Vargas Update: Nonjudicial Foreclosures in Limbo
On April 30th, the Washington Supreme Court ruled in Vargas v. RRA CP Opportunity Trust 1, et al. that beneficiaries seeking to enforce collection on a Home Equity Line of Credit (“HELOC”) cannot do so by way of the Deed of Trust Act (RCW 61.24 et. seq). In other words, creditors trying to collect on a HELOC debt could no longer avail themselves to nonjudicial foreclosure. I previously wrote an article regarding the impact of Vargas here.
On May 20th, the lender, filed a motion for reconsideration to the Supreme Court arguing, among other things, that the opinion: (1) incorrectly read a requirement that instruments be negotiable into RCW 61.24 et. seq; (2) that the modification to the statute in RCW 61.24.030(7) did not require that the beneficiary be a “holder”, but rather, simply intended to permit servicers and agents to pursue foreclosure; and (3) that foreclosure on guaranties, which are not negotiable instruments, is expressly permitted under RCW 61.24.100(6), a fact that remains inconsistent with the Court’s ruling.
Soon thereafter, several lending groups filed an amicus brief against the Washington Supreme Court’s decision, arguing that it unduly narrowed the definitions of what instruments could be foreclosed upon. Moreover, they made public policy arguments that the opinion would threaten all nonjudicial foreclosures because of the ambiguity of what constitutes a “negotiable” instrument. This could, in turn, force lenders to pursue alternative enforcement mechanisms, such as receiverships and judicial foreclosures, and clutter up court dockets.
On September 4th, the Washington Supreme Court granted reconsideration, but it did not ask for oral argument, and indeed, stated that it does not want any further briefing on the matter whatsoever. At this point, we all await the Supreme Court’s final opinion, which will be forthcoming at an undisclosed date. Interestingly, the Supreme Court has also withdrawn its former opinion, which means that the Vargas ruling no longer has any legal effect.
Given the lack of a new opinion, however, there is now widespread uncertainty on how to proceed from here. Without clear guidance, lenders should tread very carefully in pursuing nonjudicial relief until the Washington Supreme Court rules on reconsideration. Until then, no one knows how nonjudicial foreclosures may be affected by the decision that is ultimately rendered. At a minimum, lenders must be comfortable with the risks involved with the current lack of concrete legal authority.
The attorneys at Beresford Booth have extensive experience with a variety of civil and commercial litigation, including disputes involving creditors and real property. If you need assistance with, or have questions about, any litigation matters, please feel free to contact Beresford Booth at info@beresfordlaw.com or by phone (425) 776-4100.