Washington Federal, National Ass'n v. Azure Chelan LLC

FILED
July 7, 2016
In the Office of the Clerk of Court
WA State Court of Appeals, Division III
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
WASHINGTON FEDERAL, National )
Association, ) No. 33176-8-111
) ( consolidated with
Appellant, ) 33630-1-111)
)
v. )
) UNPUBLISHED OPINION
AZURE CHELAN LLC, a Washington )
limited liability company, )
)
Respondent. )
KORSMO, J. -A senior lienholder never sought to foreclose its interest on a
stalled development, while the successor to the junior lienholder did so. After the trial
court quieted title in the junior lienholder, the senior lienholder appealed to this court.
We affirm.
FACTS
This litigation has its origins in a plan to develop property known as Lake Hills
Estates, a 168-acre tract near the Chelan Public Golf Course. Jack Cole acquired the
property in 2005 with the intent to develop residential homes on the property. To that
end, he created Lake Hills Development Division 1, LLC (LHDDl). LHDDl had two
equity holders, one of which was Azure Chelan, LLC (Azure). Mr. Cole was the
principal in Azure.
No. 33176-8-111; 33630-1-111
Washington Federal v. Azure Chelan, LLC
LHDDl began development of the property in 2005. The parties intended to
develop the property in multiple phases. The first phase (Phase 1) would consist of 86
residential lots on the first 46-acre portion of the land. Only when Phase 1 was
completed would the company begin work on Phase 2. Phase 2 would include 120
planned lots on the remaining 122 acres.
In 2007, the other equity holders in LHDDl offered to buy out Azure's interest.
Azure agreed to sell its 51 percent stake in the company for a 5.5 million dollar
promissory note, secured by a deed of trust on Phase 2 of the property. On February 14,
2007, Azure and LHDD 1 closed the buyout, signing an Equity Redemption Agreement,
Promissory Note, and Deed of Trust (Azure's Deed of Trust).
Azure's Deed of Trust contained a no-further-encumbrances clause in Section 4
addressing "Covenants and Representations of Grantor." It states, "Grantor covenants,
and agrees" and then lists a number of subsections. Section 4.11 deals with further
encumbrances:
4.11 Sale, Transfer, or Encumbrance of Property. Grantor shall not,
without the prior written consent of Beneficiary, sell, transfer, or otherwise
convey the Property or any interest therein, further encumber the Property
or any interest therein, cause or permit any change in the entity, ownership,
or control of Grantor or agree to do any of the foregoing without first
repaying in full the Note and all other sums secured hereby. Consent to
any one such occurrence shall not be deemed a waiver of the right to
require consent to any future occurrences.
Clerk's Papers (CP) at 27 (emphasis added).
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Washington Federal v. Azure Chelan, LLC
The intent of having Azure's deed only encumber Phase 2 was that it left Phase 1
unencumbered for the purposes of later securing a building loan. Notwithstanding the
no-further-encumbrances clause, in May 2007, LHDD 1 obtained a building loan from
Horizon Bank, which it secured via a deed of trust (Horizon's Deed of Trust) on the
entire property, including Phase 2.
In 2007, LHDD 1 defaulted on its obligations to Azure. The record contains an
unsigned "Notice of Events of Default," purportedly sent in March 2007. This notice
lists both monetary and nonmonetary defaults. The record also contains an unsigned
"Supplemental Notice of Events of Default," purportedly sent in April 2007. Further, the
record contains an unsigned "Notice of Default." Finally, the record contains dated and
signed notices of events of default from May 2007 and October 2008. These notices state
that a "Notice of Default under RCW 61.24 for foreclosure" was "served on LHDDI on
April 30, 2007."
The copy of the Notice of Default contains several statements about the
promissory note. Specifically, it lists the various defaults and states the "Total Amount
Due" as 6,116,545.07 dollars. This number includes the "Accelerated balance due under
Promissory Note" of 5,656, 151.29 dollars. The Notice of Default also discusses the
consequences of the default:
6. Consequences of Default:
3
I
I
i
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No. 33176-8-III; 33630-1-III
Washington Federal v. Azure Chelan, LLC
t
(a) The entire unpaid balance of the Promissory Note executed February
14, 2007, with the principal amount of $5,500,000.00, plus all accrued
l
interest and all other amounts that may be owing thereunder are ft
immediately due and payable.
t
(c) Failure to cure every default within thirty days of the mailing of this
notice, or if personally served, within thirty days of the date of personal I
service thereof, may lead to recordation, transmittal and publication of a
Notice of Trustee's Sale, and the property ... may be sold at public auction
at a date no less than 120 days in the future.
I
CP at 314. Notwithstanding this Notice of Default, and the various Notices of Events of I
Default, Azure has never attempted to foreclose the property. Azure's only statements on Il
the issue are as follows: First, "Defendant Azure chose to accept the actions, assurances i
I
and other commitments of LHDD 1 rather than initiate foreclosure"; and second, "in each
event [of default] Azure elected to accept verbal assurances from LHDDl as supporting a
cure or excuse of those events of default."
Horizon Bank failed in January 2010 and Washington Federal acquired the loan
from FDIC receivership, becoming the beneficiary under Horizon's Deed of Trust.
Eventually, LHDDl defaulted on its obligations under the loan. Washington Federal
directed the trustee to foreclose on the deed and acquired the property at the nonjudicial
foreclosure sale on January 7, 2011. Washington Federal recorded its deed on January
14, 2011.
In June 2014, Washington Federal brought the present action to quiet title in the
Lake Hills Property. Four months later it subsequently amended its complaint to raise
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No. 33176-8-III; 33630-1-III
Washington Federal v. Azure Chelan, LLC
RCW 7.28.300, arguing that the statute of limitations had run on Azure's note. Azure
defended the complaint and also raised several counterclaims. Washington Federal
moved for summary judgment on its quiet title claim under RCW 7 .28.300.
The trial court requested supplemental briefing when it noted discrepancies
between the legal description contained in Horizon's Deed of Trust and the deed
Washington Federal received from the trustee at the foreclosure sale. Azure consulted a
surveyor, who indicated that the differences in the legal descriptions are "profound."
However, neither the surveyor's report nor his declaration appears in the record.
The court ultimately granted the motion for summary judgment and quieted title to
the property in Washington Federal using the legal description in Horizon's Deed of
Trust rather than that contained in Washington Federal's deed. Azure appealed the
decision to this court.
f
Washington Federal subsequently moved for summary judgment on Azure's [
t
counterclaims. The trial court granted that motion and Azure again appealed to this
l
court. The two appeals were consolidated at Azure's request. The combined matters I
were then heard at oral argument.
ANALYSIS
The appeal from the summary judgment ruling presents four issues for our
consideration. First, Azure argues that Washington Federal did not have standing to quiet
title under RCW 7.28.300 because it is not the "owner" of the property as contemplated
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Washington Federal v. Azure Chelan, LLC
by that statute. Second, it claims that the Azure Deed of Trust disabled'LHDDI from
making any further encumbrances, thus voiding the trustee's deed. Third, Azure argues
that the trustee illegally changed the legal description in its deed when Washington
Federal purchased the property at the foreclosure sale, making Washington Federal's
deed void. Finally, Azure argues that questions of fact remain concerning when Azure
accelerated its note, and thereby, when the statute of limitations actually expired. We
address the contentions in the order stated. 1
Very well-settled standards govern review of summary judgment proceedings.
We review a summary judgment order de novo, engaging in the same inquiry as the trial
court. Beal Bank, SSB v. Sarich, 161 Wn.2d 544, 547, 167 P.3d 555 (2007). Summary
judgment is proper if, viewing the facts and reasonable inferences most favorably to the
nonmoving party, no genuine issues of material fact exist and the moving party is entitled
to judgment as a matter of law. CR 56(c); VersusLaw, Inc. v. Stoel Rives, LLP, 127 Wn.
App. 309, 319-20, 111 P.3d 866 (2005). "A material fact is one upon which the outcome
of the litigation depends." Kim v. O'Sullivan, 133 Wn. App. 557, 559, 137 P.3d 61(2006). "When material issues of fact exist, they may not be resolved by the trial court
1
Azure filed a five page response to a Statement of Additional Authorities filed by
the respondents. We grant respondents' motion to strike the response. A statement of
additional authorities should not include any argument. RAP 10.8. An argumentative
response to a proper Statement of Additional Authorities is not authorized.
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Washington Federal v. Azure Chelan, LLC
and summary judgment is inappropriate." Halvorsen v. Ferguson, 46 Wn. App. 708, 712,
735 P.2d 675 (1986).
Standing under RCW 7.28.300
Initially, Azure argues that Washington Federal is not the "owner" under the deed
of trust quiet title statute, and thus, cannot avail itself of the owner's power to quiet title.
This issue presents a question of statutory interpretation. Because the plain meaning of
the statute includes the purchaser at a foreclosure sale, the argument fails.
Appellate courts review a question of statutory interpretation de novo. State v.
Bradshaw, 152 Wn.2d 528, 531, 98 P.3d 1190 (2004). The court begins by looking at the
plain meaning of the statute as expressed through the words themselves. Tesoro Ref &
Mktg. Co. v. Dep 't of Revenue, 164 Wn.2d 310, 317, 190 P .3d 28 (2008). The court
considers the text of the specific provision, surrounding provisions, and the statutory
scheme as a whole. State v. Garcia, 179 Wn.2d 828, 836-37, 318 P.3d 266 (2014). If the
statute's meaning is plain.on its face, the court applies that meaning. State v.
Armendariz, 160 Wn.2d 106, 110, 156 P.3d 201 (2007). Only if the language is
ambiguous does the court look to aids of construction, such as legislative history. Id. at
110-111. A provision is ambiguous if it is reasonably subject to multiple interpretations.
State v. Engel, 166 Wn.2d 572, 579, 210 P.3d 1007 (2009).
Here the statute's meaning is plain. RCW 7.28.300 specifically refers to the
record owner of the property:
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Washington Federal v. Azure Chelan, LLC
The record owner of real estate may maintain an action to quiet title against
the lien of a mortgage or deed of trust on the real estate where an action to
foreclose such mortgage or deed of trust would be barred by the statute of
limitations, and, upon proof sufficient to satisfy the court, may have
judgment quieting title against such a lien.
(Emphasis added.) "Record owner" is defined in Black's Law Dictionary: "A property
owner in whose name the title appears in the public records." BLACK'S LA w
DICTIONARY 1280 (10th ed. 2014). We conclude that one who purchases property at a
foreclosure sale and records the deed is the "record owner" and can avail itself of the
quiet title provision of the statute.
This interpretation ofRCW 7.28.300 is consistent with Westar Funding, Inc. v.
Sorrels, 157 Wn. App. 777, 239 P.3d 1109(2010). There, Division Two of this court
addressed a case involving two lienholders. The first lienholder's (Sorrels') interest was
from a 1992 deed of trust. Id. at 779. The deed secured a 1992 promissory note that
matured after two years. Id. However, the owner did not pay Sorrels when the note
matured in 1994, and Sorrels took no action to foreclose. Id. In 1995, the owner
executed a deed conveying the property to Sorrels as trustee for a trust. Id. Then in
2002, Sorrels (as trustee) borrowed money from Westar Financial and secured the loan
with a deed on the property. Id. at 780. Eventually, the trust defaulted on its obligations;
Westar Financial foreclosed, and the lender (Xui) purchased at the foreclosure. Id. at
781-782. Sorrels then attempted to foreclose his lien secured by the 1992 deed of trust.
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No. 33176-8-III; 33630-1-III
Washington Federal v. Azure Chelan, LLC
Id. at 782. Westar Financial and Xui brought an action to enjoin the sale and to quiet title
under RCW 7 .28.300. Id. at 782.
Sorrels argued that Westar Financial and Xui (as plaintiffs) could not plead RCW
7.28.300 because only defendants may do so. Division Two summarily rejected this
argument:
Sorrels's argument conflicts with RCW 7.28.300's plain language .... Xui
is a record owner of the Gig Harbor property. As such, RCW 7.28.300
authorizes him to maintain an action to quiet title of that property.
Id. at 785 (emphasis added). Division Two ultimately affirmed the trial court and quieted
title in Xui. Id. at 786. Even though Xui only obtained title by purchasing the property at
a junior lienholder' s foreclosure sale, the court agreed that Xui became the record owner
of the property and could quiet title under RCW 7.28.300. Id.
This case presents substantially similar facts. Washington Federal purchased the
property at the nonjudicial foreclosure sale, which foreclosed its junior lien. Then,
Washington Federal properly recorded its deed, becoming the record owner of the
property. Sometime later, Washington Federal sued to quiet title, asserting, inter alia,
RCW 7.28.300. Both the plain meaning ofRCW 7.28.300 and Westar Financial indicate
that Washington Federal, as the present owner, can use this statute to quiet title.
Azure also argues that to prevail under RCW 7.28.300, Washington Federal would
be asserting LHDD 1's statute of limitations defense, which it does not have standing to
do because Washington Federal was not a party to the agreement between Azure and
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Washington Federal v. Azure Chelan, LLC
LHDDl. Appellant's Br. at 21. 2 Azure, however, ignores both the equitable nature of
the quiet title action and the plain meaning of "record owner" under RCW 7.28.300. An
action to quiet title is an equitable proceeding "to resolve competing claims of
ownership." Kobza v. Tripp, 105 Wn. App. 90, 95, 18 P.3d 621 (2001). "Standing to
assert a claim in equity resides in the party entitled to equitable relief; it is not dependent
on the legal relationship of those parties." Smith v. Monson, 157 Wn. App. 443, 445,
236 P .3d 991 (2010) (emphasis added). Further, the statute specifically refers to the party
able to bring the quiet title action as the "record owner." RCW 7.28.300. Nothing in the
statue suggests the "record owner" must also be a "contracting party." Id.The trial court did not err in concluding that Washington Federal had standing as
the purchaser of property at a foreclosure sale to quiet title under RCW 7.28.300.
Horizon's Deed of Trust
Azure next argues that Horizon's Deed of Trust is void because Azure's Deed of
Trust restricted LHDD 1 from further encumbering the property. The parties, however,
dispute what effect this no-further-encumbrances clause had. Azure argues that it was a
disabling clause, rendering any subsequent purported encumbrance void. Washington
2
Azure's argument on this point is somewhat inconsistent: it concedes that "RCW
7 .28.300 provides a narrow exception to the general rule that one creditor may not invoke
the debtor's personal statute oflimitations defense." Appellant's Reply Br. at 6.
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Federal argues that it is a due-on-encumbrance clause, making a further encumbrance
merely a breach of the contract, warranting acceleration.
We believe the language of this clause more closely mirrors a due-on-
encumbrance clause than a disabling clause. Further, public policy disfavors finding an
ambiguous clause as disabling. Finally, the course of conduct between the parties
indicates that Azure believed this to be a promissory restriction rather than a disabling
restraint. For all three of those reasons, we reject Azure's argument.
To understand the distinction between the two interpretations, some background
on the types of restraints on alienation is useful. Owners generally have the power to
alienate their property. 3 JOHN A. BORRON, JR., SIMES & SMITH: THE LA w OF FUTURE
INTERESTS § 1111, at 2 (3d ed. 2002) (SIMES & SMITH). Any restriction on that power is
treated as a restraint on alienation. Id. There are three types of direct restraints that can
occur: (I) a disabling restraint, (2) a forfeiture restraint, and (3) a promissory restraint. 3
SIMES & SMITH§ 1131, at 13-14. A disabling restraint expressly prohibits alienation and
renders any purported alienation void; e.g., the grantee may not sell the property; or any
attempt to sell the property shall be null and void. Id. § 1136, at 18. A forfeiture restraint
has express language in the deed, such that the property reverts on a stated condition,
which in effect prohibits alienation-e.g., to A, but if A sells the property, 0 may reenter
and retake. Id. § 1147, at 43-44. Finally, a promissory restraint involves a covenant not
to alienate, which allows the grantor to recover damages upon its breach, e.g., where
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Washington Federal v. Azure Chelan, LLC
adjoining property owners promise to themselves not to convey property without consent
of the other. RESTATEMENT (FIRST) OF PROPERTY § 404 cmt. g (1944 ). Only disabling
restraints and promissory restraints are at issue here.
Disabling restraints are disfavored by public policy. Historically, any purported
disabling restraint on a fee interest was itself void as repugnant to the fee. Id. at§ 405. If
a clause in a contract or deed was ambiguous with regard to the type of restraint, then
courts avoided interpreting it as a disabling restraint because disabling restraints are
generally void. Id. at§ 419. However, no Washington cases address disabling restraints
in the context of a further encumbrance on the property. It is possible that Washington
would allow a disabling restraint in that context. 3 Generally, Washington law allows a
party to place multiple encumbrances on its property via deeds of trust. 18 WILLIAM B.
STOEBUCK & JOHN W. WEA VER, WASHINGTON PRACTICE: REAL ESTATE:
TRANSACTIONS § 20.6, at 410-411 (2d ed. 2004 ).
We believe the type of restraint in question here is a promissory restraint. Section
4 of Azure's Deed of Trust refers to "Covenants and Representations ofGrantor," and
3
See, e.g., Alby v. Banc One Fin., 156 Wn.2d 367, 372-374, 128 P.3d 81 (2006)
(allowing aforfeiture restraint involving future encumbrances); Miller v. Pac. First Fed.
Sav. & Loan Ass 'n, 86 Wn.2d 401, 403, 545 P .2d 546 (1976) (stating the later rule that
"reasonable restraints that are justified by legitimate interests of the parties are not
necessarily void").
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Washington Federal v. Azure Chelan, LLC
states that "Grantor covenants, and agrees" and then lists a number of subsections.
Clerk's Papers (CP) at 26-27. Section 4.11 deals with further encumbrances:
4.11 Sale, Transfer, or Encumbrance of Property. Grantor shall not,
without the prior written consent of Beneficiary, sell, transfer, or otherwise
convey the Property or any interest therein, further encumber the Property
or any interest therein, cause or permit any change in the entity, ownership,
or control of Grantor or agree to do any of the foregoing without first
repaying in full the Note and all other sums secured hereby. Consent to
any one such occurrence shall not be deemed a waiver of the right to
require consent to any future occurrences.
CP at 26-27 (emphasis added). On its face, this appears to be a promissory restraint. It
specifically refers to "covenants and agrees," and references "first repaying in full the
Note." Further, it is distinct from a disabling restraint in that it is not categorical. It does
not say that "no further encumbrances shall be allowed" or "any further encumbrances
are null and void." Given the preference for reading this clause as a promissory restraint
rather than a disabling restraint, Horizon's Deed of Trust was not void.
Azure cites a New York case with a similar provision to argue that the clause here
is in fact a disabling restraint, rendering the encumbrance void. Appellant's Reply Br. at
10-12 (citingBMM Four, LLCv. BMMTwo, LLC, 48 Misc. 3d 120l(A), 18 N.Y.S.3d
577, 2015 NY Slip Op 50917 (Sup. Ct.) (unpublished opinion). BMMis an unreported
trial court decision from New York. It deals with a lien holder (JP Morgan Chase)
attempting to block an attempted partition of property, using a clause in its mortgage that
was substantially similar to the clause at issue here. BMM, 48 Misc. 3d 120l(A) at* 1,
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No. 33176-8-III; 33630-1-III
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*4. JP Morgan Chase argued that a wife's transfer of her ownership interest in the
property to her husband was without legal effect because JP Morgan Chase did not
consent, as required by the mortgage. Id. at * 1. The trial court recognized that JP
Morgan Chase had an interest in the property and could enforce its mortgage provision.
Id. at *5. However, finding a tacit agreement in the briefing, the court ultimately allowed
sale of the property for partition so long as the sale protected JP Morgan's interest by
fixing a minimum bid price that would satisfy the mortgage in full. Id.
To the extent BMM is persuasive, it does not support Azure's argument. While the
court explicitly recognized JP Morgan Chase's rights under the mortgage, the court
implicitly rejected the argued effect of the mortgage provision. In BMM, JP Morgan
Chase argued that Michael Otis, the man requesting the partition action, was without
standing because his wife signed the mortgage documents and operating agreements,
which were never legally transferred to him. Id. at *2. Specifically JP Morgan Chase
argued that it never gave its permission to transfer the ownership ( as required by the
mortgage clause), and thus the transfer was "without legal effect." Id. The trial court
implicitly rejected this argument, however, by allowing the partition sale to go forward.
If the transfer to Michael Otis was indeed "without legal effect" because of the terms of
the mortgage, then the partition sale could not have been allowed to proceed because the
conveyance to Mr. Otis would have been void and he would have had no interest to
assert. Thus, by allowing the partition sale, the court implicitly held that the transfer was
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Washington Federal v. Azure Chelan, LLC
not void.
The BMM case is also distinguishable. In BMM, JP Morgan Chase was never
given notice of the transfer and only was first able to assert its interest in the partition
action. See id. at *2. Thus, JP Morgan Chase consistently argued that the transfer was
void. Here, however, Azure had been aware of the further encumbrnnces and did not ·
consistently treat them as void. In fact, Azure's conduct indicates this clause is merely a
promissory restraint. Azure sent LHDD 1 several notices of events of default. In many of
them, Azure listed the encumbrances on the property as events of default under the deed
of trust, and indicated that if the defaults were "not cured," "the entire amount of the
Commercial Promissory Note shall be due and immediately payable." CP at 371-373,
374, 376-377, 378-386. Azure never suggested it believed these further encumbrances
were null and void. Azure's treatment of the additional encumbrances as events of
default when dealing with LHDD 1 strongly suggests that even it believed the conduct
merely constituted a breach, and not that those encumbrances were null and void.
The no-further-encumbrances clause in Azure's deed is not a disabling restraint
rendering the trustee's deed void.
Changed Legal Description of the Deed
Azure also argues that the Washington Federal deed is void because the trustee
changed the description of the property when it conveyed the Horizon Deed. Although
we agree with Azure that the trustee for a deed of trust was not empowered to change the
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Washington Federal v. Azure Chelan, LLC
legal description of the deed, that determination does not aid Azure. The legal
description in Azure's Deed of Trust exactly matched the description in Horizon's Deed
of Trust. Thus, the trustee in fact sold the very property that Azure claims. Further, the
court quieted title in Washington Federal using the legal description in the original deed
of trust, not the changed description in the deed conveyed by the trustee. Therefore, any
difference between the two deeds had no practical effect.
The trustee for a deed of trust is not empowered to change the legal description of
the deed. RCW 61.24.050 requires that "the trustee's deed shall convey all of the right,
title, and interest in the real and personal property sold at the trustee's sale which the
grantor had or had the power to convey at the time of the execution of the deed of trust."
While this issue has not come up in the context of trustees in Washington, there was a
similar situation involving a treasurer issuing a deed after a tax foreclosure proceeding.
See Matthews v. Morrison, 195 Wash. 288, 290-291, 80 P.2d 856 (1938). In Matthews,
the treasurer changed the property description from what the deed had originally stated,
correcting an omission of the section, township, and range. Id. at 292. The court
concluded that "[t]he treasurer was not vested with the authority to give a deed to
property other than as described in the foreclosure proceeding and decree." Id. The
court's conclusion appears to stem from the ministerial nature of the treasurer's powers. 4
4
Ultimately, the court voided the entire tax foreclosure because it was unclear
from the record that the court had jurisdiction over the property based on an improper
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The reasoning of Matthews extends to trustees. By conveying its deed at the close
of a trustee sale, the trustee is likewise engaging in a ministerial act. Udall v. T.D.
Escrow Servs., Inc., 159 Wn.2d 903, 911, 154 P.3d 882 (2007) ("The trustee's delivery of
the deed to the purchaser is a ministerial act, symbolizing conveyance of property rights
to the purchaser."); see also RCW 61.24.050. Further, even where the trustee knows that
the title is defective, "the trustee must still on proper demand proceed to sell such title as
he took." McPherson v. Purdue, 21 Wn. App. 450, 452, 585 P.2d 830 (1978) (internal
quotation marks omitted). If the trustee's deed is somehow improper, one procedure is to
convey the deed as written, and permit the new owner to attempt to reform the deed. See,
e.g., GLEPCO, LLC v. Reinstra, 175 Wn. App. 545, 556-557, 307 P.3d 744 (2013)
(reforming deed of trust purchased at trustee's sale). Therefore, it is improper for the
trustee unilaterally to change the deed prior to conveying it to the purchaser.
Here, the trustee changed the legal description when it conveyed the deed to
Washington Federal. While this action was probably improper under Matthews, it does
not control the outcome of this case. Even where no deed is conveyed from a foreclosure
sale, the highest bidder still becomes the equitable owner of the property and can bring an
action to quiet title. See Udall, 159 Wn.2d at 907-908 (affirming trial court's judgment
quieting title in highest bidder at a foreclosure auction, who brought quiet title action
property description. Matthews, 195 Wash. at 292.
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after escrow service refused to convey deed). Even if the trustee erred by unilaterally
changing the deed's legal description, Washington Federal still became the owner of the
property and, thus, could quiet title.
Further, there is no dispute that the trustee was selling the very property that Azure
claims. Azure admits that the legal description in the trustee deed (with regard to Phase
2) is identical to the legal description in Azure's Deed of Trust. Br. of Appellant at 26
n.48 ("[T]he property description that Horizon Bank used to describe Phase 2 in its Deed
of Trust was identical to that in Azure's Deed of Trust."). The trustee was therefore
empowered and required to sell the property controlled by Azure's Deed of Trust. RCW
61.24.050. The trustee held the foreclosure sale, and Washington Federal purchased the
property. From this, Washington Federal became the owner of the entire property,
including Phase 2. In addition, and perhaps recognizing the peculiarity of this situation,
the trial court quieted title using the original legal description from Horizon's Deed of
Trust, not the modified legal description in Washington Federal's Deed of Trust.
Therefore, any difference between the two is immaterial at this point.
Finally, there are no facts to suggest that the "new" legal description describes
anything other than the same Phase 2 property as the old legal description. Azure argues
that they had a land surveyor look at the different legal descriptions, and he indicated that
there were "'profound'" differences. Appellant's Reply Br. at 14 (quoting CP at 423 ).
The record, however, shows that this statement is inadmissible hearsay and could not be
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Washington Federal v. Azure Chelan, LLC
relied on for summary judgment. Azure's counsel is merely quoting the land surveyor.
Neither the land surveyor's declaration nor any report is present in the record.
"[E]vidence submitted in opposition to summary judgment must be admissible.
Unauthenticated or hearsay evidence does not suffice." SentinelC3, Inc. v. Hunt, 181
Wn.2d 127, 141, 331 P.3d 40 (2014) (internal citations omitted) (rejecting on summary
judgment hearsay evidence on the value of shares of a closely held corporation).
Accordingly, the change in description had no effect on this action.
Question ofFact Concerning Acceleration
Finally, Azure argues that questions of fact exist concerning when it accelerated
its lien, thus preventing summary judgment because it is unclear when the statute of
limitations began to run. Azure failed to meet its burden of establishing that material
questions of fact exist on this issue.
A party opposing a motion for summary judgment may not rely on speculation or
argumentative assertions that unresolved factual issues remain. Seven Gables Corp. v.
MGM/VA Entm 't Co., 106 Wn.2d 1, 13, 721 P.2d 1 (1986). The nonmoving party must
set forth specific facts that sufficiently rebut the moving parties' contentions and disclose
that a genuine issue as to a material fact exists. Id. Ultimate facts or conclusions of fact
are insufficient; conclusory statements of fact will not suffice. Grimwood v. Univ. of
Puget Sound, Inc., 110 Wn.2d 355, 359-360, 753 P.2d 517 (1988).
19
No. 33176-8-III; 33630-1-III
Washington Federal v. Azure Chelan, LLC
For a deed of trust, the six-year statute of limitations begins to run when the party
is entitled to enforce the obligations of the note. RCW 4.16.040; see Westar Funding,
157 Wn. App. at 784. This can occur either immediately for a demand note, when the
note naturally matures, or when the party accelerates the note through breach or some
other clause in the note. See Hopper v. Hemphill, 19 Wn. App. 334, 335-336, 575 P.2d
746 (1978); Westar Funding, 157 Wn. App. at 784; 31 RICHARD A. LORD, WILLISTON
ON CONTRACTS§ 79:17, at 338; § 79:18 at 347-350 (4th ed. 2004). If the lender elects to
accelerate the debt after a breach, the acceleration must be clearly and unequivocally
expressed to the debtor. Weinberg v. Naher, 51 Wash. 591, 594, 99 P. 736 (1909);
Glassmakerv. Ricard, 23 Wn. App. 35, 38, 593 P.2d 179 (1979).
Here, the dispute centers over when Azure accelerated its loan, and whether Azure
abandoned any purported acceleration. To support summary judgment, Washington
Federal submitted a drafted Notice of Default, which was prepared sometime in April
2007. Azure argues that because this notice is unsigned and undated there is no
indication that it was actually sent. However, Azure itself submitted multiple notices of
events of default, which are signed and dated. CP at 378-387, 389-393. Two of these
documents make reference to the Notice of Default being served on LHDDl on April 30,
2007. CP at 378, 390 ("Notice of default under RCW 61.24 for foreclosure served on
LHDDl on April 30, 2007"). Further, the April 2007 Notice of Default lists the various
defaults and states the "Total Amount Due" as 6,116,545.07 dollars. CP at 313. This
20
No. 33176-8-111; 33630-1-111
Washington Federal v. Azure Chelan, LLC
number includes the "Accelerated balance due under Promissory Note" of 5,656, 151.29
dollars. CP at 313. The Notice of Default also more explicitly spells out the
consequences of the default:
6. Consequences of Default:
(a) The entire unpaid balance of the Promissory Note executed February
14, 2007, with the principal amount of $5,500,000.00, plus all accrued
interest and all other amounts that may be owing thereunder are
immediately due and payable.
(c) Failure to cure every default within thirty days of the mailing of this
notice, or if personally served, within thirty days of the date of personal
service thereof, may lead to recordation, transmittal and publication of a
Notice of Trustee's Sale, and the property ... may be sold at public auction
at a date no less than 120 days in the future.
CP at 314. The above is sufficient to indicate that Azure accelerated its loan on April 30,
2007. Therefore, the six-year statute of limitations had run when Washington Federal
brought its quiet title action under RCW 7.28.300 in October 2014.
Azure argues that summary judgment is inappropriate because Azure either never
accelerated or abandoned its acceleration. Azure relies on the following two statements
from the record to support its argument: "Azure chose to accept the actions, assurances
and other commitments ofLHDDl rather than initiate foreclosure"; and, "in each event
[of default] Azure elected to accept verbal assurances from LHDDl as supporting a cure
or excuse of those events of default." CP at 329. These are the only "facts" Azure points
to on the summary judgment issue. However, these statements do not set forth the
21
No. 33176-8-III; 33630-1-III
Washington Federal v. Azure Chelan, LLC
"specific facts" required to survive summary judgment. Seven Gables, 106 Wn.2d at 13.
It does not say what the "action, assurances, and other commitments" actually were. It is
merely a summary or conclusion of fact that is not sufficient to withstand summary
judgment. Grimwood, 110 Wn.2d at 359-360.
Accordingly, we agree with the trial court that Azure did not present at summary
judgment evidence suggesting that a question of material fact existed concerning the time
its statute of limitations began running. There was no error.
The order granting summary judgment is affirmed. 5
A majority of the panel has determined this opinion will not be printed in the
Washington Appellate Reports, but it will be filed for public record pursuant to RCW
2.06.040.
WE CONCUR:
5 In light of this disposition, we need not address specifically the issues concerning
the counterclaims raised by the second appeal since they necessarily fail under our
analysis of the related issues.
22