4518 S. 256th, LLC v. Karen L. Gibbon, PS , 195 Wash. App. 423 ( 2016 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
4518 S. 256th, LLC, a Nevada Limited
Liability Company, No. 73834-8-I
Appellant, DIVISION ONE
v. PUBLISHED OPINION
KAREN L. GIBBON, P.S., Trustee;
RECONTRUST, N A, Trustee,
Defendants,
cr •_'.:;
MORTGAGE ELECTRONIC C3 --> ~ :
REGISTRATION SYSTEMS, INC. en ``-o<
("MERS") acting as nominee for 33.
corn,
COUNTRYWIDE HOME LOANS, INC.,
Beneficiary; THE BANK OF NEW
YORK MELLON f/k/a THE BANK OF (S3 :r^
NEW YORK, as Trustee for the
certificateholders of CWABS, Inc.
Asset-backed Certificates, Series
2006-7,
AUG 15 2016
Respondents. FILED:
Trickey, J. — We consider whether a lender may initiate nonjudicial
foreclosure of a deed of trust without accelerating the maturity date for the entire
obligation secured by the deed of trust. We hold that it may, because acceleration
and foreclosure are separate options that a lender is entitled to pursue after
default.
We also hold that acceleration of the maturity of a debt does not occur
automatically upon invocation of the power of sale. Rather, if a lender exercises
its option to accelerate the loan, "acceleration [of the maturity of the debt] must be
made in a clear and unequivocal manner which effectively apprises the maker that
No. 73834-8-1 / 2
the holder has exercised his right to accelerate the payment date." Glassmaker v.
Ricard, 23 Wash. App. 35, 38, 593 P.2d 179 (1979).
In this case, there is no evidence that the lender gave notice to the
borrowers that it clearly and unequivocally elected to accelerate the maturity date
of the promissory note when it initiated nonjudicial foreclosure proceedings in
2008. Accordingly, the trial court properly concluded that the six-year statute of
limitations did not accrue in 2008 on the entire unpaid balance of the loan. The
statute does not bar enforcement of the loan in 2015. We affirm.
FACTS
Appellant 4518 S. 256th LLC (hereinafter "the LLC") is a Nevada limited
liability company and the owner of real property located at 4518 S. 256th Place in
Kent, Washington. The previous owners of the property were Teodoro Puebia and
Elizabeth Villalovos, husband and wife.
Puebia and Villalovos obtained a residential loan in the amount of $256,000.
The loan was documented by a promissory note dated May 25, 2006. The
promissory note provided that Puebia and Villalovos would pay the debt in monthly
installment payments and would pay the debt in full not later than June 1, 2036,
the maturity date.
A deed of trust, dated May 25, 2006, secured the promissory note. The
deed of trust was recorded on May 31, 2006, in the auditor's records of King
County, Washington.
No. 73834-8-1 / 3
A notice of default dated July 9, 2008 was sent to Puebia and Villalovos, the
then owners of the property subject to the deed of trust.1 The notice declared them
to be in default under the note and deed of trust. The notice itemized the defaults
as failure to pay the past due monthly installment payments. As of the date of the
notice, the monthly installment arrearages totaled $13,427.12 plus expenses.2
The notice further stated that an additional monthly payment plus an additional late
charge would become due before a notice of sale was recorded. Thus, the amount
required to cure all defaults before recording of the notice of sale was $15,255.56.3
It also stated that the failure to cure all alleged defaults within 30 days may lead to
the sale of the property at public auction.4 At the time of this notice, the unpaid
principal balance of the loan was $255,932.00.5
Nothing in this notice of default to the borrowers stated that the lender chose
to declare the unpaid balance of the loan due and payable.
On August 15, 2008, the original successor trustee under the deed of trust
recorded a notice of trustee's sale.6 This notice itemized the defaults as failure to
pay the past due monthly installment payments.7 As of the date of this notice of
trustee's sale, the monthly installment arrearages totaled $15,155.43 plus
expenses. It stated that the sale of the property would be held on November 14,
2008. The notice also stated that payment in the amount of $16,297.38 must be
1 Clerk's Papers (CP) at 140-43.
2 CP at 14, 140-43.
3 CP at 141.
4 CP at 142.
5 CP at 142.
6 CP at 12-16.
7CPat13.
No. 73834-8-1 / 4
made before the close of business on November 3, 2008, which was 11 days
before the sale date, to cause a discontinuance of the sale.8 After that date,
discontinuance of the sale required payment of the entire unpaid balance of
principal and interest secured by the deed of trust.9
Nothing in this notice of trustee's sale to the borrowers stated that the lender
chose to declare the unpaid balance of the loan due and payable.
This scheduled foreclosure sale never occurred. On November 28, 2011,
the original successor trustee recorded a notice of discontinuance of trustee's sale.
On October 21, 2014, a second notice of default was sent to Puebia and
Villalovos, who were still the owners of the property.
On February 2, 2015, a new successor trustee recorded a new notice of
trustee's sale.10 This notice itemized the defaults as failure to pay the past due
monthly installment payments. As of the date of this notice of trustee's sale, the
arrearages totaled $166,568.72 in past monthly installment payments plus
expenses. It announced that the sale of the property would be held on June 12,
2015. At the time of this notice, the unpaid principal balance of the loan was then
$255,932.00.
On February 17, 2015, Puebia and Villalovos quitclaimed their property to
the LLC. There is no evidence in this record that the LLC either assumed or agreed
to pay the loan to Puebia and Villalovos.
8 CP at 14.
9CPat14.
10 CP at 20-22.
No. 73834-8-1 / 5
On March 6, 2015, the LLC commenced this action against both successor
trustees, the Bank of New York Mellon ("Bank of New York"), and others. The LLC
sought (1) to quiet title to the property in its favor, (2) a declaratory judgment that
the Bank of New York's rights, title, and interest in the property are forever barred
by the running of the statute of limitations, and (3) an injunction restraining the
foreclosure sale.
On June 5, 2015, a trial court commissioner entered a stipulated order
restraining the trustee's sale until further order of the court.
Both parties moved for summary judgment. The primary issue before the
trial court was whether the six-year statute of limitations barred enforcement of the
loan. The LLC argued that the deed of trust was unenforceable because
acceleration of the maturity date of the promissory note occurred in 2008, more
than six years prior to the commencement of the 2015 foreclosure. The Bank of
New York argued that the deed of trust remained enforceable because it never
accelerated the maturity of the promissory note.
After a hearing on July 31, 2015, the trial court concluded that acceleration
had not occurred and thus, the statute of limitations did not bar enforcement of the
loan. Accordingly, the trial court granted summary judgment in favor of the Bank
of New York and dismissed the LLC's lawsuit with prejudice. The trial court also
ordered that the preliminary injunction previously entered "shall remain in effect
until [August 31, 2015], at which point it shall automatically dissolve."11
11 CPat185.
No. 73834-8-1 / 6
Thereafter, the Bank of New York moved for an award of attorney fees and
costs. The trial court granted this motion. It appears to have done so on the basis
of a fee provision in the deed of trust.
The LLC appeals the summary judgment order.
ANALYSIS
Waiver
As an initial matter, the Bank of New York argues that the LLC waived its
right to appeal the dismissal of its quiet title action. We disagree.
To support this assertion, the Bank of New York relies on Frizzell v. Murray,
179 Wash. 2d 301, 307, 313 P.3d 1171 (2013). There, the Supreme Court held that
"a waiver of a postsale contest occurs when 'a party (1) received notice of the right
to enjoin the sale, (2) had actual or constructive knowledge of a defense to
foreclosure prior to the sale, and (3) failed to bring an action to obtain a court order
enjoining the sale.'" 179 Wash. 2d at 306-07 (quoting Plein v. Lackey, 149 Wash. 2d 214,
229, 67P.3d 1061 (2003)).
The Bank of New York also relies on RCW 61.24.127(2). Under that statute,
a postsale claim for monetary damages "may not operate in any way to encumber
or cloud the title to the property that was subject to the foreclosure sale, except to
the extent that a judgment on the claim in favor of the borrower or grantor may,
consistent with RCW 4.56.190, become a judgment lien on real property then
owned by the judgment debtor." RCW61.24.127(2)(e).
No. 73834-8-1 / 7
These authorities do not support the Bank of New York's assertion that "this
appeal is barred by waiver."12 This is not a postsale action contesting the
foreclosure, nor is it a postsale action for monetary damages. Rather, this is an
appeal of a presale action contesting the foreclosure. The LLC commenced this
action prior to the foreclosure and obtained an order restraining the sale. That
order dissolved 30 days after the entry of the summary judgment order.
The Bank of New York does not cite any relevant authority that the LLC's
failure to take further action to restrain the foreclosure sale pending appeal results
in waiver of its right to appeal. For this reason, we reject this argument.
Mootness
The Bank of New York also argues that this appeal is moot because the
property at issue has been sold to a third party. To support this argument, the
Bank of New York relies on evidence that the property was sold at a foreclosure
sale on September 4, 2015 to a nonparty.13 We again disagree.
"A case is technically moot if the court can no longer provide effective
relief.'" State v. Beaver, 184 Wash. 2d 321, 330, 358 P.3d 385 (2015) (quoting State
v. Hunley, 175 Wash. 2d 901, 907, 287 P.3d 584 (2012)). As a general rule, appellate
courts "do not consider cases that are moot or present only abstract questions."
Beaver, 184 Wash. 2d at 330. However, "[e]ven if a case becomes moot, the court
has the discretion to decide an appeal if the question is one of continuing and
substantial public interest." Beaver, 184 Wash. 2d at 330.
12 Resp'ts MERS and [Bank of New York (BONY)]'s Answering Br. at 10 (boldface and
capitalization omitted).
13 The Bank of New York has filed a motion to supplement the appellate record with
evidence of this sale. We grant the motion.
No. 73834-8-1 / 8
Here, this court can provide effective relief. The LLC's complaint sought
declaratory relief that the Bank of New York's claims under the deed of trust and
promissory note were barred by the statute of limitations. Ifthis court agrees, then
the LLC may have a valid cause of action for monetary damages based on the
trustee's material violation of the deeds of trust act (DTA). RCW 61.24.127(1); see
also Frias v. Asset Foreclosure Servs.. Inc., 181 Wash. 2d 412, 429, 334 P.3d 529
(2014) (holding that there is no actionable, independent cause of action for
monetary damages under the DTA, based on DTA violations, absent a completed
foreclosure sale).
In short, this appeal is not moot. Moreover, this case presents an issue of
continuing and substantial public interest. For these reasons, we reach the merits
of the appeal.
Statute of Limitations
The LLC argues that the trial court erred by granting summary judgment in
favor of the Bank of New York. It contends that the maturity date of the promissory
note was accelerated during the 2008 foreclosure proceedings and thus, the six-
year statute of limitations for the collection of debt had expired. It relies on
language from the deed of trust, the DTA, and case lawfrom Washington and other
jurisdictions, to assert that the invocation of the power of sale presumes an
acceleration.
The Bank of New York counters that acceleration and foreclosure are
separate and distinct options that a lender may exercise in the case of a borrower's
default. Accordingly, it contends that summary judgment in its favor was proper
8
No. 73834-8-1 / 9
because the lender never accelerated the maturity date of the loan and the statute
of limitations for the unpaid balance of the loan had not expired in 2015. We agree
with the Bank of New York.
"As an agreement in writing, the deed of trust foreclosure remedy is subject
to a six-year statute of limitations." Edmundson v. Bank of America, N.A., et. al.,
No. 74016-4-1, 2016 WL 3853751, at *3 (Wash. Ct. App. July 11, 2016); RCW
4.16.040.
In Herzoq v. Herzog, our Supreme Court addressed when the six-year
statute of limitations on a written agreement accrues. 23 Wash. 2d 382, 387-88, 161
P.2d 142 (1945). In doing so, it distinguished a demand note from an installment
note. 23 Wash. 2d at 387-88. The statute of limitations accrues on a demand note
when it is executed. By contrast, when recovery is sought on an installment note,
"the statute of limitations runs against each installment from the time it becomes
due; that is, from the time when an action might be brought to recover it." 23 Wash. 2d
at 388; accord 25 David K. DeWolf, Keller W. Allen, & Darlene Barrier
Caruso, Washington Practice: Contract Law & Practice § 16:21, at 511 (3rd
ed. 2014) ("Where a contract calls for payment of an obligation by installments, the
statute of limitations begins to run for each installment at the time such payment is
due.").
But ifan obligation that is to be paid in installments is accelerated, the entire
remaining balance becomes due and the statute of limitations is triggered for all
installments that had not previously become due. 31 Richard A. Lord, Williston
on Contracts § 79:17, at 338; § 79:18, at 347-50; accord 12 Am.Jur.2d, Bills &
No. 73834-8-1/10
Notes § 581. The statute of limitations commences upon maturity of a note.
AA.C. Corp. v. Reed. 73 Wash. 2d 612, 615, 440 P.2d 465 (1968).
To accelerate the maturity date of a promissory note, "'[s]ome affirmative
action is required, some action by which the holder of the note makes known to
the payors that he intends to declare the whole debt due.'" Glassmaker. 23 Wn.
App. at 37 (emphasis omitted) (quoting Weinberg v. Naher, 51 Wash. 591, 594, 99
P. 736 (1909)). "[M]ere default alone will not accelerate the note." AA.C. Corp..
73 Wash. 2d at 615. "[Acceleration [of the maturity of the debt] must be made in a
clear and unequivocal manner which effectively apprises the maker that the holder
has exercised his right to accelerate the payment date." Glassmaker, 23 Wash. App.
at 38.
We review de novo whether a statute of limitations bars an action. Bennett
v. Computer Task Grp.. Inc.. 112 Wash. App. 102, 106, 47 P.3d 594 (2002). We also
review de novo questions of contract interpretation that do not depend on the use
of extrinsic evidence as well as questions of statutory interpretation. Wash. State
Major League Baseball Stadium Pub. Facilities Dist. v. Huber. Hunt. & Nichols-
Kiewit Const. Co., 176 Wash. 2d 502, 517, 296 P.3d 821 (2013); State v. Armendariz.
160Wn.2d 106, 110, 156P.3d201 (2007).
Summary judgment is appropriate if there is no genuine issue of material
fact and the moving party is entitled to judgment as a matter of law. Wash. Fed.
v. Harvey. 182 Wash. 2d 335, 340, 340 P.3d 846 (2015). This court reviews de novo
the grant of summary judgment. Harvey, 182 Wash. 2d at 339.
10
No. 73834-8-1 /11
Here, the parties agree that the 2006 promissory note is an installment
note.14 This is confirmed by the deed of trust, which states that the borrower
"promised to pay this debt in regular [p]eriodic [p]ayments."15 The crux of the
parties' dispute is whether the lender accelerated the June 1, 2036 maturity date
in 2008 when the lender initiated foreclosure proceedings. If so, the statute of
limitations for the entire debt accrued at that time. If not, the statute of limitations
did not bar enforcement of the deed of trust for each of the monthly installment
payments that became due within six years prior to the 2015 nonjudicial
foreclosure. Edmundson. 2016 WL 3853751 at *5. We conclude that acceleration
did not occur.
In Weinberg, the Supreme Court stated the controlling principle of law
defining when acceleration of the maturity of a debt occurs: "Some affirmative
action is required, some action by which the holder of the note makes known to
the payors that he intends to declare the whole debt due." 51 Wash, at 594. In
this case, the holder of the note never made it known to the payors that it intended
to declare the whole debt due.
The 2008 notice of default sent to Puebia and Villalovos stated defaults
under the deed of trust for failure to make back monthly installment payments in
the total amount of $13,427.12 plus expenses. The notice of default required
payment in the amount of $15,255.56 in order to cure the defaults before recording
of the notice of trustee's sale.
14 See Br. of Appellant at 8, Resp'ts MERS and BONY's Answering Br. at 3.
15 CP at 108.
11
No. 73834-8-1/12
Nowhere in the notice of default is there any statement that the Bank of New
York declared due the entire unpaid balance of the loan. On the contrary, the
statement of the amounts due are limited to past due monthly installment payments
plus expenses, not the entire unpaid principal balance of the loan.
The notice expressly threatened foreclosure. It did not threaten
acceleration. In pertinent part, it stated:
G) Effect of Failure to cure: Failure to cure all alleged defaults
within 30 days of mailing/personal service of this notice may lead to
recordation, transmittal and publication of a notice of sale and the
property described above may be sold at public auction no less than
120 days from the date of this notice.[16]
Likewise, the 2008 notice of trustee's sale did not contain any language
indicating that the Bank of New York gave notice to the borrower that it was
exercising its option to declare the entire unpaid balance of the debt due and
payable. On the contrary, the statement of the amounts due are limited to past
due monthly installment payments plus expenses, not the entire unpaid balance of
the loan.
Nor did the notice of trustee's sale contain any language that acceleration
would be automatic. The notice stated defaults under the deed of trust for the
failure to pay monthly payments totaling $15,155.43 plus expenses. It stated that
the sale of the property would be held on November 14, 2008. Additionally, it
stated the borrower's rights to discontinue the sale and the methods by which the
borrower could do so. In pertinent part, it stated:
The above-described real property will be sold to satisfy the expense
of the sale and the obligation secured by the Deed of Trust as
16 CP at 142.
12
No. 73834-8-1/13
provided by statute. The sale will be made without warranty, express
or implied regarding title, possession, or encumbrances on
11/14/2008. The default(s) referred to in paragraph III, together with
any subsequent payments, late charges, advances costs and fees
thereafter due, must be cured by 11/03/2008 (11 days before the sale
date), to cause a discontinuance of the sale. The sale will be
discontinued and terminated if at any time before the close of the
Trustee's business on 11/03/2008 (11 days before the sale date), the
default(s) as set forth in paragraph III, together with any subsequent
payments, late charges, advances, costs and fees thereafter due,
is/are cured and the Trustee's fees and costs are paid. The sale may
be terminated any time after 11/03/2008 (11 days before the sale
date), and before the sale by the Borrower, Grantor, and Guarantor
or the holder of any recorded junior lien or encumbrance paying the
entire balance of principal and interest secured by the Deed of Trust,
plus costs, fees, and advances, if any made pursuant to the terms of
the obligation and/or Deed of Trust.[17]
The LLC overlooks both the law on acceleration, as expressed in Weinberg
and Glassmaker, and the provisions of the various notices that we discussed
earlier. Moreover, it does not provide any evidence that the Bank of New York
gave any other notice to the borrowers that it was accelerating the maturity of the
loan.
Despite this lack of evidence, the LLC relies on the last sentence in the
above provision to argue that the lender accelerated the debt. That reliance is
incorrect.
That sentence incorporates into this deed of trust statutory language from
RCW 61.24.040(1 )(f), which addresses the contents of the notice of foreclosure.
This argument confuses a lender's option to accelerate the maturity of a debt by
giving notice to a borrower with the legislature's statement of a method by which a
borrower may cure a default within the period of 11 days before a trustee's sale.
17 CP at 14.
13
No. 73834-8-1/14
These are not the same. Thus, this sentence in the deed of trust does not require
that we conclude that acceleration of the maturity of a debt is a prerequisite to a
nonjudicial foreclosure proceeding under the DTA.
Our conclusion is supported by the plain language of RCW 61.24.030,
another provision of the DTA. This provision states what "shall be requisite to a
trustee's sale." RCW 61.24.030.
This provision sets forth detailed requirements in nine numbered
paragraphs. RCW 61.24.030(8) includes a requirement that at least 30 days prior
to a recording of a notice of trustee's sale a notice of default must be sent to the
borrowers. The minimum requirements for the content of such a notice are set
forth in numerous subparagraphs. Nowhere in these detailed requirements is
there any statement about acceleration of the maturity of a debt.
Surely, if acceleration of the maturity of a debt was a prerequisite to
nonjudicial foreclosure, there would be some reference to that requirement in RCW
61.24.030. There is none. We conclude from our comparison of these statutes
that acceleration of the maturity of a debt remains an option of a lender. And this
option must be exercised by clear and unequivocal notice to the borrowers. It is
not self-executing.
Significantly, there is no evidence from the borrowers in this case that they
ever received notice from the lender of the latter's acceleration of the maturity date
of the loan.
Moreover, additional documentation also establishes that the lender did not
accelerate the maturity of the debt in 2008. In a declaration, the original successor
14
No. 73834-8-1/15
trustee under the deed of trust stated that it had "no record that the loan secured
by the [d]eed of [t]rust was ever accelerated."18 Further, and more significantly,
the internal records of the loan servicer dated May 18, 2015, show that the total
amount due at that time was $181,734.02.19 That amount was comprised of past
due monthly installment payments of $2,124.59 per month over a period of years
plus expenses. Significantly, this is approximately $70,000 less than the then
outstanding principal balance of the loan. In short, this evidence shows that the
lender never gave clear and unequivocal notice to the borrowers that the entire
unpaid balance of the loan was due. Rather, it only required payment of past due
installment payments plus expenses.
The LLC argues that acceleration occurred "when or before" the trustee
invoked the power of sale in 2008.20 It relies on several authorities for the
proposition that "[t]he invocation of the power of sale presumes an acceleration."21
We disagree.
The LLC first relies on the deed of trust to argue that acceleration occurred
in 2008. The LLC asserts that, under Paragraph 22 of the deed of trust, the lender
does not have the option to invoke the power of sale without acceleration. This
argument is not persuasive.
Paragraph 22 provides:
Acceleration: Remedies. Lender shall give notice to Borrower prior
to acceleration following Borrower's breach of any covenant or
agreement in this Security Instrument (but not prior to acceleration
under Section 18 unless Applicable Law provides otherwise). The
18 CP at 137.
19 CP at 149.
20 Br. of Appellant at 11.
21 Br. of Appellant at 12.
15
No. 73834-8-1/16
notice shall specify: (a) the default; (b) the action required to cure the
default; (c) a date, not less than 30 days from the date the notice is
given to Borrower, by which the default must be cured; and (d) that
failure to cure the default on or before the date specified in the notice
may result in acceleration of the sums secured by this Security
Instrument and sale of the Property at public auction at a date not
less than 120 days in the future. The notice shall further inform
Borrower of the right to reinstate after acceleration, the right to bring
a court action to assert the non-existence of a default or any other
defense of Borrower to acceleration and sale, and any other matters
required to be included in the notice by Applicable Law. Ifthe default
is not cured on or before the date specified in the notice, Lender at
its option, may require immediate payment in full of all sums
secured by this Security Instrument without further demand and
may invoke the power of sale and/or any other remedies
permitted by Applicable Law. Lender shall be entitled to collect all
expenses incurred in pursuing the remedies provided in this Section
22, including, but not limited to, reasonable attorneys' fees and costs
of title evidence.
If Lender invokes the power of sale, Lender shall give written
notice to Trustee of the occurrence of an event of default and of
Lender's election to cause the Property to be sold. Trustee and
Lender shall take such action regarding notice of sale and shall give
such notices to Borrower and to other persons as Applicable Law
may require. After the time required by Applicable Law and after
publication of the notice of sale, Trustee, without demand on
Borrower, shall sell the Property at public auction to the highest
bidder at the time and place and under the terms designated in the
notice of sale in one or more parcels and in any order Trustee
determines. Trustee may postpone sale of the Property for a period
or periods permitted by Applicable Law by public announcement at
the time and place fixed in the notice of sale. Lender or its designee
may purchase the Property at any sale.
Trustee shall deliver to the purchaser Trustee's deed
conveying the Property without any covenant or warranty, expressed
or implied. The recitals in the Trustee's deed shall be prima facie
evidence of the truth of the statements made herein. Trustee shall
apply the proceeds of the sale in the following order: (a) to all
expenses of the sale, including, but not limited to, reasonable
Trustee's and attorneys' fees; (b) to all sums secured by this Security
Instrument; and (c) any excess to the person or persons legally
entitled to it or to the clerk of the superior court of the county in which
the sale took place.[22]
22 CP at 116 (second emphasis added).
16
No. 73834-8-1/17
The plain language of Paragraph 22 indicates that acceleration of the loan
is permissive: "Lender at its option, may require immediate payment in full of all
sums secured by this Security Instrument without further demand and may invoke
the power of sale and/or any other remedies permitted by Applicable Law."23
Paragraph 22 does not say that the lender cannot foreclose without accelerating
the loan.
The LLC argues that the use of the word "and" in the previously quoted
sentence indicates that the deed of trust "does not contemplate any scenario
where the Lender can invoke the power of sale without acceleration" because
courts presume that "and" functions conjunctively.24
But "[i]n certain circumstances, the conjunctive 'and' and the disjunctive 'or'
may be substituted for each other ifit is clear from the plain language of the statute
that it is appropriate to do so." Bullseve Distrib. LLC v. State Gambling Comm'n.
127 Wn. App. 231,239, 110 P.3d 1162 (2005); Kozey, 183 Wash. App. at 698. The
same is true of contract interpretation. See Noell v. Am. Design. Inc.. Profit Sharing
Plan. 764 F.2d 827, 833 (11th Cir.1985) ("It is an established principle that '[t]he
word "or" is frequently construed to mean "and," and vice versa, in order to carry
out the evident intent of the parties.'" (alteration in original) (quoting Dumont v.
United States. 98 U.S. (8 Otto) 142, 143, 25 L. Ed 65 (1878)). Accordingly, we
interpret the word "and" according to context. See Black v. Nat'l Merit Ins. Co.,
154 Wash. App. 674, 688, 226 P.3d 175 (2010).
23 CP at 116 (emphasis added).
24 Br. of Appellant at 10-11 (emphasis omitted) (citing State v. Kozev. 183 Wash. App. 692,
698, 334 P.3d 1170 (2014), review denied. 182 Wash. 2d 1007, 342 P.3d 327 (2015)).
17
No. 73834-8-1/18
When read in context, it is clear that the "and" is not conjunctive. Paragraph
22 of the deed of trust indicates that acceleration and foreclosure are separate
options for the lender. The second paragraph of Paragraph 22 reinforces this
conclusion. It states certain requirements of the lender if the lender invokes the
power of sale. These include issuing a notice to the trustee of the lender's election
to cause the property to be sold and issuing a notice to the borrower regarding the
sale. Nowhere does this paragraph require the lender to accelerate the loan in
order to foreclose.
The LLC next relies on the DTAto argue that acceleration occurred in 2008.
Specifically, it relies on RCW 61.24.090, the statute for curing defaults before a
deed of trust foreclosure sale. In particular, the LLC relies on subsections (1)(a)
and (3), which provide as follows:
(1) At any time prior to the eleventh day before the date set by the
trustee for the sale in the recorded notice of sale, or in the event the
trustee continues the sale pursuant to RCW 61.24.040(6), at any
time prior to the eleventh day before the actual sale, the borrower,
grantor, any guarantor, any beneficiary under a subordinate deed of
trust, or any person having a subordinate lien or encumbrance of
record on the trust property or any part thereof, shall be entitled to
cause a discontinuance of the sale proceedings by curing the default
or defaults set forth in the notice, which in case of a default by failure
to pay, shall be paying to the trustee:
(a) The entire amount then due under the terms of the deed
of trust and the obligation secured thereby, other than such portion
of the principal as would not then be due had no default occurred[.]
(3) Upon receipt of such payment the proceedings shall be
discontinued, the deed of trust shall be reinstated and the obligation
shall remain as though no acceleration had taken place.
18
No. 73834-8-1/19
But these provisions do not address whether a lender may initiate
nonjudicial foreclosure of a deed of trust without accelerating the maturity date for
the entire obligation.
We previously examined subsection (1)(a) in Meyers Way Dev. Ltd. P'ship.
v. Univ. Sav. Bank. 80 Wash. App. 655, 669, 910 P.2d 1308 (1996). There, we
considered whether subsection (1)(a) prohibited a creditor foreclosing nonjudicially
from accelerating a defaulted loan. 80 Wash. App. at 669. We concluded that it did
not. We held that "[n]othing in this provision prohibits acceleration of a loan in
order to charge default interest on the amount owing." 80 Wash. App. at 669. Rather,
the subsection "simply precludes the creditor from enforcing the election prior to
the eleventh day before the date of the trustee's sale, and allows the debtor to
reinstate the loan prior to that time by paying the amount which would have been
due under the terms of the deed of trust if no default had occurred." 80 Wash. App.
at 669-70.
We are now confronted with an argument that this subsection requires a
creditor foreclosing nonjudcially to accelerate a defaulted loan. We again answer
in the negative. As we stated in Meyers Way, this subsection merely precludes a
creditor from enforcing the election prior to the eleventh day before the sale and
allows the debtor to reinstate the loan prior to that time. Just as there is no
language in this subsection prohibiting acceleration of the loan, we see no
language in this subsection mandating acceleration of the loan. It is entirely the
decision of the lender.
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No. 73834-8-1/20
Subsection (3) is also silent about whether a lender may initiate nonjudicial
foreclosure of a deed of trust without accelerating the loan. Subsection (3) merely
provides that if the lender did exercise its option to accelerate, the act of curing the
default will result in the deed of trust being reinstated as though no acceleration
had taken place. It does not, by its terms, indicate that acceleration necessarily
takes place before or upon invocation of the power of sale.
Lastly, the LLC relies on several out of state cases to argue that "[t]he
election of the creditor to accelerate in the case of a nonjudicial foreclosure is
sufficiently indicated by the fact that the creditor claims the whole debt to be due
by its advertisement of the property for sale, or by the commencement of a suit for
foreclosure of the entire mortgage."25 But these cases have no application to the
Washington statutory scheme pertaining to nonjudicial foreclosures. Further, to
the extent that these courts held that the notice of the foreclosure was sufficient to
constitute notice of acceleration, we disagree that this meets Washington's
standard, which requires a "clear and unequivocal" statement of acceleration.
Glassmaker. 23 Wash. App. at 38.
In sum, we hold that a lender has several options after default. A lender
may accelerate the maturity date of a loan. A lender may pursue a nonjudicial
foreclosure. A lender may accelerate the loan and pursue a nonjudicial foreclose.
But a lender is not required to accelerate the loan in order to pursue a nonjudicial
foreclose.
25 Br. of Appellant at 13-15 (citing Heist v. Dunlap&Co.. 193 Ga. 462, 466, 18 S.E.2d 837
(1942); Redwine v. Frizzell. 184 Ga. 230, 190 S.E. 789 (1937); McLemore v. Pac. Sw.
Bank. 872 S.W.2d 286, 292 (Tex. App. 1994); Meadowbrook Gardens. Ltd. v. WMFMT
Real Estate Ltd. P'ship, 980 S.W.2d 916, 918-19 (Tex. App.-Fort Worth 1993)).
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No. 73834-8-1/21
We further hold that acceleration does not occur automatically by invoking
the power of sale. In Washington, "acceleration [of the maturity of the debt] must
be made in a clear and unequivocal manner which effectively apprises the maker
that the holder has exercised his right to accelerate the payment date."
Glassmaker. 23 Wash. App. at 38.
In this case, there is no evidence that the lender ever notified the borrowers
that it clearly and unequivocally exercised its option to accelerate the maturity date
of the loan. For these reasons, the trial court properly concluded that acceleration
had not occurred and that the statute of limitations did not bar enforcement of the
loan.
Given our resolution of this issue, we need not address the other arguments
of the Bank of New York because it is unnecessary to do so.
Attorney Fees
The LLC seeks reversal of the trial court's decision not to grant it attorney
fees below. The LLC does not challenge on appeal the award of fees to the Bank
of New York below. Both parties request attorney fees on appeal.26
We hold that the trial court properly decided not to grant attorney fees to the
LLC below, although we do so on a different basis than the trial court. Because
neither party is entitled to attorney fees on appeal, we decline to award fees to
either party.
26 Br. ofAppellant at 19-21; Resp'ts MERS and BONY's Answering Br. at 25-26.
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In Washington, a prevailing party may recover attorney fees only if
authorized by private agreement, by statute, or by a recognized ground in equity.
State v. Keenev. 112Wn.2d 140, 142, 769 P.2d 295 (1989).
RCW 4.84.330 authorizes attorney fees to the prevailing party in an action
on a contract containing an attorney fee provision. This statute may apply if "the
contract containing the attorney fee provision is central to the controversy."
Hemenwav v. Miller. 116 Wash. 2d 725, 742, 807 P.2d 863 (1991). One must be a
party to the contract, however, to potentially be entitled to an award. G.W. Equip.
Leasing. Inc. v. Mt. McKinlev Fence Co.. Inc.. 97 Wash. App. 191, 200, 982 P.2d 114
(1999).
Here, the LLC relies on the attorney fee provision in the deed of trust27 and
RCW 4.84.330 to argue that the trial court erred by not awarding it attorney fees
below. This argument is unpersuasive.
First, the LLC was not a party to the deed of trust because it did not sign
this loan document. Rather, the original owners of the property—Puebia and
Villalovos—were the individuals who executed the deed of trust. Second, it is well-
established under case law in Washington that a grantee of property subject to a
mortgage or deed of trust28 becomes personally liable on the note and deed of
trust if it assumes and agrees to pay them. Citizens' Sav. & Loan Soc. v.
27 The provision states: "26. Attorneys' Fees. Lender shall be entitled to recover its
reasonable attorneys' fees and costs in any action or proceeding to construe or enforce
any term of this Security Instrument. The term "attorneys' fees," whenever used in this
Security Agreement, shall include without limitation attorneys' fees incurred by Lender in
any bankruptcy proceeding or on appeal." CP at 116.
28 a deed of trust is a species of mortgage. Rustad Heating & Plumbing Co. v. Waldt, 91
Wash. 2d 372, 376, 588 P.2d 1153 (1979).
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No. 73834-8-1 / 23
Chapman. 173 Wash. 539, 545, 24 P.2d 63 (1933). Here, the LLC is such a
grantee from the borrowers. But there is no evidence that it assumed and agreed
to pay the loan. Accordingly, there is no basis for an argument that the LLC is
entitled to benefit from the fee provision in the deed of trust.
In sum, there was no basis for the trial court to award fees to the LLC below.
The LLC provides no relevant authority to the contrary. Because the LLC did not
challenge on appeal the award of fees to the Bank of New York below, we need
not address that question.
The LLC also argues that it is entitled to an award of attorney fees on appeal
because the deed of trust is central to this controversy and it provides a proper
basis for an award to the prevailing party under RCW 4.84.330. We disagree.
Although the deed of trust is central to this controversy, the parties fail to
recognize that the LLC was not a party to the deed of trust. Additionally, as we
just discussed, the LLC did not assume or agree to pay the loan on acquisition of
title.
In Watkins v. Restorative Care Center. Inc.. this court held that a contractual
attorney fee provision cannot authorize the recovery of fees from a nonparty. 66
Wash. App. 178, 194, 831 P.2d 1085 (1992). It reasoned that it"would be both unfair
and contrary to law" to enforce the provision against the nonparty who was a
"stranger[]" to that agreement. 66 Wash. App. at 195.
The same reasoning applies in this case. Because the LLC was not a party
to the deed of trust, it would be contrary to law to enforce the attorney fee provision
in that document against it. Similarly, because a contract does not confer benefits
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No. 73834-8-1 / 24
on nonparties, it would also be contrary to law to award attorney fees to the LLC
based on the deed of trust. See Touchet Valley Grain Growers. Inc. v. Opp &
Seibold Gen. Const.. Inc.. 119 Wash. 2d 334, 342-43, 831 P.2d 724 (1992).
CONCLUSION
We affirm the summary judgment order and the denial of fees to the LLC
below. We deny both parties' request for attorney fees on appeal.
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