Recent Deed of Trust Act Cases Pose New Challenges


In 2013, Washington courts issued several decisions impacting the way banks, loan servicing companies, foreclosure trustees and other industry participants must approach claims arising out of nonjudicial foreclosure proceedings against residential real property.

Washington Supreme Court Cases -

Lawyers often say that “bad facts make bad law” and Klem v. Wash. Mut. Bank, 176 Wn.2d 771, 295 P.3d 1179 (2013), proves that this adage still holds true. In Klem, the guardian ad litem (“GAL”) desired to sell property to pay for the incapacitated owner’s care. The GAL had an agreement to sell the property, but the closing date was a month after the scheduled foreclosure sale. The trustee refused to postpone because it had a policy of not doing so unless the beneficiary expressly authorized a continuance. A third party purchased the property for a dollar more than the total amount due and promptly resold it for a substantial profit. The court held that the trustee’s deference to the beneficiary and failure to exercise independent discretion was an unfair or deceptive act or practice under Washington’s Consumer Protection Act (“CPA”). The court also held that the trustee’s act of falsely dating and notarizing the Notice of Trustee Sale satisfied the first three elements of a CPA claim — (1) an unfair or deceptive act or practice, (2) that it impacts the public interest, and (3) occurs in trade or commerce. Importantly for banks and loan servicers, the court stated in a footnote that if the beneficiary controlled the trustee so as to make it the beneficiary’s agent, the beneficiary could be vicariously liable for the acts of the trustee. Without substantial analysis or discussion of other relevant cases and statutes, the Klem court also suggested that the Deed of Trust Act’s (“DTA”) waiver doctrine applied only to challenges to the sale itself, although the doctrine had previously barred most post-sale claims for damages and challenges to the sale’s validity.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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