Recent Case Creates Risks for Lenders in Real Property Foreclosures
Posted Tuesday, August 27, 2013 by Michael A. Larson
In 1965 Washington State authorized non-judicial foreclosures as an expedited procedure for lenders to recover real property after loan defaults. We have conducted hundreds of foreclosures as trustees working on behalf of lenders through these years. Over those many years the legislature and courts have eased and the restricted the requirements for a non-judicial foreclosure like the tides. Recently, in a Division One Court of Appeals opinion, Walker v. Quality Loan Service Corp., the pendulum swung yet again. Lenders now face new source of liability from the non-judicial foreclosure process and had again emphasized that “strict compliance” with foreclosure procedures is the name of the game.
MERS, is an acronym for the Mortgage Electronic Registration Systems Inc. Deeds of trust, a form of mortgage, can be and often are exchanged between lenders many times during the life of a loan. Before this organization and system were enacted, lenders were required to document each and every one of these transfers. Often when it came time to conduct the foreclosure, chasing the documentation from all the transfers encumbered the non-judicial foreclosure process. When the MERS system was established, lenders could simply foreclose in the name of MERS saving time and resources.
When the great recession threw a large percentage of our real property into distress, this system began to be called into question. The Walker case put another stake in the heart of this regime. In 2012, Washington’s Supreme Court ruled that MERS is not a lender/beneficiary in a deed of trust that is entitled to conduct a foreclosure.
Typically, when a foreclosure commences, the lender/beneficiary names a new trustee, usually a law firm or company that specializes in foreclosures. Washington law provides that only the lender/beneficiary may appoint a new trustee. In the Walker case, MERS acting in a representative capacity, not the true lender, appointed the new trustee. The Court ruled that the non-judicial foreclosure could not proceed because the lender failed to strictly comply with all relevant aspects of Washington law.
In a further and perhaps more important ruling, the court stated that borrowers could bring a claim for wrongful foreclosure even when the foreclosure did not actually take place. Lenders now face more potential for liability in the foreclosure process than ever before.
Over the years the non-judicial foreclosure process has become a process dominated by businesses that are largely foreclosure factories. We have seen pushback from courts and legislatures to stop the blunt hammer that this process can be. Lenders have more reason to be wise and thoughtful pursuing real property loan defaults. Consumers have more tools to fight back. The Walker case underscores these emerging demands.
For more information, contact Pivotal Law Group, PLLC at (206)340-2008