Schroeder v. Excelsior Mgmt. Grp., LLC

• Decision Date: 28 February 2013
• Docket Number: Nos. 86433–1,86710–1.,s. 86433–1
• Citation: 297 P.3d 677
• Parties: Steven F. SCHROEDER, Petitioner, v. EXCELSIOR MANAGEMENT GROUP, LLC, and Craig G. Russillo, trustee, Respondents. Steven F. Schroeder, a married man dealing with his sole and separate property, Petitioner, v. Phillip J. Haberthur, as trustee of a trustee of a deed of trust, Excelsior Management Group, LLC, an Oregon limited liability company; Excelsior Mortgage Equity Fund II, LLC, an Oregon limited liability company, James Haney, and CLS Mortgage, Inc., a Washington corporation, Respondents.
• Court: Washington Supreme Court

297 P.3d 677

Steven F. SCHROEDER, Petitioner,

v.EXCELSIOR MANAGEMENT GROUP, LLC, and Craig G. Russillo, trustee, Respondents.

Steven F. Schroeder, a married man dealing with his sole and separate property, Petitioner,

v.Phillip J. Haberthur, as trustee of a trustee of a deed of trust, Excelsior Management Group, LLC, an Oregon limited liability company; Excelsior Mortgage Equity Fund II, LLC, an Oregon limited liability company, James Haney, and CLS Mortgage, Inc., a Washington corporation, Respondents.

Nos. 86433–1, 86710–1.

Supreme Court of Washington, En Banc.

Argued June 26, 2012.

Decided Feb. 28, 2013.

Matthew Franklin Pfefer, Attorney at Law, Spokane Valley, WA, for Petitioner.

Michael H. Church, Spokane, WA, Barren Michael Digiacinto, Stamper Rubens PS, Dianne K. Rudman, Rudman Law Office, PS, Spokane, WA, Phillip Justin Haberthur, Bradley W. Andersen, Schwabe Williamson & Wyatt, Vancouver, WA, for Respondents.

CHAMBERS, J.^*

¶ 1 For nonagricultural land, Washington's deed of trust act provides a comparatively inexpensive and fast mechanism for the lending industry to foreclose on property pledged as security for a debt through a nonjudicial foreclosure action. In a nonjudicial foreclosure, a properly appointed trustee is empowered by the act to hold a foreclosure sale without judicial supervision. However, the act does not allow nonjudicial foreclosure of agricultural land. Agricultural land must be foreclosed judicially. RCW 61.24.020, .030(2).

¶ 2 In 2009, Phillip J. Haberthur (who was both the trustee and the attorney for the lender) nonjudicially foreclosed on Steven Schroeder's property. Schroeder attempted to restrain the sale on the grounds that his land was agricultural and not subject to nonjudicial foreclosure. He has also filed claims for damages. The primary question before the court is whether the parties to a deed of trust may waive the statutory requirement that agricultural land must be foreclosed judicially. We hold agricultural land must be foreclosed judicially based on the plain language of RCW 61.24.030(2). Parties may not waive the statute.

¶ 3 We must also determine whether the trial court abused its discretion by permitting a trustee to proceed with a nonjudicial sale under the facts of this case without first determining whether the land was agricultural in nature. Although the procedure here was admittedly convoluted, we hold the trial court abused its discretion in failing to restrain the sale without first determining whether the land was agricultural and also erred in dismissing Schroeder's other claims on summary judgment. We reverse the courts below and remand to the trial court for further proceedings consistent with this opinion.

FACTS AND PROCEDURAL HISTORY

¶ 4 In 1959, the year Schroeder was born, his parents bought a 200 acre farm near the city of Colville, Stevens County, Washington. Schroeder testified by deposition that he has been a farmer on that land all his life. The record suggests he raised cattle and timber. An appraisal obtained on May 30, 2007, and allegedly relied upon by the lender, describes the property as 75 percent “Ag and Timberland” and valued at $675,000.¹ Schroeder also contends he provided copies of his tax returns in which he declared his occupation to be “Farm/Logging” and included as “Schedule F” “Profit or Loss from Farming” statements. Excelsior Clerk's Papers (ECP) at 13–15.

¶ 5 Around June 12, 2007, Schroeder borrowed money from Excelsior Management Group LLC, or one of its corporate affiliates, secured by a deed of trust on the 200 acres. It appears he fell behind on the payments and the next year, a successor trustee began nonjudicial foreclosure proceedings. The notice of trustee's sale said the principle balance was $317,250 (and after interest and fees were added, the amount estimated for reinstatement was $385,517.73).

¶ 6 A long-time attorney for Schroeder rose to his defense, later saying he worked without being paid because he believed that keeping the farm “was very important to Mr. Schroeder.” Excelsior Clerk's Papers (ECP) at 157. By April 2009, Schroeder's lawyer and his counterpart negotiated a settlement, struck the foreclosure sale, and dismissed the case. While the record is not entirely clear, it suggests Excelsior Management Group LLC, through a corporate partner, “agreed to loan $425,700 to Steven Schroeder” in return for a new deed of trust on the land and an agreement that the property was not agricultural for purposes of nonjudicial foreclosure. ECP at 168. The record is also unclear as to whether Schroeder actually received any money beyond that deemed necessary to refinance the 2007 loan. The new deed of trust names Excelsior Mortgage Equity Fund II LLC as both the lender and the beneficiary, suggesting a close relationship between the Excelsior management group and the Excelsior equity fund. This settlement was partially memorialized in the stipulated trial court's order dismissing the case, which says:

For valuable consideration, the receipt of which is hereby acknowledged, Schroeder, through his attorney, knowingly waives his right, pursuant to RCW 61.24.030(2) to judicial foreclosure on the subject property on the grounds it is used for agricultural purposes.

....

1. Schroeder has knowingly waived any and all right he may have to judicial foreclosure of the subject property on the grounds it is used for agricultural purposes,

2. Schroeder shall not be allowed to again allege that the subject property is used for agricultural purposes,

3. Any future deed of trust executed by Schroeder to the defendant, an associated company or assigns, need not be judicially foreclosed but may be foreclosed nonjudicially in accordance with RCW Chapter 61.24.

ECP at 36.

¶ 7 Schroeder testified he understood he had a year's forbearance before any payments would be due. Instead, the note he signed had monthly payments from the beginning and was due in full in a year. Schroeder also testified that he did not understand that he agreed that his farm was not agricultural, both for purposes of settlement and in the deed of trust.²

¶ 8 In November 2009, Haberthur, as the successor trustee, began nonjudicial foreclosure proceedings. Haberthur described himself in a sworn declaration as “one of the attorneys” for both the Excelsior management group and the Excelsior equity fund. ECP at 123. The nonjudicial foreclosure sale was initially set for February 19, 2010. The record suggests that Schroeder had difficulty finding counsel to represent him. He did not retain his new attorney, Matthew Pfefer, until early 2010. On February 8, mere days after being hired, Pfefer served the trustee with a summons and complaint seeking to block the sale on several grounds, including the assertion that the land was agricultural. Pfefer set the hearing to enjoin the sale for February 16, 2010, which gave the trustee the five days' notice required by RCW 61.24.130(2). Haberthur responded by e-mailing Pfefer a copy of the 2009 stipulation and order of dismissal, characterizing it as forbidding Schroeder from raising the agricultural character of his property. Based on that order, Haberthur asked Pfefer to dismiss his complaint with prejudice and informed him Haberthur would be seeking his attorney fees for having to appear. Pfefer asked Haberthur to delay the sale and give him more time to investigate. According to Pfefer's declaration, Haberthur declined to postpone the foreclosure sale, “insisting that he would not subject his client to a fishing expedition by the Plaintiff.” Haberthur Clerk's Papers (HCP) at 87.³ Pfefer voluntarilydismissed the complaint and struck the February 16 hearing, blaming what he later described as “the Trustee's intransigence.” HCP at 59, 87.

¶ 9 Late on February 15, with the February 19 sale date looming ever closer, Pfefer filed a new complaint for damages and injunctive relief under the Washington Mortgage Broker Practices Act (ch. 19.146 RCW), the Consumer Protection Act (CPA) (ch. 19.86 RCW), the Real Estate Settlement Practices Act (12 U.S.C. § 2601), and claimed unconscionability and civil conspiracy. ECP at 248–51. Among other things, Pfefer argued that Excelsior and its associated companies had “predatory lending practices”; that they had offered Schroeder a loan on favorable terms and then switched it out for a far less favorable one; that they had offered Schroeder a loan that had no payments for 12 months and changed it to one that became due in full in 12 months; that they had stripped Schroeder's equity by driving up their fees and expenses; that they had “surprise[d]” Schroeder by inserting a security interest in the timber on Schroeder's land into the deed of trust, preventing him from being able to harvest it and make payments on the note; and that they had failed to inquire into Schroeder's ability to pay before making the loan. ECP at 239–44. Pfefer e-mailed Haberthur a motion for an ex parte temporary restraining order. Pfefer also moved to set aside Schroeder's 2009 stipulation and order and order of dismissal, stating the property was not agricultural and that the deed of trust act did not allow the parties to agree to waive RCW 61.24.030, that his attorney was without authority to make that stipulation, and that enforcing the stipulation would violate his free speech rights.

¶ 10 The judge initially granted the temporary restraining order. A few days later, Haberthur moved to dissolve the temporary restraining order on the ground that Schroeder had not given the trustee the requisite five days' notice of the hearing and because the late notice was unfair to the trustee. The trial judge granted the motion. The nonjudicial foreclosure sale proceeded and Haberthur executed a trustee's deed conveying the Schroeder property to his client, Excelsior Mortgage Equity Fund II LLC.

¶ 11 Around this time, the defendants moved for summary judgment dismissing the case. The motion is not in the record,...