Chapter §21.10 Trustee's Duties—Nonjudicial Foreclosure

• Jurisdiction: Washington

§21.10 TRUSTEE'S DUTIES—NONJUDICIAL FORECLOSURE

The trustee is a creature of statute, with statutorily imposed duties that are strictly construed. Schroeder v. Excelsior Mgmt. Grp., 177 Wn.2d 94, 104-06, 297 P.3d 677 (2013); Klem v. Wash. Mut. Bank, 176 Wn.2d 771, 789, 295 P.3d 1179 (2013);Sam v. Metro. Mortg. Grp., 175 Wn.2d 83, 93, 285 P.3d 34 (2012); Albice v. Premier Mortg. Servs. of Wash., 174 Wn.2d 560, 567, 276 P.3d 1277 (2012).

Although the Act never imposed a fiduciary duty on the trustee, a fiduciary duty was created by common law in the case of Cox v. Helenius, 103 Wn.2d 383, 387, 693 P2d 683 (1985). The Cox court held that the trustee owed a fiduciary duty to both the grantor and the beneficiary, even though the parties generally have conflicting interests. The court also held that "the fiduciary duty imposed upon the trustee is exceedingly high." Id. at 388-89. After imposing such an exceedingly high duty on the trustee, the court went on to say that "a trustee's management responsibilities under a deed of trust are less extensive than those of trustees in other fiduciary settings."Id at 389. In addition to the fiduciary duty, the court in Cox adopted a "duty of impartiality" and "duty of good faith." Id. at 389 (citing G. Osborne, G. Nelson & D. Whitman, Real Estate Finance Law §7.21 (1979), and Swindell v. Overton, 310 N.C. 707, 712, 314 S.E.2d (1984)). The Washington Supreme Court has decided two cases addressing the trustee's duties created in Cox: Klem, 176 Wn.2d 771, and Albice, 174 Wn.2d 560. Both cases involved bad-faith actions by the trustees analogous to the acts of the trustee in Cox.

In Klem, the court held that the trustee breached its "duty to act in good faith to exercise a fiduciary duty to act impartially to fairly respect the interests of both the lender and the debtor" by declining to exercise its statutory discretion on whether to postpone the sale and instead deferring to the beneficiary pursuant to the trustee's "legally mandated respect" for the beneficiary's instructions. 176 Wn.2d at 790-92. The court also held the act of falsely dating the notice of sale by a notary public, who was an employee of the trustee, was an unfair or deceptive act or practice that satisfied the first three elements of a claim under the CPA. Id. at 794-95. The trustee acknowledged that if the notice of sale had been correctly dated, the sale would not have taken place until at least a week later than it occurred, and the continuance of the sale was a seminal issue in the case. Although the trustee's actions were judged under the Cox standard (fiduciary duty, duty of impartiality, and duty of good faith), which has since been modified by the legislature to a duty of good faith, the trustee's agreement to give up all discretion to continue the sale and common practice of falsifying dates and notaries on documents may very likely be found by a court to violate the trustee's current statutory duty of good faith.

In Albice, although the court did not directly address the trustee's duty of impartiality or good faith, the court held that trustees are required to "strictly comply with their legal obligations under the act." 174 Wn.2d at 572-73.

In 2008, the legislature amended the Act to eliminate the fiduciary duty created by the court in Cox. "The trustee or successor...