.

Christina Gerrish Nelson, Short Cressman & Burgess PLLC, 999 3rd Ave Ste 3000, Seattle, WA 98104-4088.

Scott Arnold Smith, Riddell Williams PS, 1001 4th Ave Plaza Ste 4500, Seattle, WA 98154.

Counsel for Respondent(s), Andrew Robert Hay, Attorney at Law, 110 S 9th St, Tacoma, WA 98402-5102.

ARMSTRONG, J.

The Sorensens and their lenders appeal a summary judgment declaring the McLaughlins' judgment liens superior to all other interests in property the Sorensens purchased. Because issues of material fact exist as to the priority of the McLaughlins' liens, we reverse.

FACTS

I. The Judgment Lien and Sale to the Sorensens

Patrick and Lerae McLaughlin¹ obtained judgments for securities fraud and consumer protection act violations against Richard and Danielle Zieske and corporations they owned. The judgments against the Zieskes totaled $143,000 in principal.² They were entered on February 7, 2003, and recorded with the Pierce County Auditor on April 24, 2003. On the date the judgments were entered, the Zieskes owned a home in Pierce County (the Property).

Patrick states that on April 17, 2003, he learned of a pending sale of the Property from the Zieskes to Timothy and Shannon Sorensen. Chicago Title Insurance Company was insuring title on the deed of trust, and Fidelity Escrow, Inc. was providing escrow services. Patrick claims that on May 5 and 13, he spoke to Chicago Title about the McLaughlin judgment liens. In response, Chicago Title issued a Supplemental Commitment on May 13, 2003, acknowledging the liens.

Patrick also declares that on May 18, 2003, the listing agent for the Property called him to discuss the judgments `and their status as an encumbrance' against the Property. Clerk's Papers (CP) at 32. He also claims that he warned the title company that the Department of Financial Institutions found Zieskes to have committed many illegal acts and that the McLaughlin judgment was based on substantial fraud claims. He claims he told them that they should be `extra careful with all documents' and that he would not release his interest unless all debts were paid in full. CP at 33.

On May 23, 2003, the sale from the Zieskes to the Sorensens closed for $367,000. Countrywide Bank and America's Wholesale Lender,³ co-appellants in this appeal, are the beneficiaries of a deed of trust recorded with the Pierce County Auditor securing amounts loaned to the Sorensens to purchase the Property. The Sorensens obtained the Property from the Zieskes by statutory warranty deed recorded with the Pierce County Auditor.

II. The Judgment Satisfaction

Patrick declares that after the Sorensen sale closed, Chicago Title presented him with `a copy of a document purporting to be a satisfaction of judgment' he signed. CP at 33. He denies signing the document and denies that payment was made to him or his mother. The document does not bear his mother's signature, genuine or forged. The document also does not bear a notary's seal. Linda Mead, Notary Public Program Manager for the Department of Licensing in Washington, declares that the notary who signed the Satisfaction of Judgment either did not exist or was not a licensed notary in Washington at the time she signed the document. Patrick asserts, and the Sorensens do not provide evidence to the contrary, that no Satisfaction of Judgment was filed with the superior court.

III. Pay-Offs After the Sale

The McLaughlins assert that at the time of the sale, the Property was also encumbered by a first and second mortgage to Litton Loan Servicing and Jeffrey Green. Similarly, the Sorensens assert that these lien holders were in first and second position with deeds of trust. During the sale, these lenders were paid.⁴ The difference between the sale price and the pay-off of these encumbrances was $22,837.63. From this amount, $5,390 was paid on a Department of Social and Health Services lien. The Sorensens claim that the escrow company distributed the remaining funds for sale costs, realtor's commission, closing fee, title insurance, escrow fee, excise tax, and association dues.

Richard Zieske also declares that he and his wife received no proceeds from the Property sale. He claims that he and his wife thought that even if the Property went into foreclosure, the McLaughlins' lien was so far down the priority list that the McLaughlins would have received no money from the sale.

IV. Suit at Superior Court

On July 24, 2003, the McLaughlins sued the Sorensens, seeking (1) a declaration that they had priority over the Sorensens' lenders, and (2) an order authorizing a sheriff's sale if the judgment was not satisfied in full immediately on establishment of that priority. Then the McLaughlins moved for summary judgment. The Sorensens moved for additional time to submit interrogatories, requests for production, and to take Richard Zieske's deposition to determine `the validity of the Satisfaction of Judgment and obtaining additional information about the closing of the Subject Property.' CP at 74.

The trial court denied the Sorensens more discovery time, adjudged the McLaughlins' liens superior to the Sorensens' interests, and authorized a sheriff's sale to satisfy all amounts due under the McLaughlins' judgments.

ANALYSIS

The Sorensens contend that the trial court erred in failing to consider the Zieskes' possible homestead exemption and its affect on the McLaughlins' lien rights. They also argue that the trial court should have granted a continuance for further discovery and should have found they were protected as bona fide purchasers. Finally, they argue that the trial court's ruling has unjustly enriched the McLaughlins.

I. Standard of Review

We review a summary judgment de novo. See Ret. Pub. Employees Council of Wash. v. Charles, 148 Wn.2d 602, 612, 62 P.3d 470 (2003). Summary judgment is appropriate only if the pleadings, affidavits, depositions, and admissions on file demonstrate the absence of any genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. CR 56(c); Charles, 148 Wn.2d at 612. We consider all facts submitted and all reasonable inferences from them in the light most favorable to the nonmoving party. Wagg v. Estate of Dunham, 146 Wn.2d 63, 67, 42 P.3d 968 (2002); Wilson v. Steinbach, 98 Wn.2d 434, 437, 656 P.2d 1030 (1982).

II. Bona Fide Purchasers

The Sorensens argue that they are bona fide purchasers because they purchased the Property in good faith, for value, with no knowledge of any outstanding creditors. We address this issue first because if they were bona fide purchasers, they would have taken the Property free and clear of the McLaughlins' judgments.

Purchasers of real property may take advantage of the bona fide purchaser doctrine. Tomlinson v. Clarke, 118 Wn.2d 498, 500, 825 P.2d 706 (1992). A good faith purchaser for value, who is without actual or constructive notice of another's interest in the property purchased, has the superior interest in the property. Tomlinson, 118 Wn.2d at 500 (citing Glaser v. Holdorf, 56 Wn.2d 204, 209, 352 P.2d 212 (1960)). The notice "need not be actual, nor amount to full knowledge." Casa del Rey v. Hart, 110 Wn.2d 65, 70-71, 750 P.2d 261 (1988) (quoting Daly v. Rizzutto, 59 Wash. 62, 65, 109 P. 276 (1910)). Constructive notice may be given either by means of a public record or by inquiry notice. Ellingsen v. Franklin County, 117 Wn.2d 24, 33, 810 P.2d 910 (1991) (Smith, J. dissenting); Paganelli v. Swendsen, 50 Wn.2d 304, 308-09, 311 P.2d 676 (1957).

In general, a good faith purchaser of real property is entitled to rely on the condition of title shown in the county auditor's records. Biles-Coleman Lumber Co. v. Lesamiz, 49 Wn.2d 436, 439, 302 P.2d 198 (1956) (citing Beckmann v. Ward, 174 Wash. 326, 24 P.2d 1091 (1933)). "{A} purchaser of real property . . . may rely upon a title which the record shows to be in his grantor, and . . . he is not required, in the absence of notice . . . to make inquiry as to the status of the title outside of that shown by the recorded conveyances." Ellingsen, 117 Wn.2d at 28-29 (emphasis in original) (quoting Kroetch v. Hinnenkamp, 171 Wash. 518, 521-22, 18 P.2d 491 (1933)). But where a purchaser knows facts sufficient to alert an ordinarily prudent person of possible problems, and a reasonably diligent inquiry would lead to discovery of the title's defects or the equitable rights of others in the property, the purchaser is charged with knowing of the problems. Casa del Rey, 110 Wn.2d at 71 (citations omitted).

The McLaughlins assert that the Sorensens were not bona fide purchasers because they had actual or constructive notice that the satisfaction of judgment was forged or fraudulent. We agree.

Patrick states that the Zieskes made no payments on the judgment and he did not sign the Satisfaction of Judgment. The McLaughlins also presented unrebutted evidence that the Satisfaction of Judgment did not comply with the statutory requirements and was not filed with the superior court clerk.⁵ RCW 4.65.100. The McLaughlins provided an affidavit from a Program Manager at the Department of Licensing verifying that the document was not signed by a licensed notary. They...