Morgan Court Owners Association, Res. v. Deutsche Bank National Trust Co., App. ( 2015 )

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON
MORGAN COURT OWNERS ) No. 71913-1-1
ASSOCIATION,
r;.
Respondent, DIVISION ONE
v.
rV;
DEUTSCHE BANK NATIONAL
TRUST COMPANY, as Trustee for UNPUBLISHED OPINION
MORGAN STANLEY ABS CAPITAL
o
I INC. TRUST 2007-NC2 MORTGAGE
PASS-THROUGH CERTIFICATES,
SERIES 2007-NC2
Appellant. FILED: June 29, 2015
Spearman, C.J. — Morgan Court Owners Association foreclosed on a first
position lien and purchased a condominium unit for an amount substantially
below market value. Deutsche Bank had a junior lien for $240,000 on the unit
that was extinguished by the foreclosure sale. Deutsche Bank appeals,
contending the trial court erred when it failed to grant Deutsche Bank's request
for equitable relief from the foreclosure sale. Deutsche Bank argues that because
the sale price was grossly inadequate, Morgan Court was not a bona fide
purchaser and other indications of unfairness regarding the sale were present,
the trial court should have ordered Morgan Court to sell the unit to Deutsche
Bank. Finding no error, we affirm.
No. 71913-1/2
FACTS
In 2008, respondent Morgan Court Owners Association (Morgan Court)
initiated a judicial foreclosure action on its statutory lien for unpaid condominium
assessments on the property commonly known as 10935 S.E. 187th Lane,
Renton, Washington 98055 (Unit) and legally described as:
UNIT 10935, BUILDING F, MORGAN COURT, A CONDOMINIUM,
ACCORDING TO THE DECLARATION RECORDED UNDER
RECORDING NO. 20001 030001942, AND ANY AMENDMENTS
THERETO, AND 4 SURVEY MAP AND PLANS IN VOLUME 169
OF CONDOMINIUM PLATS, ON PAGES 38 THROUGH 44,
RECORDS OF KING COUNTY, WASHINGTON; SITUATE IN
THE COUNTY OF KING, STATE OF WASHINGTON Tax
Parcel Acct No. or Account Number: 563590-0170-07.
Clerk's Papers (CP) at 44. At the time the Unit was owned by Carol Obeng.
Obeng had taken out a loan with New Century Mortgage Corporation and
executed a promissory note and deed oftrust in favor of Mortgage Electronic
Registration Systems (MERS) in November, 2006. Obeng defaulted on the Note
as early as January 2009. New Century Mortgage Corporation endorsed the
Note to appellant Deutsche Bank National Trust Company, as trustee for Morgan
Stanley ABS Capital I Inc., Trust 2007 NC2 Mortgage Pass-Through Certificates,
Series 2007-NO2 (Deutsche Bank).
Morgan Court filed a lawsuit on July 25, 2008, naming MERS and
CitiFinancial as defendants in the judicial foreclosure action. MERS was served
on August 6, 2008. On February 10, 2009, Morgan Court obtained a default
judgment against Obeng for $8,817.17 in outstanding assessments and an order
granting Morgan Court a lien on the Unit, with priority over all interests except the
No. 71913-1/3
statutory right of redemption. Morgan Court attempted to collect on the judgment
by garnishing Obeng's wages. Obeng filed for Chapter 13 bankruptcy in May
2009. On May 20, 2009, Saxon Mortgage (Saxon), as servicing agent for
Deutsche Bank, filed proof of secured claim in the Obeng bankruptcy and
requested notice of service. This was the first appearance of MERS or Deutsche
Bank in either the state or the bankruptcy court, a full nine months after being
served with the complaint for judicial foreclosure.
On May 27, 2009, Morgan Court filed a motion for relief from stay to
proceed with the foreclosure. Copies of the motion were mailed to Saxon on that
date. No objections were made to Morgan Court's request for relief from stay,
and the bankruptcy court entered an order granting relief on June 23, 2009.
Obeng entered into a purchase and sale agreement for the Unit on or
about August 31, 2009. The proposed buyer had been approved for a home loan
at that time for the purchase price of $210,000. In the meantime, Morgan Court
obtained an order of sale on October 14, 2009. Notice of the sheriff's sale
scheduled for December 4, 2009 was mailed to the judgment debtors but not to
MERS or Saxon. Saxon approved the short sale on November 24, 2009 and
agreed to accept $175,332.71 ofthe sale proceeds in exchange for release of
the lien.
Correspondence in the record shows that as of November 23, 2009,
Morgan Court had been made aware of the proposed short sale and had
considered postponing the sheriff's sale. Obeng also contacted Morgan Court on
December 2, 2009, in an attempt to postpone the sheriff's sale. Morgan Court
No. 71913-1/4
declined to postpone and the sheriff's sale took place as scheduled. At the sale,
Morgan Court was the highest bidder at $8,818.17, the amount of its judgment.
Nothing in the record shows that Deutsche Bank, Obeng, Saxon, or MERS
made any effort after December 2, 2009, to sell or purchase the Unit or to pay
any amount toward Morgan Court's judgment lien in order to redeem the Unit.
The statutory redemption period expired on December 4, 2010. On January 18,
2011, the sheriff issued a deed conveying the Unit to Morgan Court. On May 6,
2011, a year and a half after the Unit had been sold, MERS assigned the deed of
trust to Deutsche Bank. The assignment was recorded on July 25, 2011.
Morgan Court filed this action to quiet title on March 21, 2013.1 Deutsche
Bank was served on April 30, 2013. On July 2, 2013, Morgan Court obtained an
order of default and an order quieting title. Deutsche Bank appeared on July 19,
2013, and on August 7, 2013. The parties stipulated to set aside the order of
default and vacate the order to quiet title. Deutsche Bank filed an answer and
affirmative defenses on September 9, 2013.
Morgan Court filed a motion for summary judgment and order to quiet title
on February 24, 2014. Deutsche Bank filed a motion to amend its answer to add
a counterclaim for declaratory relief to invalidate the statutes for failure to require
a foreclosing lienholder to provide additional notice of sale or redemption period.
In its opposition to summary judgment, Deutsche Bank argued that its equitable
interest was superior to Morgan Court's, and that the trial court should apply
1 Morgan Court initially named both MERS and Deutsche Bank, along with Obeng, as
defendants, but dismissed MERS as it no longer had any interest in the Unit.
No. 71913-1/5
equitable principles to fashion the appropriate relief. The trial court denied
Deutsche Bank's motion to amend and granted summary judgment in favor of
Morgan Court on April 4, 2014.
In its oral ruling, the trial court found that MERS, as the beneficiary of the
deed of trust and Deutsche Bank's predecessor in interest, had adequate notice
of the sheriff's sale, and that Deutsche Bank had not shown that any additional
notice was required. The trial court found that "defendants failed to protect the
deed of trust before this sheriff's sale, and that - that the deed of trust was
eliminated because of defendant's inaction to protect it." Verbatim Report of
Proceedings (VRP) at 31.
Deutsche Bank appealed the trial court's order granting summary
judgment and quieting title, and the order denying its motion to amend. Deutsche
Bank later elected not to pursue its appeal of the denial of the motion to amend.
DISCUSSION
The question of whether equitable relief is appropriate is a question of law
to be reviewed de novo. Niemann v. Vaughn Comm'tv Church, 154 Wash. 2d 365,
374, 113 P.3d 463 (2005). The fashioning of the remedy is reviewed for abuse of
discretion. Sorenson v. Pveatt. 158Wn.2d523, 531, 146 P.3d 1172(2006).
Here, the trial court granted summary judgment in favor of Morgan Court, which
is also a question of law, and declined to grant equitable relief. Review is
therefore de novo.
Deutsche Bank asked the trial court to fashion an equitable remedy in lieu
of quieting title. Deutsche Bank correctly states that the courts are authorized to
No. 71913-1/6
step in and prevent the enforcement of a legal right whenever such an
enforcement would be inequitable. Proctor v. Huntington, 169 Wash. 2d 491, 500,
238 P.3d 1117 (2010). In Proctor the Huntingtons made a good-faith mistake and
built their $300,000 home on an acre of Proctor's adjoining property. Instead of
forcing the Huntingtons to move their home, the trial court required Proctor to sell
the underlying acre to the Huntingtons for $25,000. |d. at 495. On appeal, the
Supreme Court affirmed. The Court set forth a five part test for when a court may
forego enforcement of a traditional property rule, such as the absolute right to
ejectment in encroachment cases, and instead utilize a liability rule that permits
"the exchange of damages for a transfer of a legal right." jd. at 496-500.
Deutsche Bank asks that we invoke our equitable powers in a similar manner
that "transcends the mechanical application of property rules."2 Jd. at 501 (citing
Arnold v. Melani, 75 Wash. 2d 143, 449 P.2d 800 (1968)); Brief of Appellant at 15.
The parties agree that the standard for invalidating a foreclosure sale
provides the appropriate legal framework. In Miebach v. Colasurdo, 102 Wash. 2d
170, 175, 685 P.2d 1074 (1984), the court held that a foreclosure sale may be
set aside on equitable grounds where (1) the buyer or his successor is not a
bona fide purchaser, (2) the price paid for the property is grossly inadequate, and
(3) there are "irregularities" surrounding the sale, such as a failure on the part of
the creditor to seek satisfaction of the debt from personal property before
2 In opposition to summary judgment, Deutsche Bank submitted only the Proctor test as a
basis for equitable relief and did not argue that the trial courtshould have applied the standard of
misconduct required for invalidating a foreclosure sale.
No. 71913-1/7
executing on real property. Morgan Court concedes that it was not a bona fide
purchaser and that the price was grossly inadequate. Brief of Respondent at 13.
Thus, the only point of contention is whether there were circumstances indicating
unfairness that would require the sale to be set aside on equitable grounds.
Deutsche Bank cites the rule from Casa Del Rev v. Hart, 110 Wash. 2d 65,
71-72, 750 P.2d 261 (1988), that states if the purchase price is "grossly
inadequate," and there is no bona fide purchaser, then a party need only show
"'slight circumstances indicating unfairness'" to justify the imposition of an
equitable remedy. Br. of Appellant at 23-24. But Morgan Court argues that in
those cases where the sales have been set aside, the slight circumstances
indicating unfairness always involved the failure of the judgment creditor to
comply with statutory requirements or in which the creditor engaged in some sort
of misconduct. In Casa Del Rev and Miebach, the judgment creditors failed to
abide by the statutory requirement that before resorting to foreclosure, efforts
must first be made to satisfy the judgment out of personal property.
Morgan Court argues, and Deutsche Bank concedes, that Morgan Court first
sought to satisfy its lien out of Obeng's personal property but was thwarted when
she filed for bankruptcy. And Deutsche Bankdoes not contend that Morgan
Court otherwise violated any statutes.
Nonetheless, Deutsche Bank argues slight circumstances indicating
unfairness exist in this case that warrant equitable relief. Deutsche Bank points
outthat Morgan Court failed to provide notice ofthe sheriff's sale to anyone but
the judgment debtor, and failed to agree to delay the sale when it knew that there
No. 71913-1/8
was a private third party buyer willing to purchase it for an amount that would pay
off the Deutsche Bank loan. Deutsche Bank points to email correspondence
between Morgan Court and Morgan Court's counsel demonstrating that Morgan
Court chose to go forward with the sale as scheduled in order to protect its
priority of lien, instead of postponing so that Deutsche Bank's lien could be paid
from the proceeds of a short sale.
According to Deutsche Bank, although Morgan Court "technically
complied] with the [foreclosure] statute," the fact that Morgan Court sought to
deliberately pursue its own interests at the expense of Deutsche Bank is
sufficient reason to set aside a sale. Br. of Appellant at 23. The only authority
Deutsche Bank offers in support of this proposition, however, is dicta from Mellen
v. Edwards, 179 Wash. 272, 283-84, 37 P.2d 203 (1934). In that case, the state
Supreme Court reversed an order setting aside a sale, because there were no
circumstances indicating unfairness that would warranted the court's intervention.
The Mellen court pointed out that "it [did] not appear that the appellant has taken
advantage of [conditions] to further his own interests." 179 Wash, at 284. The
court also held that there was nothing in the record that "indicate[d] a deliberate
and willful attempt upon the part of the appellant to take advantage of the general
situation to further a selfish purpose and to enrich himself at the expense of the
respondents." Id Deutsche Bank argues that Mellen also stands for the converse
- that "a foreclosing party that deliberately enriches itself at the expense of
others has engaged in precisely the type of conduct that warrants equitable
intervention." Reply Brief, at 16. The argument is unavailing.
8
No. 71913-1/9
Morgan Court had a judgment lien with priority and it was entitled to
foreclose on that lien regardless of whether there were any intervening liens, for
any amount. Deutsche Bank argues that Morgan Court's exercise of that right
was unfair, because Morgan Court could have delayed the foreclosure to make
sure that everyone was paid. But Morgan Court's claim that it received no
assurance (1) that the short sale would actually occur, or (2) that if it did occur, its
lien would be satisfied, is well taken. The documents Morgan Court received
showed that the approval from the buyer's lender had expired at the end of
October and there was no evidence that the approval had been renewed.
In addition, Saxon's approval of the transaction expressly precluded any of
the proceeds from going toward Morgan Court's judgment lien. The approval
listed the sale price of $210,000, broken out into $175,332.71 to pay Deutsche
Bank's first lien, total closing costs not to exceed $22,567.29, realtor sales
commissions not to exceed $10,500, and only $1,600 to pay toward any
subordinate lien. Any funds over and above the listed amounts (totaling $210,000
exactly) would go to Saxon. There was no allocation for Morgan Court's lien,
even though Obeng and Saxon had full knowledge of the lien and the pending
foreclosure sale. On this record, Deutsche Bank's claim that Morgan Court's
efforts to protect its own interests constituted misconduct rings hollow.
Deutsche Bank also argues Morgan Court misused its "super lien" status
when it purchased the unit for a fraction of its value. Brief of Appellant at 24-25.
According to Deutsche Bank, the purpose of the super lien statute was to protect
condominium associations' rights to recover up to six months of outstanding
No. 71913-1/10
association fees, not to provide a vehicle for them to purchase the units for the
amount of fees owed. Deutsche Bank also claims that the statute provided
Morgan Court with an unfair advantage and that Morgan Court used its priority to
take the entire property, instead of only the amount of outstanding dues.3
Morgan Court responds that based on Deutsche Bank's own conduct,
there was nothing unfair about it exercising its statutory right. It points out, and
Deutsche Bank does not dispute, that Deutsche Bank could have paid Morgan
Court's lien before the sale, but did not do so. Under RCW 61.12.060, payment
of the mortgage debt, with interest and costs, at any time before sale, shall
satisfy the judgment. Saxon had notice of Morgan Court's intent to foreclose as
early as May 2009, when Morgan Court moved for relief from stay. Deutsche
Bank, through its agent, had at least six months' notice before the foreclosure
sale took place, during which time it could have paid the amount owed to Morgan
Court. There is also nothing in the record indicating that Deutsche Bank was
precluded from bidding at the trustee's sale. Deutsche Bank also had the chance
to exercise its redemption rights during the one year period after the sale, and
failed to do so.
Finally, Deutsche Bank argues that Morgan Court should not receive
equitable consideration because it waited over two years to bring the quiet title
3 Deutsche Bank also makes an argument suggestive of estoppel, claiming that Morgan
Court cannot contend that Deutsche Bank is not prejudiced, when, according to Deutsche Bank,
the emails show that Morgan Court's stated purpose of pressing forward with the sale was to gain
an advantage over it. Because the argument is unsupported by any authority, we do not address
it. RAP 10.3(a)(5); Cowiche Canyon Conservancy v. Boslev. 118 Wash. 2d 801, 809, 828 P.2d 549
(1992).
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No. 71913-1/11
action. Laches is an equitable principle that in a general sense relates to neglect
for an unreasonable length of time, under circumstances permitting diligence, to
do what in law should have done. Arnold, 75 Wash. 2d at 147-48. It also requires an
intervening change of condition, making it inequitable to enforce the claim. Id.
Deutsche Bank has made no showing of an intervening change of condition that
would make it inequitable to enforce the claim. Deutsche Bank or its
predecessors in interest failed to pay the lien, bid at the sale, or exercise any
redemption rights.
We conclude that the trial court did not err in granting summary judgment
and quieting title in favor of Morgan Court.
Affirmed.
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WE CONCUR:
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11