SENATE BILL REPORT

SHB 391

BYHouse Committee on Judiciary (originally sponsored by Representatives Heavey, Padden, Appelwick, Schmidt and Dellwo)

Changing provisions relating to deeds of trust.

House Committe on Judiciary

Senate Committee on Judiciary

Senate Hearing Date(s):March 26, 1987; March 27, 1987

Majority Report:  Do pass.

      Signed by Senators Talmadge, Chairman; Bottiger, Moore, Newhouse.

Senate Staff:Lidia Mori (786-7461)

                  March 27, 1987

AS REPORTED BY COMMITTEE ON JUDICIARY, MARCH 27, 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, 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:

Professional corporations consisting entirely of attorneys licensed in Washington may act as trustee for a deed of trust.

Seeking the appointment of a receiver will not prevent foreclosure and, if one is appointed, the grantor is entitled to rents and profits from the property.

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

A 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 are 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.

Fiscal Note:      available

Senate Committee - Testified: Ron Cox, Washington State Bar Association