HOUSE BILL REPORT

HB 391

BYRepresentatives Heavey, Padden, Appelwick, Schmidt and Dellwo

Changing provisions relating to deeds of trust.

House Committe on Judiciary

Majority Report:     The substitute bill be substituted therefor and the substitute bill do pass.  (16)

     Signed by Representatives Armstrong, Chair; Crane, Vice Chair; Appelwick, Brough, Hargrove, Heavey, P. King, Lewis, Moyer, Niemi, Padden, Patrick, Schmidt, Scott, Wang and Wineberry.

House Staff:Harry Reinert (786-7110)

AS REPORTED BY COMMITTEE ON JUDICIARY FEBRUARY 20, 1987

BACKGROUND:

Deeds of trust are used as an alternative to mortgage financing in Washington.  In a real property sales transaction involving a deed of trust, at the time the property is sold, the purchaser conveys his or her interest to a third party, the trustee, who holds the title until the purchaser satisfies the loan which was made for the purchase of the property.

The trustee must be either:  a corporation, title insurance company, or financial institution organized under state law; an attorney authorized to practice in Washington; or a federally chartered financial institution.

Prior to foreclosure on a deed of trust for failure of the purchaser-grantor to meet the underlying obligation, certain requirements must be satisfied.  One requirement is that the lender-beneficiary of the deed of trust may not have initiated judicial proceedings to seek satisfaction on the underlying obligation.  To commence a foreclosure on a deed of trust, notice must be provided to persons who have an interest in the property, whether because of a lien, lease, real estate contract, or deed of trust or mortgage.  Notice is not required to be given to the grantor- borrower.

Up to eleven days before a foreclosure sale, the grantor or his or her successor or any beneficiary under a subordinate deed of trust or lien may cause a discontinuance of the sale by paying the amount that is past due under the terms of the underlying obligation and the expenses actually incurred by the trustee in enforcing the note, including reasonable attorneys fees.

The grantor or any other person who has an interest in the property may seek to restrain the sale upon proper grounds.  If the property is a single family house occupied by the grantor, a two hundred and fifty dollar bond must be posted to restrain the sale.  In addition, the court must require that installment payments be paid into the court as they come due.

A filing in federal bankruptcy court stays the foreclosure proceeding until the bankruptcy court lifts the stay or discharges the debtor.

SUMMARY:

SUBSTITUTE BILL:  In addition to other entities authorized to act as trustee for a deed of trust, professional corporations consisting entirely of attorneys licensed in Washington may act as trustee.

A beneficiary under a deed of trust is not deemed to have commenced an action and thereby prevent foreclosure if the beneficiary has sought the appointment of a receiver.  If a receiver is appointed, the grantor is entitled to rents or profits derived from the property.

The grantor or the grantor's successor in interest must be notified of the foreclosure sale.

Any person who is permitted to cause discontinuance of a foreclosure sale may request any court, excluding a small claims court, to determine the reasonableness of any fees demanded or paid as a part of the reinstatement.  The court may in its determination of the issues, award reasonable attorneys' fees.

Any restraining order or injunction granted by the court shall require the payment to the clerk of court of sums that would be due on the underlying obligation.  The court may also require additional security for the payment of costs and damages, including attorneys' fees.

If a foreclosure sale has been stayed because of a filing in federal bankruptcy court, the trustee may set a new sale date for not less than forty-five days after the date the bankruptcy court removes the stay.  The trustee must provide the requisite notice to the interested parties at least thirty days before the new sale date and arrange for publication twice before the sale date.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  The original bill permitted small claims courts to determine the reasonableness of foreclosure fees.  The substitute does not authorize small claims courts to hear these claims.  The substitute bill also clarifies references to federal bankruptcy law.

Fiscal Note:    Not Requested

House Committee ‑ Testified For:     Ron Cox, Washington State Bar Association.

House Committee - Testified Against: None Presented.

House Committee - Testimony For:     This bill makes some improvements to the deed of trust and foreclosure provisions to reduce expense, assure notice, and provide a less costly forum to resolve disputes over fees.

House Committee - Testimony Against: None Presented.