Foreclosing Banks In Washington State May Need To Open Probates For Their Own Deceased Borrowers
When borrowers die owing more on their real estate than it is worth, their heirs often let the property go to foreclosure. In those cases, the same heirs often do not commence probate for the deceased borrower because such borrowers often have small estates. Typically, the bank elects judicial foreclosure (i.e. “foreclosure by lawsuit”) rather than non-judicial foreclosure, as a judge’s Decree of Foreclosure is more likely to ensure the full and final foreclosure of the interest of all unknown heirs.In such judicial foreclosures, the lender names as defendants the borrower’s estate, along with the known and unknown heirs and devisees. In the lawsuit, the bank usually waives its right to a deficiency judgment against the insolvent estate, reducing the redemption period from 1 year to 8 months. The bank does not seek a money judgment against the heirs, except in the rare case where an heir is obligated on the debt.
Recently, some courts have taken the position that an estate does not exist (and therefore cannot receive service of a foreclosure lawsuit) unless a probate is open. In those cases, such courts are requiring foreclosing banks to commence probates on behalf of estates, as permitted by RCW 11.28.120(6). This statute allows a creditor to serve as administrator of the estate of a deceased debtor. This court requirement puts the foreclosing bank in the awkward position of commencing a probate for its own borrower. Such foreclosing banks should ensure they are only appointed estate administrator for the limited purpose of obtaining the court’s permission to allow such bank/administrator to cause the estate to stipulate to the foreclosure.
If you have foreclosure or probate questions, please call William O. Kessler or another estate administration lawyer at Beresford Booth.