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Washington Supreme Court Allows Consumer Protection Claim Based on Information Provided to a Trustee during Foreclosure

Posted By USFN, Wednesday, October 07, 2015
Updated: Wednesday, November 11, 2015

October 7, 2015


by Joshua Schaer
RCO Legal, P.S. – USFN Member (Oregon, Washington)

In Trujillo v. Northwest Trustee Services, Inc., the Supreme Court of Washington ruled that a trustee cannot rely on an “ambiguous” declaration from the beneficiary that contains language referencing UCC § 3-301 as adopted by state statute. [Trujillo v. Northwest Trustee Services, Inc., 2015 WL 4943982 (Aug. 20, 2015)].

Trujillo, who remained in default on her loan since 2011, sued foreclosure trustee Northwest Trustee Services, Inc. (NWTS). She alleged several claims related to the Washington Deed of Trust Act; her principal allegation being that NWTS could only foreclose in the name of the loan’s “owner,” not just its holder. The plaintiff’s argument was based on a statutory requirement that a trustee cannot record a sale notice without “proof that the beneficiary [note holder] is the owner of any promissory note … secured by the deed of trust.” One form of such proof is “a declaration by the beneficiary … stating that the beneficiary is the actual holder of the promissory note or other obligation secured by the deed of trust.” NWTS privately received a declaration from the loan servicer stating that it was “the actual holder of the promissory note or has requisite authority under RCW 62A.3-301 to enforce [the note].”

The trial court dismissed Trujillo’s claims, and the Court of Appeals affirmed in a published opinion. The Supreme Court of Washington accepted review, and following its recent ruling in Lyons v. U.S. Bank, N.A., 181 Wash. 2d 775 (2014), reversed and remanded only Trujillo’s Consumer Protection Act claim due to the ostensibly ambiguous “or requisite authority” language of the unrecorded declaration.

The Washington Supreme Court did not address Trujillo’s position that a loan’s “owner” must be deemed its investor, or NWTS’s counter-argument that the common definition of “owner” instead refers to a possessory right. Consequently, it remains uncertain what form of “proof” establishing “ownership” a trustee must obtain in the absence of a valid beneficiary declaration.

Although the Trujillo decision resulted in further proceedings, and an expansive view of Consumer Protection Act liability, the form of declaration at issue in the case is no longer being utilized in Washington. Another pending case (Brown v. Department of Commerce) may address whether a trustee can rely on an “unambiguous” declaration where the loan’s investor and holder are different. In the event the court in Brown rules that an investor must also hold the note, then nonjudicial foreclosure in Washington would be effectively limited to a small subset of loans. In the interim, it is anticipated that borrowers’ counsel will be more aggressive in raising challenges to foreclosure documentation and the ability of servicers to proceed nonjudicially in their own names.

Editor’s Note: The author’s firm represented Northwest Trustee Services, Inc. in Trujillo v. Northwest Trustee Services, Inc.

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