Damages In A Non-Judicial Foreclosure Of A Deed Of Trust In Washington State
In August 2013, Division One of the Washington Court of Appeals held that a borrower whose loan was secured by a deed of trust on owner-occupied residential real property could, depending upon specific facts of the case, recover monetary damages against a trustee who, by acting without lawful authority or in material violation of the Deed of Trust Act, RCW Chapter 61.24, injured the borrower, even if the trustee’s sale did not occur. Walker v. Quality Loan Service Corp. of Washington, et al., 176 Wn.App. 294 (2013). The court noted that nothing in the amendment that added section 61.24.127 to Chapter 61.24 required the violation of the statute to result in the wrongful sale of the property.
In a different case, the Washington Supreme Court was asked by the federal district court for the Western District of Washington whether Washington law recognizes a cause of action for monetary damages where a plaintiff alleges violations of the Deed of Trust Act, but no foreclosure sale has been completed. Opinion on Certification from the United States District Court for the Western District of Washington in Florence R. Frias v. Asset Foreclosure Services, Inc., et al., No. 89343-8, filed September 18, 2014 (en banc). Analyzing the same statute relied upon by the Court of Appeals a year earlier, the Supreme Court reached the opposite conclusion. The court found no statute or legislative history that explicitly addressed whether a person could bring an action for damages under the Deed of Trust Act in the absence of a completed foreclosure sale. However, it found the phrasing of certain language in section 61.24.127 “strongly implies that a cause of action under the [Deed of Trust Act] for a trustee’s material statutory violations is not available until after a completed foreclosure sale.” Specifically, the statute referred to “the foreclosure sale” and the court concluded the phrase must refer to the foreclosure sale that the borrower or grantor under the deed of trust did not seek to enjoin. In addition, the limitations in the statute “all speak of that foreclosure sale in the past tense, clearly contemplating it has already happened.” As a result, the court concluded that there was no cause of action if the foreclosure sale did not take place.
Three justices dissented. The dissent analyzed the same section of the statute. Since the statute states that a borrower or grantor does not waive a claim for damages due to a trustee failing to “materially comply with the provisions of this chapter” by failing to enjoin the foreclosure sale, the dissent found that this recognition of a claim against the trustee supported the creation of a cause of action for breach of the trustee’s duty of good faith and Washington’s legislature had not placed an explicit limitation on when a borrower or grantor of a deed of trust could bring suit. In addition, there is an assumption that the legislature is aware of the doctrine of implied cause of action, which states that the legislature “would not enact a statute granting rights to an identifiable class without enabling members of that class to enforce those rights.” [quoting Bennett v. Hardy, 113 Wn.2d 912, at 919-21, 784 P.2d 1258 (1990)].
It remains to be seen whether Washington’s legislature will amend the statute to clarify its intention.