Copper Creek Homeowners Association, V. Wilmington Savings Fund Society

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION ONE
COPPER CREEK (MARYSVILLE)
HOMEOWNERS ASSOCIATION, a No. 82083-4-I
Washington nonprofit corporation,
Respondent, ORDER GRANTING MOTION
FOR RECONSIDERATION
v. AND WITHDRAWING AND
SUBSTITUTING OPINION
SHAWN A. KURTZ and STEPHANIE A.
KURTZ, husband and wife and the
marital or quasi-marital community
composed thereof; QUALITY LOAN
SERVICE CORPORATION OF
WASHINGTON, a Washington
corporation,
Defendants,
WILMINGTON SAVINGS FUND
SOCIETY, FSB, d/b/a CHRISTIANA
TRUST, not individually but as trustee
from Pretium Mortgage Acquisition
Trust, Selene Finance LP,
Appellants.
The respondent, Copper Creek (Marysville) Homeowners Association,
has filed a motion for reconsideration. The Appellants, Selene finance
LP and Wilmington Savings Fund Society FSB, d/b/a Christiana Trust, has filed
an answer to the motion. The court has considered the motion, and a majority
of the panel has determined that the motion should be granted and the opinion
filed on January 18, 2022 but the opinion should be withdrawn and a substitute
opinion filed; now, therefore, it is hereby
No. 82083-4-I/2
ORDERED that the motion for reconsideration is granted; and it is further
ORDERED that the opinion filed on January 18, 2022 is withdrawn; and it is
further
ORDERED that a substitute opinion shall be filed and published in
Washington Appellate Reports.
2
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
COPPER CREEK (MARYSVILLE)
HOMEOWNERS ASSOCIATION, a No. 82083-4-I
Washington nonprofit corporation,
DIVISION ONE
Respondent,
PUBLISHED OPINION
v.
SHAWN A. KURTZ and STEPHANIE
A. KURTZ, husband and wife and the
marital or quasi-marital community
composed thereof; QUALITY LOAN
SERVICE CORPORATION OF
WASHINGTON, a Washington
corporation,
Defendants,
WILMINGTON SAVINGS FUND
SOCIETY, FSB, d/b/a CHRISTIANA
TRUST, not individually but as trustee
from Pretium Mortgage Acquisition
Trust, Selene Finance LP,
Appellants.
APPELWICK, J. — Selene/Wilmington seeks reversal of summary judgment
quieting title in favor of Copper Creek. Relying on Edmundson v. Bank of America,
194 Wn. App. 920, 378 P.3d 272 (2016), the trial court determined the statute of
limitations rendered the Selene/Wilmington deed of trust unenforceable. This was
error.
The statute of limitations ran against the deed of trust only to the extent it
ran against the underlying debt. The underlying debt was an installment debt. The
statute of limitations accrued on each individual installment as it came due.
No. 82083-4-I/2
Bankruptcy discharge of the debtor did not extinguish the debt, modify the
schedule of payments, or accelerate the maturity date. And, the lender did not
accelerate the maturity date of the loan. The statute of limitations on each of the
missed installments began running from the date they came due. Bankruptcy did
not toll the statute of limitations. The discharge left intact the lender’s option to
enforce the debt against the property in rem.
However, the Servicemembers Credit Relief Act (SCRA), 50 U.S.C. §
3936(a), tolled the period for any action to enforce the debt until the debtor, an
active duty servicemember, was relieved of personal liability on the debt by the
discharge in bankruptcy. At that time, the statute of limitations began to run on any
unpaid installments. Selene/Wilmington may enforce the deed of trust, except to
the extent the statute of limitations has rendered any unpaid installments
uncollectable.
We reverse and remand for further proceedings.
FACTS
In 2007, Shawn and Stephanie Kurtz purchased real property with a note
for $303,472.00 secured by a deed of trust (DOT).1 Shawn was active duty in the
United States military at the time and continued to be an active duty serviceman
until at least September 2020. The property was within the Copper Creek
1CTX Mortgage Company, LLC was the original beneficiary of the DOT.
CTX assigned the DOT to J.P. Morgan Mortgage Acquisition Corporation in
December 2013. In December 2018, J.P. Morgan Mortgage Acquisition assigned
the DOT to JPMorgan Chase Bank who immediately assigned it to Citibank N.A.
as trustee for CMLTI Asset Trust. Citibank assigned the DOT to Wilmington
Savings Fund Society as trustee for Pretium Mortgage Acquisition Trust in April
2019.
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No. 82083-4-I/3
(Marysville) Homeowners Association and the Kurtzes were obligated to pay
annual assessments of $400.
In January 2008, Shawn and Stephanie separated and Stephanie moved
out of the property. The Kurtzes stopped paying on the note in 2008 or 2009.
Stephanie filed for Chapter 7 bankruptcy protection in February 2010. Stephanie
included the property secured by the DOT on the bankruptcy schedule of creditors
holding secured claims. On the debtor’s statement of intention, Stephanie noted
the mortgage and her intention to surrender the property. Stephanie did not claim
the property as exempt. Stephanie received a bankruptcy discharge in June 2010.
The note was among the claims discharged without payment. Stephanie’s
bankruptcy case was closed on June 18, 2010.
The Kurtzes ceased payment of their annual assessment to Copper Creek
in July 2010.
Shawn filed a separate Chapter 7 bankruptcy in March 2011. He identified
the property secured by the DOT and his intention to surrender it. Shawn did not
claim the property as exempt. Shawn also included Copper Creek as a creditor
holding a secured claim for homeowners’ dues in the amount of $1,826.50. His
bankruptcy was discharged on July 13, 2011 and his case closed on July 18,
2011.2 The note was among the claims discharged without payment.
The property sat vacant and fell into disrepair. In November 2018, Copper
Creek recorded a notice of claim of lien against the property for the $15,278.68 in
2 Because the record does not include whether the secured property was
abandoned by the bankruptcy court prior to closure, we assume the protective
injunction ended upon closure of the bankruptcy case. See 11 U.S.C. § 362(c)(1).
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No. 82083-4-I/4
assessments, fees, interest, and attorney fees and costs that had accrued on the
property. Copper Creek filed for judicial foreclosure to recoup the delinquent
assessments.3 Copper Creek acknowledges that it named only the Kurtzes as
defendants in the judicial foreclosure, omitting the lenders because its assessment
lien was junior to the lender and it was not seeking to foreclose the lender’s
interest. Copper Creek requested appointment of a receiver to “obtain possession
of the Lot, refurbish it to a reasonable standard for rental units, and rent the Lot or
permit its rental to others.” In April 2019, Copper Creek and the Kurtzes entered
an agreed order with the court for appointment of a custodial receiver. Copper
Creek recorded the order appointing the receiver with Snohomish County Superior
Court. The receiver spent $22,470.24 rehabilitating the property and began renting
it at fair market value.
Shortly after completion of the repairs to the property, Quality Loan Service
Corporation of Washington (QLS) as Trustee commenced nonjudicial foreclosure
on the property on behalf of successor beneficiary Wilmington Savings Fund
Society FAB and loan servicer Selene Finance LP (together “Selene/Wilmington”).
On October 30, 2019, QLS provided a notice of trustee sale of the property to
Copper Creek. In February 2020, Copper Creek notified QLS that enforcement of
the DOT was barred by the statute of limitations and demanded discontinuation of
the sale. QLS refused and Copper Creek filed a motion to restrain the sale.
3 Shawn was still an active servicemember when Copper Creek filed for
judicial foreclosure. He does not appear to have challenged the suit, instead he
agreed to receivership. The validity of Copper Creek’s judicial foreclosure action
is not before us.
4
No. 82083-4-I/5
Copper Creek also filed a complaint against the Kurtzes,
Selene/Wilmington, and QLS for lien foreclosure, restraint of the trustee sale,
wrongful foreclosure, and quiet title.4 In April 2020, Selene/Wilmington filed a CR
12(b)(6) motion to dismiss the action to quiet title for lack of standing. Prior to a
ruling on that motion, Copper Creek received a deed in lieu of foreclosure from the
Kurtzes that was recorded with the county on June 10, 2020.
In May 2020, Selene/Wilmington contacted Shawn and Stephanie and
asked if they would execute a waiver of the statute of limitations on the underlying
loan: “Given that you both seem to have moved on from the Property now,
executing such a document likely wouldn’t impact you much, if at all, but i[t] could
help my client in the underlying litigation, and we’d be willing to give you something
in exchange for your trouble.” Shawn refused and notified Copper Creek of the
request.
In June 2020, Copper Creek moved to continue the sale and the motion to
dismiss. The trial court granted Copper Creek’s motion, continuing both the trustee
sale and the motion to dismiss to allow the parties time to conduct discovery. The
court entered an order compelling discovery with a deadline of July 7, 2020, and
awarded attorney fees to Copper Creek. QLS then cancelled the sale.
Copper Creek requested and received leave to amend its complaint to
reflect its standing through the deed in lieu of foreclosure. Selene/Wilmington did
4 Shawn was still an active duty servicemember at the time of this lawsuit.
Arguably, the SCRA barred this action as against him. The issue of the SCRA’s
application to these claims is not before us. Moreover, the issue became moot
when Copper Creek received the deed in lieu of foreclosure and the Kurtzes were
no longer party to the suit.
5
No. 82083-4-I/6
not comply with discovery requests by the deadline. On July 10, 2020, QLS
provided notice of trustee sale on the property to be conducted in October 2020.
Copper Creek moved to enjoin the sale, and the trial court granted the motion.
Copper Creek requested an additional continuance on the motion to dismiss
and moved for default judgment due to Selene/Wilmington’s failure to provide
discovery or file an answer to the amended complaint. In support of its motion to
dismiss, Selene/Wilmington argued that because the property formerly belonged
to a member of the United States military, the SCRA applied to toll the statute of
limitations on the DOT. After oral argument on several competing motions, the
trial court denied Selene/Wilmington’s motion to dismiss and awarded Copper
Creek attorney fees. The court expressed concern about Selene/Wilmington’s
“bad faith compliance with the rules in terms of discovery.” In an attempt to force
Selene/Wilmington to complete discovery, the court entered an order of default
against Selene/Wilmington that would “enter on August 14, 2020 unless an order
striking this default is entered by this court before said date.” Selene/Wilmington
answered the complaint and the parties stipulated to strike the order of default.
Copper Creek then filed a motion for summary judgment.
Selene/Wilmington opposed the summary judgment and filed a CR 12(c) motion
for judgment on the pleadings. After oral arguments, the trial court granted the
summary judgment and quieted title in Copper Creek. The court struck
Selene/Wilmington’s motion for judgment on the pleadings as a CR 11 sanction.
The trial court also awarded reasonable attorney fees to Copper Creek under RCW
4.84.185, the contractual attorney fee provision in the DOT, and also “as a matter
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No. 82083-4-I/7
of equity because [of Selene/Wilmington’s] bad faith and misconduct shown
repeatedly throughout this case.” The court subsequently entered a judgment
against Selene/Wilmington for $96,779.09 in attorney fees.
Selene/Wilmington appeals the court’s orders on summary judgment,
motion to dismiss, motion for judgment on the pleadings, and the judgment for
attorney fees.
DISCUSSION
The trial court granted summary judgment quieting title as to Copper Creek,
because the statute of limitations had run on enforcement of the DOT. We review
orders on summary judgment de novo. Kim v. Lakeside Adult Family Home, 185
Wn.2d 532, 547, 374 P.3d 121 (2016). Summary judgment is appropriate when
there is no genuine issue of material fact and the moving party is entitled to
judgment as a matter of law. Folsom v. Burger King, 135 Wn.2d 658, 663, 958
P.2d 301 (1998) (citing CR 56(c)). When the underlying facts are undisputed, we
review de novo whether the statute of limitations bars an action. Edmundson, 194
Wn. App. at 927-28. The six year statute of limitations for an agreement in writing
applies to enforcement of a DOT. Id. at 927; RCW 4.16.040(1).
I. Enforcement of the Deed of Trust
A DOT creates a security interest in real property. Brown v. Dep’t of
Commerce, 184 Wn.2d 509, 515, 359 P.3d 771 (2015). A note is a separate
obligation from the deed of trust. Boeing Emps.’ Credit Union v. Burns, 167 Wn.
App. 265, 272, 272 P.3d 908 (2012). The note represents the debt, whereas the
deed of trust is the security for payment of the debt. See id. The security
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No. 82083-4-I/8
instrument follows the note that it secures. Deutsche Bank Nat‘l Trust Co. v.
Slotke, 192 Wn. App. 166, 177, 367 P.3d 600 (2016). “The holder of the
promissory note has the authority to enforce the deed of trust because the deed of
trust follows the note by operation of law.” Winters v. Quality Loan Serv. Corp. of
Wash., Inc., 11 Wn. App. 2d 628, 643-44, 454 P.3d 896 (2019).
A. The SCRA Tolled the Statute of Limitations on Enforcement of the Debt
Selene/Wilmington tried to enforce the terms of the note as secured by the
DOT through nonjudicial foreclosure which prompted Copper Creek to bring the
action to quiet title. The trial court concluded that the SCRA tolling provision did
not apply to the foreclosure action, which allowed the statute of limitations to run
on the DOT. The SCRA tolls statutes of limitations in lawsuits involving
servicemembers.5
The period of a servicemember’s military service may not be
included in computing any period limited by law, regulation, or order
for the bringing of any action or proceeding in a court or in any board,
bureau, commission, department, or other agency of a State (or
political subdivision of a State) or the United States by or against the
servicemember or the servicemember’s heirs, executors,
administrators, or assigns.
50 U.S.C. § 3936(a).
Shawn appears to have defaulted on the note in 2008 or 2009. The parties
do not dispute that Shawn was an active duty servicemember until at least
September 2020. As a result, the SCRA tolled any court action involving Shawn
5 Washington has an equivalent statute that provides, “The period of a
service member’s military service may not be included in computing any period
limited by law, rule, or order, for the bringing of any action or proceeding in a court
. . . by or against the service member or the service member’s dependents, heirs,
executors, administrators, or assigns.” RCW 38.42.090(1).
8
No. 82083-4-I/9
during his service. 50 U.S.C. § 3936(a). Bankruptcy discharge extinguished
Shawn’s personal liability on July 13, 2011. See Johnson v. Home State Bank,
501 U.S. 78, 82-83, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (1991). Without Shawn’s
personal liability, the debt, as evidenced by the note, was no longer enforceable
against a servicemember. Without a servicemember’s involvement, the SCRA
ceased to toll the statute of limitations. As of July 14, 2011, the six year statute of
limitations began running on enforcement of the unpaid installment.6 See id. at 84.
B. Bankruptcy did Not Extinguish the Secured Debt
The Kurtzes both filed for Chapter 7 bankruptcy. “A defaulting debtor can
protect himself from personal liability by obtaining a discharge in a Chapter 7
liquidation.” Id. at 82-83. Discharge of debts in bankruptcy extinguishes the
“‘personal liability of the debtor.’” Id. at 83 (quoting 11 U.S.C. § 524(a)(1)). So,
the Kurtzes no longer had liability for the monthly installment payments on the note,
past due or future, as of their respective discharge dates. But, the discharge
extinguishes only the right of action against the debtor in personam, leaving intact
6 The statute of limitations was tolled only because of the SCRA.
Bankruptcy does not toll the statute of limitations. Hazel v. Van Beek, 135 Wn.2d
45, 64-66, 954 P.2d 1301 (1998); Merceri v. Deutsche Bank AG, 2 Wn. App. 2d
143, 148, 408 P.3d 1140 (2018). A bankruptcy petition triggers an automatic stay
on “proceedings to obtain possession or exercise control of property in the
bankruptcy estate.” Merceri, 2 Wn. App. 2d at 148 (citing 11 U.S.C. 362(a)(3)).
This stays all creditor actions to enforce liens against the debtor’s property,
including commencement of a foreclosure action. Id. at 148-51. Actions against
the debtor are stayed until the earliest of case closure, dismissal, or discharge. 11
U.S.C. § 362(c)(2). The stay remains in effect against actions on the property of
the estate until the property leaves the estate. 11 U.S.C. § 362(c)(1). If the statute
of limitations to enforce a claim expires during the bankruptcy stay, 11 U.S.C. §
108(c)(2) provides a 30 day window after lifting of the bankruptcy stay in which to
file the claim. Id. at 148-49.
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No. 82083-4-I/10
the option to enforce a claim against a debtor in rem. Id. at 84. The Bankruptcy
Code provides that a creditor’s right to foreclose on secured property survives the
bankruptcy. Id. at 83; 11 U.S.C. § 522(c)(2). A lien on real property passes
through bankruptcy unaffected. Dewsnup v. Timm, 502 U.S. 410, 418, 112 S. Ct.
773, 116 L. Ed. 2d 903 (1992). However, a stay remains in effect against actions
on the property of the estate until the property leaves the estate. 11 U.S.C. §
362(c)(1).
C. The Staute of Limitations Application to Promissory Notes
The ability to enforce a breach of a promissory note depends on whether it
is a demand or installment note. A demand promissory note is mature at its
inception and is enforceable at any time. Cedar W. Owners Ass’n v. Nationstar
Mortg., LLC, 7 Wn. App. 2d 473, 483, 434 P.3d 554 (2019). Therefore, the statute
of limitations on a demand note runs from date of execution. 4518 S. 256th, LLC
v. Karen L. Gibbon, PS, 195 Wn. App. 423, 434, 382 P.3d 1 (2016). By contrast,
an installment note is payable in installments and matures on a future date.
Merceri v. Bank of New York Mellon, 4 Wn. App. 2d 755, 759, 434 P.3d 84 (2018).
“[T]he 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.” Herzog
v. Herzog, 23 Wn.2d 382, 388, 161 P.2d 142 (1945). A separate statute of
limitation accrues and runs for each individual installment. Edmundson, 194 Wn.
App. at 931. The note holder has six years from default on an installment to
enforce payment of that installment. See Merceri, 4 Wn. App. 2d at 759-60. The
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No. 82083-4-I/11
final six year period to take action related to the debt begins to run at the date of
full maturity. Id. at 760.
An installment note or the DOT securing it may include an option to
accelerate the maturation date in case of breach of the contract. See 4518 S.
256th, 195 Wn. App. at 441. Upon acceleration, the entire balance becomes due
and triggers the statute of limitations for all remaining installments. Id. at 434-35.
Acceleration of the maturity date of a promissory note requires an affirmative action
that is clear, unequivocal, and effectively notifies the borrower of the acceleration.
Id. at 435. Default alone does not accelerate the note. Id. “[E]ven if the provision
in an installment note provides for the automatic acceleration of the due date upon
default, mere default alone will not accelerate the note.” A.A.C. Corp. v. Reed, 73
Wn.2d 612, 615, 440 P.2d 465 (1968).
Deed of trust remedies are subject to RCW 4.16.040, the six year statute of
limitations. Merceri, 4 Wn. App. 2d at 759. A debtor facing foreclosure can raise
the statute of limitations as a defense to the sale. Walcker v. Benson &
McLaughlin, PS, 79 Wn. App. 739, 746, 904 P.2d 1176 (1995); RCW 7.28.300.
Applying the statute of limitations defense to nonjudicial foreclosure of a deed of
trust based upon past due installments, we held that recovery was allowed for the
actionable installments but not for those made unenforceable by the six year
statute of limitations. Cedar W., 7 Wn. App. 2d at 489-90. To the extent that the
statute of limitations runs on the underlying note, it also runs to the same extent
on the enforcement of a deed of trust. See Walcker, 79 Wn. App. at 740-1.
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No. 82083-4-I/12
D. Bankruptcy Discharge of Personal Liability on an Installment Note Does
Not Modify the Payment Schedule or Accelerate the Maturity Date of the
Note
The trial court concluded that Selene/Wilmington was precluded from
enforcing its deed of trust by the statute of limitations. It reached this conclusion
by relying on Edmundson for the proposition that the statute of limitations runs
against enforcement of a deed of trust from the date of the last payment due prior
to the debtor’s discharge in bankruptcy.7 This was error. Edmundson did not
establish such a rule. No Washington Supreme Court case has established such
a rule. It is not the law in Washington. The federal cases, which are the source of
that interpretation of Edmundson, are in error.8 To the extent that unpublished
state appellate cases have repeated the federal interpretation, they are also in
error.
The Edmundsons signed an installment note secured by a DOT in July
2007. Edmundson, 194 Wn. App. at 923. They failed to pay the November 1,
7The trial court referenced Hernandez v. Franklin Credit Management
Corporation, which relied on Edmundson as discussed below. No. BR 18-01159-
TWD, 2019 WL 3804138 (W.D. Wash. Aug. 13, 2019), aff’d sub nom. In re
Hernandez, 820 F. App’x 593 (9th Cir. 2020).
8 These cases were also questioned in an article published by the Creditor
Debtor Rights Section of the Washington State Bar Association. Jason Wilson-
Aguilar, Does A Bankruptcy Discharge Trigger the Running of the Statute of
Limitations on Actions to Enforce a Deed of Trust?, 37 CREDITOR DEBTOR RTS.
NEWS LETTER, no. 1, Summer 2019, at 3-6, https://wsba.org/docs/default-
source/legal-community/sections/cd/resources/creditor-debtor-rights-section-
summer-2019-
newsletter.pdf?sfvrsn=af5e0cf1_4#:~:text=In%20contrast%20to%20Edmundson
%20and,limitations%20under%20an%20installment%20note
[https://perma.cc/7MPA-GE24].
12
No. 82083-4-I/13
2008 installment, and never made another payment. Id. The Edmundsons filed
for Chapter 13 bankruptcy in June 2009. Id. Their bankruptcy plan was confirmed,
and they were discharged on December 31, 2013. Id. The lender filed a notice of
default on October 23, 2014 and a trustee sale was scheduled to satisfy the unpaid
monthly obligations under the note and DOT. Id.The Emundsons sought to restrain the trustee’s sale and quiet title to the
property. Id. at 924. They argued the bankruptcy discharge of their personal
liability on the note rendered the deed of trust unenforceable. Id. This court
rejected the premise that the lien was discharged, stating, “In sum, nothing in this
record and nothing under either federal or state law supports the conclusion that
the discharge of personal liability on the note also discharges the lien of the deed
of trust securing the note. The deed of trust is enforceable.” Id. at 927.
The Edmundsons also argued under the Walcker case that the statute of
limitations had begun to run on the deed of trust as of their first missed payment
on the note on November 1, 2008. Id. at 929. And, since the statute of limitations
had run before the lender attempted to enforce the note, the DOT was no longer
enforceable. Id. However, we rejected the Edmundsons’ and the trial court’s
reliance on Walcker for the proposition that the statute of limitations had run. Id.
at 928. The Walcker case concerned failure to pay on a demand note. 79 Wn.
App. at 741. We noted that Walcker applied the six year statute of limitations,
running from the date of execution of the note, and found the lender’s efforts to
foreclose on the deed of trust were barred as untimely. Edmundson, 194 Wn. App.
13No. 82083-4-I/14
at 928-9. But, because the Edmundsons’ debt was an installment note, Walcker
was inapplicable. Id. at 929.
We also rejected the Edmundsons’ argument that no resort to remedies
under the deeds of trust act, ch. 61.24 RCW, had occurred before the statute of
limitations had run. Id. at 930. We concluded that the October 23, 2014 written
notice of default was evidence of resort to remedies under the act. Id. Under the
Edmundsons’ theory, the statute of limitations began running November 1, 2008
and would have expired on October 31, 2014. Id. Thus, even under their timeline,
the action on the deed of trust was not untimely. Id. at 931.
And, we rejected the Edmundsons’ premise that the statute of limitations
began to run on the full amount of the note from the first missed payment. Id. at
931-32. That argument contradicted settled law from the Washington Supreme
Court: “‘[W]hen recovery is sought on an obligation payable by installments, 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.’” Id. at 930(quoting Herzog, 23 Wn.2d at 388). Missing a payment in an installment note does
not trigger the running of the statute of limitations on the portions of the debt that
are not yet due or mature.
We then applied this rule to the individual payments the Edmundsons
missed beginning with the November 1, 2008 payment and every successive
payment due prior to the bankruptcy discharge that ended their personal liability
on the note. Id. at 931. Because the nonjudicial foreclosure commenced October
23, 2013, “each of these missed payments accrued within six years of the resort
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No. 82083-4-I/15
to the remedies under the deeds of trust act. The statute of limitations did not bar
enforcement of the deed of trust for these missed payments.” Id. at 931.
Therefore, in the pending in rem nonjudicial foreclosure action, no portion of the
debt was rendered unenforceable by the statute of limitations.
The trial court apparently believed that either the lender or the Edmundsons’
bankruptcy had accelerated the note and triggered the statute of limitations on the
entire debt. Id. But, “[d]efault in payment alone does not work an acceleration.”
Id. at 932. While acceleration of the maturity of the note was an option for the
creditor under the Edmundsons’ DOT, we determined “there was no evidence that
the lender had accelerated the maturity date of the note,” and “to the extent that
the trial court ruled that some event during the bankruptcy proceeding triggered
[the acceleration] provision, the court is wrong.” Id. at 931-32. “Accordingly . . .
the statute of limitations for each monthly payment accrued as the payment
became due.” Id.
The Edmundson opinion addressed the various issues through application
of settled law. But, subsequent courts have interpreted Edmundson as
announcing a new rule. The first manifestation of a new rule of law attributed to
Edmundson came in Jarvis v. Federal National Mortgage Association, No. C16-
5194-RBL, 2017 WL 1438040 (W.D. Wash. Apr. 24, 2017), aff’d, 726 F. App’x 666
(9th Cir. 2018). It observed,
The last payment owed commences the final six-year period to
enforce a deed of trust securing a loan. This situation occurs when
the final payment becomes due, such as when the note matures or
a lender unequivocally accelerates the note’s maturation.
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No. 82083-4-I/16
Id. at 2. This much is settled Washington law. The decision goes on to say,
It also occurs at the payment owed immediately prior to the discharge
of a borrower’s personal liability in bankruptcy, because after
discharge, a borrower no longer has forthcoming installments that he
must pay.[9] See Edmundson, 194 Wn. App. at 931; see also Silvers
v. U.S. Bank Nat[’l] Ass’n, [No. 15-5480 RJB], 2015 WL 5024173, at
*4.
....
Because the Edmundsons owed no future payments after the
discharge of their liability, the date of their last-owed payment
kickstarted the deed of trust’s final limitations period. . . .
....
The Court agrees with Silvers’[s] and Edmundson’s holdings.
The discharge of a borrower’s personal liability on his loan—the
cessation of his installment obligations—is the analog to a note’s
maturation. In both cases, no more payments could become due
that could trigger RCW 4.16.040’s limitations period. . . .
....
9 The mistaken idea that bankruptcy starts the clock on enforcement of the DOT
appears to have originated with a lender’s argument to the court in Silvers. No.
15-5480 RJB, 2015 WL 5024173, at *4. In its motion to dismiss, U.S. Bank
acknowledged “there can be no doubt that the Deed of Trust lien survived the
Chapter 7 bankruptcy.” Without citation to supporting law, U.S. Bank made the
assertion that the statute of limitations “began running the last time any payment
on the Note was due,” which was the payment immediately prior to discharge in
bankruptcy. The court accepted U.S. Bank’s argument and concluded,
The statute of limitations on the right to enforce the Deed of Trust
began running the last time any payment on the Note was due. The
Plaintiffs remained personally liable on the Note (and successive
payments continued to be due) until January 1, 2010, when they
missed that payment; they received their Chapter 7 discharge on
January 25, 2010. Accordingly, the statute of limitations to enforce
the Deed of Trust lien began to run on January 1, 2010.
Silvers, No. 15-5480 RJB, 2015 WL 5024173, at *4. Silvers was cited to in briefing
in the Edmundson case, but not mentioned, let alone adopted in Edmundson. And,
Silvers could not have established new law as federal courts have no authority to
decide Washington law. In re Estate of Stoddard, 60 Wn.2d 263, 270, 373 P.2d
116 (1962).
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. . . The court’s conclusion was not dicta [because] it was
necessary to deciding whether the creditor could foreclose on the
Edmundsons’ home, or whether they could sustain an action for quiet
title.
Id. at 2-3 (some internal citations omitted).
However, we did not purport to announce such a rule in Edmundson. We
merely applied Herzog to the facts of the case. The Edmundsons missed monthly
payments from November 1, 2008 through December 31, 2013 when their
personal liability to make the payments ceased. Edmundson, 194 Wn. App. at
931. Our decision focused on whether any of those payments was no longer
enforceable in the foreclosure action. The Edmundsons had not asserted that the
bankruptcy discharge triggered the running of the statute of limitations on the entire
debt. It would have done them no good. The foreclosure was commenced less
than a year after the discharge in bankruptcy. It simply was not an issue before the
court. And, we did not decide the issue expressly nor in dicta.10 Such a rule only
exists in the inferences drawn and stated in the federal decisions.
10 Nor did we discuss the policy implications of such a rule in Edmundson.
Such a rule implicates a number of policies that do not arise from nonpayment in
a nonbankruptcy setting. The debtor may benefit by a shorter window in which the
lien may be extinguished, or by living in the property for free while the lender
foregoes foreclosure. As title holder, the debtor may be able to take advantage of
market changes to sell the property for more than the lien amount if the lender is
not forced for foreclose rapidly. The stability of land title records may be a concern.
The debtor remains on the title pending foreclosure. The debtor can execute a
deed in lieu of foreclosure to remove themselves from title. The sanctity of contract
is raised by determining that discharge of personal liability on the installment note
eliminates the lender’s contraction option, it is a choice to accelerate or not to
accelerate the maturity of the debt. The lender may find changing economic
conditions make it more favorable to ultimate recovery to delay enforcement,
though some portion of the debt may become uncollectable. This is not exhaustive
of potential policy concerns. The important point is that we undertook no such
policy analysis in Edmundson as would have been expected when announcing a
new rule.
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No. 82083-4-I/18
Such a rule would attribute to a bankruptcy discharge of the debtor more
than relief from personal liability. It would mean the option of the lender to
accelerate or not to accelerate the maturity date of the note was eliminated. It
would mean that the payment schedule no longer applied and the maturity was
accelerated. Affecting the lender’s rights in a negative manner is not necessary to
effect the purposes of the bankruptcy discharge. The federal district court
decisions do not rely on any provision in the bankruptcy code as requiring such a
result. We can find no bankruptcy provision that would do so.
Moreover, Jarvis’s explanation of the rule is totally at odds with our rejection
of the notion that the maturity of the loan was accelerated by the lender or by
bankruptcy discharge. Edmundson, 194 Wn. App. at 932. Our opinion did not
announce an “analog” rule. Rather, the federal district court arrived at this result
through its misinterpretation of Edmundson.11
In 2019 another federal district court case added to the error. Hernandez
v. Franklin Credit Mgmt. Corp., No. BR 18-01159-TWD, 2019 WL 3804138 (W.D.
Wash. Aug. 13, 2019), aff’d sub nom. In re Hernandez, 820 F. App’x 593 (9th Cir.
2020). It observed,
In Edmundson, the Washington State Court of Appeals ruled
that the six-year statute of limitations for enforcing a deed of trust
payable in installments begins to accrue on each month that a
11 The next case chronologically, cites to Jarvis and Edmundson for the rule,
but does not comment on it. Taylor v. PNC Bank, Nat’l Ass’n, No. C19-1142-JCC,
2019 WL 4688804, at *2 (W.D. Wash. Sept. 26, 2019) (“the six-year statute of
limitations period for enforcing a deed of trust payable in installments begins to
accrue on each date that a borrower defaults on a payment until the borrowers’
personal liability is discharged in a bankruptcy proceeding, as after that point no
future installment payments will be due.”).
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No. 82083-4-I/19
borrower defaulted on a payment, until the borrowers’ personal
liability is discharged in a bankruptcy proceeding. The court of
appeals reasoned that the statute of limitations does not continue to
accrue after discharge because, at that point, installment payments
are no longer due and owing under either the note or deed of trust.
Several courts have adopted this legal rule from Edmundson. See
U.S. Bank NA v. Kendall, [No. 77620-7-I] slip. op. at 4 (Wash. Ct.
App. [July 1,] 2019) [(unpublished), http://www.courts.wa.gov
/opinions/pdf/776207 .pdf] (noting that although a deed of trust’s lien
is not discharged in bankruptcy, the limitations period for an
enforcement action “accrues and begins to run when the last
payment was due” prior to discharge); Jarvis v. Fed. Nat’l Mortg.
Ass’n, []No. C16-5194-RBL, []at 6 (W.D. Wash. 2017), aff’d mem.,
726 Fed. App’x. 666 (9th Cir. 2018) (“The final six-year period to
foreclose runs from the time the final installment becomes due . . .
[which] may occur upon the last installment due before discharge of
the borrower’s personal liability on the associated note”).
Id. at *3 (emphasis added) (some internal citations omitted). Hernandez’s source
for the rule is clearly Jarvis, but the emphasized language is its own addition to the
error.12 No such statement is found in the Edmundson opinion.
In Edmundson, this court did not say that bankruptcy discharge of liability
on an installment note accelerates the maturity of the note. We did not say that
12 Notably, two unpublished Court of Appeals cases have picked up on the
interpretation given to Edmundson by the federal district court. The first in time
cited to Jarvis for the rule. U.S. Bank v. Kendall, No. 77620-7-I, slip. op. at 9
(Wash. Ct. App. July 1, 2019) (unpublished), http://www.courts.wa.gov
/opinions/pdf/776207.pdf (noting that a deed of trust’s lien is not discharged in
bankruptcy but the limitations period for an enforcement action “accrues and
begins to run when the last payment was due” prior to discharge), review denied,
194 Wn.2d 1024, 456 P.3d 394 (2020). The parties accepted that Edmundson
stated the appropriate statute of limitations rule. Ultimately, the decision in the case
did not turn on the issue.
The second cited to Jarvis and Hernandez and incorporated language from
those cases purporting to explain the rule. Luv v. W. Coast Servicing, Inc., No.
81991-7-I, slip. op at 4-5 (Wash. Ct. App. 2d August 2, 2021) (unpublished)
https://www.courts.wa.gov/opinions/pdf/819917.pdf (“the six-year statute of
limitations on the note was triggered on March 1, 2009, the date that Luv’s last
payment was due prior to his bankruptcy discharge”). The outcome of that opinion
is contrary to the outcome here.
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No. 82083-4-I/20
the discharge kickstarts the running of the deed of trust’s final statute of limitations
period. We did not say that discharge is an analog to acceleration and triggers the
statute of limitations on the entire obligation. We did not say we were announcing
any new rule. Rather, we simply applied settled law from Herzog, that the statute
of limitations runs on each installment of a promissory note from the date it is due.
Edmundson, 194 Wn. App. at 931.
The federal district court cases rely solely on the Edmundson decision as
the basis for the state law they apply. Their interpretation of Edmundson is
erroneous.
Edmundson does not stand for the proposition that bankruptcy discharge of
personal liability of the debtor accelerates the obligation on an installment note or
commences the statute of limitations on both the outstanding balance of the note
and on enforcement of the DOT. The trial court erred in relying on Edmundson for
such a proposition.
E. The Statute of Limitation in this Case
Under Herzog and Edmundson, the statute of limitation on Kurtz’s
installment debt would have begun to run on each payment individually from its
due date. Bankruptcy would not toll the statute of limitations. Hazel v. Van Beek,
135 Wn.2d 45, 64-66, 954 P.2d 1301 (1998); Merceri, 2 Wn. App. 2d at 148. Here,
the SCRA applied and tolled the statute of limitations until Shawn no longer had
personal liability on the note. That occurred on July 13, 2011, the date of the
discharge of his personal liability on the debt. The statute of limitation began to
run on all of the past due installments from that date.
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No. 82083-4-I/21
There is no evidence the lender exercised an option and accelerated the
installment note. The trial court erroneously relied on Edmundson to conclude that
Shawn’s bankruptcy accelerated the note or triggered the statute of limitations on
enforcing the DOT. The bankruptcy eliminated only Shawn’s personal liability on
the note. The debt, the note, and the payment schedule remain unchanged. The
notice of nonjudicial foreclosure was given on October 20, 2019 prior to the
November payment coming due. Any outstanding installments prior to November
2013, are not enforceable in the foreclosure action due to the six year statute of
limitations. But, enforcement of the DOT was not barred as to the remainder due
under the note.
The trial court erred by quieting title in Copper Creek.
II. Attorney Fees
The trial court awarded Copper Creek attorney fees and costs for the
summary judgment and quieting title under multiple rules: RCW 4.84.185 for
frivolous defenses advanced without reasonable cause, the contractual attorney
fee provision in the DOT (RCW 4.84.330 and RCW 4.28.328 for prevailing in a
defense of a lis pendens), and equity based on Selene/Wilmington’s “bad faith and
misconduct shown repeatedly and throughout this case.” Selene/Wilmington
argues the trial court erred by awarding attorney fees and costs to Copper Creek
for its defense of the case and for responding to the motions to dismiss.
“Under Washington law, a trial court may grant attorney fees only if the
request is based on a statute, a contract, or a recognized ground in equity.”
Gander v. Yeager, 167 Wn. App. 638, 645, 282 P.3d 1100 (2012). The question
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No. 82083-4-I/22
of whether there is a legal basis for award of attorney fees is an issue of law we
review de novo. Id. at 646.
The DOT contains a mandatory attorney fee provision, “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.” RCW
4.84.330 makes this provision reciprocal: “[T]he prevailing party, whether he or she
is the party specified in the contract or lease or not, shall be entitled to reasonable
attorneys’ fees in addition to costs and necessary disbursements.”
As a result of our decision, Copper Creek is no longer the prevailing party
and cannot recoup attorney fees under the terms of the DOT. The court’s
additional reasons for the attorney fee award—RCW 4.84.185 and 4.28.328—also
fail based on our decision in favor of Selene/Wilmington. Copper Creek acquired
its interest from Kurtz through the deed in lieu of foreclosure and is subject to the
terms of the DOT. Selene/Wilmington is entitled to attorney fees at trial as the
prevailing party under the DOT.
However, we do not set aside the award of attorney fees made by the trial
court. The record is clear that the trial court strongly believed that an independent
basis in equity justified the award of attorney fees. We agree. The change of
prevailing party does not require vacating that equitable award.
An appellate court reviews the amount of attorney fees awarded for abuse
of discretion. Ethridge v. Hwang, 105 Wn. App. 447, 460, 20 P.3d 958 (2001). “A
trial judge is given broad discretion in determining the reasonableness of an award,
and in order to reverse that award, it must be shown that the trial court manifestly
22
No. 82083-4-I/23
abused its discretion.” Id. Selene/Wilmington strongly opposed Copper Creek’s
motion for attorney fee, and specifically called attention to several billing entries it
considered to be related only to the Kurtzes or QLS. The trial court reduced the
amount of fees recoverable from the requested $113,430.80 to $96,779.09. It
reviewed the billing and awarded attorney fees broken down by month. This was
a proper exercise of the court’s discretion.
Selene/Wilmington is the prevailing party on appeal. The contractual
provision for an award of attorney fees in the DOT supports an award of attorney
fees on appeal. Edmundson, 194 Wn. App. at 920. Therefore, we award attorney
fees on appeal to Selene/Wilmington.
We reverse and remand for further proceedings.
WE CONCUR:
23