HOUSE BILL REPORT

SB 5246

BYSenators Pullen, Newhouse and Madsen

Foreclosing on deeds of trust.

House Committe on Judiciary

Majority Report:  Do pass.  (17)

      Signed by Representatives Appelwick, Chair; Crane, Vice Chair; Padden, Ranking Republican Member; Belcher, Brough, Dellwo, Hargrove, Inslee, P. King, R. Meyers, Moyer, H. Myers, Schmidt, Scott, D. Sommers, Tate and Wineberry.

House Staff:Regina Jones (786-7191)

AS PASSED HOUSE APRIL 13, 1989

BACKGROUND:

RCW 61.24 authorizes nonjudicial foreclosure of deeds of trust as an efficient and inexpensive alternative to judicial foreclosure proceedings.  A nonjudicial foreclosure sale extinguishes all junior liens on the property when junior lienholders have received notice required under RCW 61.24.  The recital of compliance with statutory notice requirements in a trustee's deed is considered conclusive evidence of such compliance.  This is considered the "conclusive evidence" rule of RCW 61.24.040(7).

In a recent Washington Supreme Court decision, Glidden v. Municipal Authority, the Court balanced the three principal goals of deeds of trust sale process: (1) nonjudicial foreclosure process should remain efficient and inexpensive; (2) the process should provide an adequate opportunity for interested parties to prevent wrongful foreclosure; and (3) the process should promote the stability of land titles.  Recognizing that these goals are often difficult to reconcile, the Court in Glidden held that a nonjudicial foreclosure sale extinguishes all liens which are junior to the interest of a deed of trust beneficiary, even if the junior lienholder did not receive statutory notice when (1) the property is purchased by a bona fide purchaser for value and (2) the trustee's deed recites that there has been compliance with all of the requirements of RCW 61.24. The Court stated that an essential aspect of the nonjudicial foreclosure system is limiting the availability of post-sale challenges to foreclosure to help ensure clear title. Under the rule of Glidden, omitted lienors must seek other remedies.

Concern exists that the "conclusive evidence" rule does not adequately protect junior lienors from flawed foreclosure proceedings. It is recommended that the deeds of trust act be amended to preserve the interest of a junior lienor who has not received statutory notice required under RCW 61.24.040.

SUMMARY:

The newspaper publication of the notice of sale described in RCW 61.24.040(1) should exclude the notice's acknowledgement. Publication must be made on or between the statutorily specified dates.

The interest of a lienholder who is junior to a deed of trust beneficiary is not extinguished by a trustee's sale if the lienholder did not receive the notice required under RCW 61.24.040(1).  The lien or interest of the omitted lienor will be treated as if he or she was the holder of the same lien and was omitted as a party defendant in a judicial foreclosure proceeding.

Fiscal Note:      Not Requested.

House Committee ‑ Testified For:    William Holt, Washington State Bar Association; John A. Gose, Citizen; Alan Marriner, Evergreen Legal Services.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    Nonjudicial foreclosure of a deed of trust is an efficient and less costly alternative to judicial foreclosure.  This bill brings Washington's treatment of an omitted junior lienor into closer conformity with foreclosure statutes in other states.

House Committee - Testimony Against:      None Presented.