§21.11 - Nonjudicial Sale Procedure

• Jurisdiction: Washington

§21.11 NONJUDICIAL SALE PROCEDURE

The nonjudicial sale procedure is set forth in the Act and "contains several safeguards to ensure that the nonjudicial foreclosure process is fair and free from surprise." Cox v. Helenius, 103 Wn.2d 383, 387, 693 P.2d 683. Like the judicial foreclosure of a mortgage, the nonjudicial procedure is designed to (1) satisfy the debtor's obligation to the lender by selling the encumbered property free and clear of all subordinate interests in the property and (2) give notice of the proceeding to all parties with an interest in the property arising subsequent to the one being foreclosed.

The trustee should initially determine the type of secured obligation (e.g., residential or commercial loan, seller financing) and the type of property (e.g., residential real property, owner-occupied, tenant- occupied) subject to the deed of trust. Once the type of loan and property are identified, the trustee will be able to determine which notices and prerequisites apply during the nonjudicial foreclosure process. Then the trustee should ascertain all of the parties who have an interest in the property. Atrustee should obtain a trustee's sale guarantee showing any party with a recorded interest in the property. The guarantee should be updated after the notice of trustee's sale is recorded. An inspection of the property will put the trustee on notice of any party that occupies the property. Additionally, the trustee should inquire of the beneficiary whether the beneficiary is aware of any other parties with an interest in the property. There is no statutory redemption period after the sale, although the Internal Revenue Service may, within 120 days after the sale, redeem the property pursuant to I.R.C.§7425(d)(l).RCW61.24.050. The shortest time frame for the nonjudicial foreclosure process, absent any complications or postponements, is 190 days. RCW 61.24.040(8). See §21.11(2), (3), and (4) below, for discussion of the longer foreclosure process for owner-occupied residential real property.

Practice Tip: The trustee should widely distribute the notice of trustee's sale. All persons with any possible interest in the property should be notified. This course of action is fair and obviates any technical questions about the nonjudicial procedure If the trustee elects to post the notice to the property pursuant to RCW 61.24.040(l)(e), the trustee should secure a picture of the posted notice as evidence against future arguments denying notice.

The sale procedure is as discussed in §21.11( l)-(9), below. Checklists for the nonjudicial foreclosure procedure are found as Form 21-1 and Form 21-2 on the CD accompanying this deskbook.

(1) General statutory requirements

For a deed of trust to be nonjudicially foreclosed, the Act requires (1) that the deed of trust contain a power of sale; (2) the occurrence of a default that triggers the power to sell under the deed of trust; (3) no pending action brought by the beneficiary requesting satisfaction of the obligation secured by the deed of trust; (4) a recorded deed of trust; (5) that the deed of trust contain a provision providing that the property encumbered by the deed of trust is not used principally for agricultural purposes; and (6) that at least 30 days before the notice of sale is recorded, the statutory notice of default be mailed by both first class and either registered or certified mail to the borrower and grantor at their last known address and posted in a conspicuous place on the property, or personally served on the borrower and grantor. RCW 61.24.030(l)-(5), (8). If the statement regarding agricultural purposes in (5) above is false both at the time it is made and on the date of the trustee's sale, or if the statement is not included in the deed of trust, the lien may be foreclosed only judicially. RCW 61.24.030(2).

In addition to the qualifications of a trustee set out in RCW 61.24.010, the Act contains certain prerequisites that must be satisfied by the trustee before the nonjudicial foreclosure can commence. RCW 61.24.030(6). In 2008, this provision was amended to address continued concerns with accessibility to trustees during the foreclosure process. As amended, RCW 61.24.030(6) requires a trustee to maintain not only a street address for service of process, but also telephone service and a physical presence at that address. These requirements are to be satisfied from the date of the notice of trustee's sale through the date of the trustee's sale.

Practice Tip: Trustees must maintain telephone service at their address for service of process and maintain an employee, agent, or representative to be located at that address during the foreclosure process.

(2) Residential real property

Beginning in 2009, the legislature responded to the wave of residential foreclosures with a series of amendments to the Act that added additional protections and prerequisites to foreclosures of deeds of trust recorded against certain types of "residential real property," which is a denned term in the Act. '"Residential real property' means property consisting solely of a single-family residence, a residential condominium unit, or a residential cooperative unit." RCW 61.24.005(13).

Anotice of default sent in connection with the foreclosure of residential real property must contain the name and address of the owner of any promissory notes or other obligations secured by the deed of trust, as well as the name, address, and telephone number of a party acting as a servicer of the obligations secured by the deed of trust. RCW 61.24.030(8X1). Additionally, before the notice of trustee's sale is sent or recorded against residential real property, the beneficiary must provide the trustee with proof that the beneficiary is the owner or holder of the obligation secured by the deed of trust. RCW 61.24.030(7). Association beneficiaries subject to Chapters 64.32,64.34, or 64.38 RCW are exempt from this requirement.

Practice Tip: As long as the trustee is acting in good faith, the trustee may rely on a declaration by the beneficiary made under penalty of perjury stating the beneficiary is the actual holder of the promissory note or other secured obligation. RCW 61.24.030(7). It is unclear if a declaration merely providing that the beneficiary either owns the obligation or is entitled to enforce the obligation on behalf of the holder is sufficient to satisfy this safe-harbor provision.

Unlike the protections and prerequisites discussed in §21.11(3), (4), and (5), below, these additional disclosure requirements apply to nonjudicial foreclosure of all residential property as opposed to only "owner-occupied" residential real property, and do not exempt deeds of trust securing commercial loans.

(3) Loss mitigation—owner-occupied residential real property

The loss-mitigation requirements were added to the Act in 2009 and revised in 2011 and 2012. The loss-mitigation requirements and mediation program (discussed in §21.11(4), below) apply to certain types of noncommercial loans secured by owner-occupied residential real property. "'Owner-occupied' means property that is the principal residence of the borrower." RCW 61.24.005(10).

The loss-mitigation and mediation requirements do not apply to (1) beneficiaries of deeds of trust securing a commercial loan, RCW 61.24.031(7)(a)(i),.165(3)(a); (2) deeds of trust securing obligations of a grantor who is not the borrower or guarantor or a purchaser's obligations under seller financing, RCW 61.24.031(7)(a)(ii)-(iii), .165(3)(b)-(c); or (3) association beneficiaries subject to Chapters 64.32, 64.34, or...