Frizzell v. Murray

González, J.

¶21 (concurring) — I agree with the majority that Tamara Frizzell has not waived her monetary damages claims. But, then again, I find that Frizzell has not waived any of her claims and has raised sufficient issues of material fact to warrant a hearing on the merits. I write separately to rehabilitate the permissive language in RCW 61.24.040(l)(f)(IX) as it applies to waiver and urge that waiver not be applied when the validity of the underlying deed of trust is called into question. I also write separately to provide guidance to the lower court that will consider the interplay between RCW 61.24.127 and Schroeder v. Excelsior Management Group, LLC, 177 Wn.2d 94, 297 P.3d 677 (2013), on remand.

¶22 The majority has strayed from the plain language of RCW 61.24.040(l)(f )(IX) and, in doing so, has undermined one of the principal goals of the deeds of trust act (DTA), chapter 61.24 RCW — preventing wrongful foreclosure. The *314majority finds that Frizzell’s inability to obtain a preliminary injunction due to the bond requirement necessarily waives Frizzell’s legal challenge to the trustee’s sale.4 But this result rests on a flawed interpretation of the statute, case law, and factual record.

¶23 Frizzell alleges that she has been victimized by Barbara and Gregory Murray’s predatory practices. Reading all inferences in her favor on summary judgment, as we must, it is clear that there are genuine issues of material fact that warrant trial.5 Specifically, it is unclear whether the Murrays have the ability to foreclose on a deed of trust that was obtained under the facts of this case. However, the majority shuts the courthouse doors on Frizzell, even if what she has pleaded is true and the deed of trust is invalid. This is an inequitable, unprecedented application of waiver. By deciding to dispose of Frizzell’s challenge at this stage, the majority risks sanctioning a grave miscarriage of justice.

*315A. Neither the DTA nor Plein v. Lackey justifies the majority’s application of waiver.

¶24 Nothing in the DTA requires a litigant to obtain a preliminary injunction to avoid waiving her challenges to a trustee’s sale. Indeed, the relevant portion explicitly states that

[a]nyone having any objection to the sale on any grounds whatsoever will be afforded an opportunity to be heard as to those objections if they bring a lawsuit to restrain the sale pursuant to RCW 61.24.130. Failure to bring such a lawsuit may result in a waiver of any proper grounds for invalidating the Trustee’s sale.

RCW 61.24.040(l)(f)(IX) (emphasis added). The majority leans heavily on Plein v. Lackey, 149 Wn.2d 214, 67 P.3d 1061 (2003), to urge a strict application of waiver when the requirements of RCW 61.24.130 are not met. Not only is Plein distinguishable from the present case6 but also it does not demand the outcome reached by the majority here. Even in Plein, we explicitly acknowledged that “[t]he failure to take advantage of the presale remedies under the deed of trust act may result in waiver of the right to object to the sale.” Plein, 149 Wn.2d at 227 (emphasis added). That we found the permissive application of waiver appropriate in Plein does not necessitate its application here.

¶25 Last year, we reiterated that in RCW 61.24-.040(l)(f)(IX) “[t]he word 'may’ indicates the legislature neither requires nor intends for courts to strictly apply waiver” and correctly concluded that “[w]aiver . . . cannot *316apply to all circumstances or types of postsale challenges.” Albice v. Premier Mortg. Servs. of Wash., Inc., 174 Wn.2d 560, 570, 276 P.3d 1277 (2012). Applying this logic to the facts in Albice, we decided that equity demanded that waiver not apply to a challenge of a trustee’s sale that was marred by procedural irregularities. Id. at 571. Distinguishing Plein, we found that the plaintiffs were not challenging the underlying debt but rather a trustee’s failure to adhere to timing requirements established by the DTA. Id. at 571-72. Those circumstances did not warrant attaching waiver to the challenge of the sale when the litigants failed to exhaust presale remedies. The same can be said here. The amount owed on the loan is not being challenged by Frizzell, only the irregularities of the lending process and her capacity to contract in the first place.

¶26 Furthermore, the reasoning in Albice stands on sound precedential footing. Almost three decades ago, we decided that an executed trustee’s sale was properly set aside as a result of the trustee’s failure to follow statutorily prescribed procedure. Cox v. Helenius, 103 Wn.2d 383, 388, 693 P.2d 683 (1985). Significantly, we found that “[e]ven if the statutory requisites to foreclosure had been satisfied and the [homeowners] had failed to properly restrain the sale, this trustee’s actions, along with the grossly inadequate purchase price, would result in a void sale.” Id. (citing Lovejoy v. Americus, 11 Wash. 571, 574, 191 P. 790 (1920); Miebach v. Colasurdo, 102 Wn.2d 170, 685 P.2d 1074 (1984)). Put another way, equity demanded that a lower court be able to entertain a postsale challenge even if the trustee had faithfully adhered to the DTA. By not considering the equity of the matter and the exceptional circumstances of the transaction between Frizzell and the Murrays (such as the inadequate purchase price), the majority has departed from well established norms.

*317 B. The three goals of the DTA weigh against finding that waiver applies.

¶27 This court has repeatedly established that an interpretation of the DTA must consider the three goals of the act: (1) that the nonjudicial foreclosure process be efficient and inexpensive, (2) that parties have adequate opportunity to prevent wrongful foreclosure, and (3) that the stability of land titles be promoted. Plein, 149 Wn.2d at 225 (citing Cox, 103 Wn.2d at 387). The majority considers only expense and efficiency and stability of land titles in reaching its conclusion on the waiver issue. See majority at 309-10. Not only is that telling but it is also entirely inconsistent with our guidance in Albice.

¶28 We established that “in determining whether waiver applies, the second goal — that the nonjudicial foreclosure process should result in . . . interested parties having an adequate opportunity to prevent wrongful foreclosure— becomes particularly important.” Albice, 174 Wn.2d at 571. This is an understandable resolution. When a court considers whether to apply waiver under the DTA, it must balance the likelihood of wrongful foreclosure against the need for efficiency and cost-effectiveness of the system and the need for stable land titles. By not considering whether Frizzell had an opportunity to prevent a wrongful foreclosure and by misunderstanding how the other two goals of the DTA are implicated by the factual record here, the majority errs.

¶29 First, the majority should have considered how RCW 61.24.040(l)(f )(IX) should be applied in the present case so as to give Frizzell adequate opportunity to prevent wrongful foreclosure. This factor leans heavily toward finding that Frizzell’s challenge to the sale has not been waived. Frizzell claims that the Murrays took advantage of her incapacity, broke consumer protection laws, and extended a predatory loan that guaranteed her default and deprived her of the only asset she had to post the necessary bond. If this is true, the foreclosure is perhaps as wrongful as can be *318and requiring the payment of the deficiency of a predatory loan as bond serves only as an absolute bar to any challenge of the sale. Allowing this case to reach a fact-finder goes a long way to avoiding this potential injustice.

¶30 Next, the majority should have applied the facts of the case to see how the stability of land titles and the efficiency and expense of the foreclosure process are implicated. When we do more than simply recite these two goals, we find that both are best served by allowing Frizzell’s claims to survive waiver. The nonjudicial foreclosure system depends on good faith and self-regulation by the parties because of the lack of judicial oversight. See, e.g., Cox, 103 Wn.2d at 388-89 (“Because the deed of trust foreclosure process is conducted without review or confirmation by a court, the fiduciary duty imposed upon the trustee is exceedingly high.”); Albice, 174 Wn.2d at 572 (“When trustees [are made to] strictly comply with their legal obligations under the act, interested parties will have no claim for postsale relief, thereby promoting stable land titles overall.”); Klem v. Wash. Mut. Bank, 176 Wn.2d 771, 790, 295 P.3d 1179 (2013) (“While the legislature has established a mechanism for nonjudicial sales, neither due process nor equity will countenance a system that permits the theft of a person’s property by a lender or its beneficiary under the guise of a statutory nonjudicial foreclosure.”). For this system to remain efficient and stable as a whole, courts must preserve the integrity of the DTA and step in when the act is being used to achieve unscrupulous ends. In rare cases, this requires entertaining a postsale challenge. Frizzell’s is precisely such a case.

¶31 Assuming Frizzell’s allegations are founded, the majority’s stance on waiver deprives a victim of predatory practices of any way of keeping his or her home. The calculus is simple. A “lender” finds a vulnerable homeowner with substantial equity and extends a loan that is secured by a deed of trust. This obligation, however, is designed to be beyond the homeowner’s means and to garner a near *319immediate default, setting the stage for nonjudicial foreclosure. As soon as the sale is scheduled, the victim has no recourse unless he or she can meet the bond requirement, which the victim cannot by design. I find such maneuvering objectionable and a much greater threat to the nonjudicial foreclosure system than a trial court’s consideration of a postsale challenge.

¶32 Though under the majority’s interpretation of the DTA monetary damages claims are not necessarily waived postsale, these remedies may not adequately incentivize good faith dealing by trustees, grantees, and purchasers or address the extent of injuries suffered by grantor-homeowners. Furthermore, the section of the DTA that exempts monetary damages claims from waiver is also vulnerable to gamesmanship. This is precisely why I urge the court to provide greater guidance to the lower court on remand.

C. For purposes of RCW 61.24.127, courts should look beyond an agreement’s characterization to determine the nature of a loan.

¶33 The majority has correctly determined that waiver may not apply to Frizzell’s monetary damages claims in light of RCW 61.24.127 and Schroeder. Though I do not think we need to reach this issue because I find that waiver should not apply to any of Frizzell’s claims, it is significant that Frizzell still has some recourse. To ensure that her ability to bring suit is more than illusory, I find it necessary to expand on the majority’s discussion of RCW 61.24.127 and Schroeder.

¶34 Under RCW 61.24.127, certain claims seeking monetary damages are exempt from the waiver provision so long as the underlying loan is noncommercial.7 This of course means that claims involving commercial loans are *320subject to the same waiver analysis as challenges to the trustee’s sale. RCW 61.24.127(4). Given this exception to the exemption, it is important that lenders not be able to circumvent the additional protections contained in RCW 61.24.127(1)-(3) by merely characterizing a loan as commercial. To avoid such manipulations, courts should look deeper into the borrower’s purpose in obtaining the loan when the record suggests a lender has merely labeled the loan as commercial so as to avoid consumer protections. See, e.g., Brown v. Giger, 111 Wn.2d 76, 83, 757 P.2d 523 (1988) (“Thus, where it appears that the objective evidence of a loan’s purpose has been ‘rigged’ by the lender, further *321scrutiny into the borrower’s actual purpose in obtaining the funds may be necessary.”).

¶35 In the context of nonjudicial foreclosures, Schroeder clearly supports this proposition. There, a lender stipulated that the property securing the debt was nonagricultural and that a nonjudicial foreclosure action was permissible in case of default. Schroeder, 177 Wn.2d at 106. We rejected this attempt to evade the statutory mandate that subjects agricultural properties exclusively to judicial foreclosure proceedings and remanded the case for factual findings regarding the primary use of the property. Id. at 115. Here, the lower court should do the same with regard to the characterization of the loan before determining whether RCW 61.24.127 applies. Keeping in mind that the commercial loan exception may be “rigged” by the lender, the court should make factual findings with regard to the nature of the loan in question.

¶36 With these observations, I respectfully concur in result.

C. Johnson, Fairhurst, and Gordon McCloud, JJ., concur with González, J.

The majority writes:

We conclude, as in Plein [v. Lackey, 149 Wn.2d 214, 67 P.3d 1061 (2003)], that Frizzell waived her right to contest the nonjudicial foreclosure sale. First, she received notice of the right to enjoin the sale and she filed a motion to enjoin the sale. ... In addition, she also had knowledge of a defense to the foreclosure prior to the sale, demonstrated by the claims made in her original complaint. Finally, Frizzell did not obtain an order restraining the sale, just as the plaintiff in Plein failed to do. . . . [C]onsciously choosing not to pursue all remedies is not an excuse, and posting security is a clear statutory requirement.

Majority at 307.

The trial court did not make specific factual findings, but Frizzell has asserted that (1) she sought $20,000 initially but was talked into taking out a $100,000 loan, Clerk’s Papers (CP) at 145, 185; (2) she has diminished capacity and is incapable of understanding legal and financial matters, CP at 190-91; (3) Greg Murray was the “mortgage broker” and Barbara Murray was the “lender” on the deal, CP at 146,185-86; (4) the loan included $12,000 in fees that went right back into the pocket of the Murrays, CP at 90; (5) her income made the $1,000 monthly interest payment impossible and the lender was entirely unconcerned with Frizzell’s ability to pay back the loan, CP at 190; (6) the loan was characterized as commercial but never intended to be used for commercial purposes, CP at 193-94; (7) she defaulted immediately, CP at 132; (8) the home was paid in full and its value was close to $250,000, CP at 145; and (9) Barbara Murray purchased the home at the trustee’s sale for $125,011, negligibly more than what was owed, CP at 133, 183.

In Plein, the plaintiff-respondent sought to contest the default but not the validity of the underlying deed of trust. 149 Wn.2d at 220. Plein claimed that the obligation had been paid off, so the foreclosure proceedings were void. Id. Given those facts, we held that “by failing to obtain a preliminary injunction or other restraining order restraining the trustee’s sale, as contemplated by RCW 61.24.130, Plein waived any objections to the foreclosure proceedings.” Id. at 229. Here, we confront a very different scenario. Unlike Plein, Frizzell does not dispute the amount due under the deed of trust but challenges whether the deed of trust is valid. These circumstances and claims fit much less neatly into the RCW 61.24.040(l)(f )(IX) and .130 framework than those of Plein.

In its entirety, the section reads:

(1) The failure of the borrower or grantor to bring a civil action to enjoin a foreclosure sale under this chapter may not be deemed a waiver of a claim for damages asserting:

*320(a) Common law fraud or misrepresentation;

(b) A violation of Title 19 RCW;

(c) Failure of the trustee to materially comply with the provisions of this chapter; or

(d) A violation of RCW 61.24.026.

(2) The nonwaived claims listed under subsection (1) of this section are subject to the following limitations:

(a) The claim must be asserted or brought within two years from the date of the foreclosure sale or within the applicable statute of limitations for such claim, whichever expires earlier;

(b) The claim may not seek any remedy at law or in equity other than monetary damages;

(c) The claim may not affect in any way the validity or finality of the foreclosure sale or a subsequent transfer of the property;

(d) A borrower or grantor who files such a claim is prohibited from recording a lis pendens or any other document purporting to create a similar effect, related to the real property foreclosed upon;

(e) The claim may not operate in any way to encumber or cloud the title to the property that was subject to the foreclosure sale, except to the extent that a judgment on the claim in favor of the borrower or grantor may, consistent with RCW 4.56.190, become a judgment lien on real property then owned by the judgment debtor; and

(f) The relief that may be granted for judgment upon the claim is limited to actual damages. However, if the borrower or grantor brings in the same civil action a claim for violation of chapter 19.86 RCW, arising out of the same alleged facts, relief under chapter 19.86 RCW is limited to actual damages, treble damages as provided for in RCW 19.86.090, and the costs of suit, including a reasonable attorney’s fee.

(3) This section applies only to foreclosures of owner-occupied residential real property.

(4) This section does not apply to the foreclosure of a deed of trust used to secure a commercial loan.

RCW 61.24.127.