§22.5 - The Real Estate Contract Forfeiture Act

• Jurisdiction: Washington

§22.5 THE REAL ESTATE CONTRACT FORFEITURE ACT

The Real Estate Contract Forfeiture Act is contained in Chapter 61.30 RCW. The Act provides the statutory framework for the forfeiture of a real estate contract. The Real Estate Contract Forfeiture Act became effective January 1, 1986, and applies to all real estate contract forfeitures initiated on or after that date, regardless of when the real estate contract was made.

(1) Purpose of statutory method of forfeiture procedure

Forfeiture means the cancellation of the buyer's rights under the real estate contract and the extinguishment of rights in the property to the extent the statutory procedures are followed. The rights of persons claiming by or through the buyer, because of a breach of one or more of the buyer's obligations under the contract, are also terminated. For a discussion of the Real Estate Contract Forfeiture Act, see Linda S. Hume, The Washington Real Estate Contract Forfeiture Act, 61 WASH. L. REV. 803 (1986).

The forfeiture remedy under the Real Estate Contract Forfeiture Act is consistent with analogous procedures and limitations in mortgage foreclosures and nonjudicial trustee's sales, although it incorporates existing practices, judicial precedent, and common law specific to the real estate contract. The principal purposes of the statute include the clarification of the rights of the contracting parties; the avoidance of unnecessary and burdensome procedures (in particular, the necessity of obtaining judicial confirmation of a forfeiture procedure through a quiet title judgment); permitting reliance on public records to ascertain the state of title to real property; and balancing the rights, remedies, liabilities, and responsibilities among the parties to a contract. The mandatory provisions of the Real Estate Contract Forfeiture Act do not prohibit an action to confirm the abandonment of a real estate contract, which is in the nature of an action seeking rescission. Schoneman v. Wilson, 56 Wn.App. 776, 785 P.2d 845 (1990). Amendments to the Act in 1988 clarified that a real estate contract may be foreclosed as a mortgage. RCW 61.30.020. A seller may not maintain a forfeiture action and a foreclosure action simultaneously, but does not elect remedies by bringing an action to foreclose the contract. Similarly, a seller can cancel a pending forfeiture proceeding and foreclose the contract as a mortgage.

(2) Conditions precedent

The Real Estate Contract Forfeiture Act, Chapter 61.30 RCW, provides a nonjudicial method to forfeit real estate contracts. All forfeitures under real estate contracts must comply with the Act. RCW 61.30.911; Tomlinson v. Clarke, 118 Wn.2d 498, 825 P.2d 706 (1992). It provides for a 90-day period to cure the default, RCW 61.30.070(1)(e); prohibits a deficiency judgment following a forfeiture, RCW 61.30.100; and limits the enforceability of an acceleration provision in connection with a forfeiture, RCW 61.030.090. RCW 61.30.030 contains three conditions that must be satisfied to forfeit a real estate contract:

(1)	the contract being forfeited, or memorandum thereof, must be recorded in each county in which any of the property is located;
(2)	a breach has occurred in one or more of the buyer's obligations under the contract, and the contract provides that as a result of such breach the seller is entitled to forfeit the contract; and
(3)	except for petitions for the appointment of a receiver, no action is pending on a claim made by the seller against the buyer on any obligation secured by the contract.

The contract need not be recorded prior to filing a Notice of Intent to Forfeit, but it must be recorded before the Declaration of Forfeiture is recorded to satisfy the condition precedent in the Act. McLean v. McLean, 51 Wn.App. 635, 754 P.2d 1033 (1988).

(3) Required notices

The Real Estate Contract Forfeiture Act, Chapter 61.30 RCW, uses a system of "required notices" to forfeit a real estate contract. RCW 61.30.040. Required notices include the "Notice of Intent to Forfeit" and "Declaration of Forfeiture," both of which need to be served and recorded. Kofmehl v. Steelman, 63 Wn.App. 133, 816 P.2d 1258 (1991). Substantial compliance with the Act, including both record and personal notice, is required of the seller. Schultz v. Werelius, 60 Wn.App. 450, 803 P.2d 1334, review denied, 116 Wn.2d 1027, 812 P.2d 102 (1991). Required notices must be given to the buyer at the buyer's address last known to the seller or the seller's agent or attorney. RCW 61.30.050. Failure to give the Notice of Intent to Forfeit invalidates the forfeiture. The statute also requires that the holders of record of security interests in or liens against the buyer's interest in the contract or the property, holders of subordinate interests of the seller's or the buyer's interest, and all persons occupying the property whose identities may be ascertained by reasonable inquiry be given required notices. RCW 61.30.040(2). Unlike failure of giving required notices to the buyer, the intentional or inadvertent failure to give the required notices to these persons does not invalidate the forfeiture, but their interests are not affected by the forfeiture. RCW 61.30.080. The statute also permits any person to record a request for notice and specifies that when any such request is recorded prior to the recordation of the Notice of Intent to Forfeit the seller will be obligated to send such person a copy of the required notices. RCW 61.30.040(3).

The extent to which the seller must ascertain the identity and location of the buyer has been addressed in a few cases. In Arnold v. Moore, 96 Wn.App. 488, 980 P.2d 291 (1999), the court construed the reference to "purchaser" in RCW 61.30.040 to include the original buyers and their successors and assignees, and stated that a purchaser is "known" to a seller if the seller has actual knowledge that such person is a present holder of all or a part of the purchaser's interests under the contract. Thus, the seller has a duty to give the required notices to all of the purchaser's assignees who hold an interest in the contract and are known to the seller. In Dobbins v. Mendoza, 88 Wn.App. 862, 947 P.2d 1229 (1997), a foreclosure action, the court held that if a seller did not examine the tax and assessment records for the property or the record of judgment liens filed against the property, it did not make a reasonably diligent effort to locate the purchaser so as to justify service of process by publication if it.

Unless otherwise provided in the contract or other agreement with the seller, the seller is not required to give any required notices to any person whose interest in the buyer's rights in the contract or the property is not of record or whose interest is first acquired after the time the Notice of Intent to Forfeit is recorded. An interest recorded subsequent to the filing of the Notice of Intent to Forfeit would be subject to elimination by the forfeiture without further notification. This provision avoids any necessity of the seller having to review the records periodically and give supplemental notices to persons who acquired their interest in the property with actual or constructive knowledge of the seller's actions.

Giving the Notice of Intent to Forfeit is not necessarily an election of remedies. See, for example, Kofmehl v. Steelman, 63 Wn.App. 133, 816 P.2d 1258 (1991), in which the court held that the sellers were not equitably estopped from seeking specific performance of payments due under the real estate contract, even though the Notice of Intent to Forfeit was served and recorded, when suit for specific performance was not inconsistent with the lapsed Notice of Intent to Forfeit, there was no evidence that the buyer or the assignee of the buyer detrimentally relied on the Notice of Intent to Forfeit or the statement by one seller that it would proceed with forfeiture, and there was no evidence that either buyer or its assignee sustained injury as a result of the failure of the seller to record the Declaration of Forfeiture.

Minor defects in mailing procedures and the timeliness of receipt of notices are not material when the buyer actually receives the notices and its rights are not prejudiced. Galladora v. Richter, 52 Wn.App. 778, 764 P.2d 647 (1988). In Galladora, the buyer also alleged that the seller had improperly included a demand for payment of personal property taxes in the statement of items that should be paid to cure. The court held that the demand was proper because the contract required the buyer to pay "taxes," and unpaid personal property taxes may become a lien against the real property. Alternatively, the court's opinion indicates that the buyer was not prejudiced by the inclusion of the tax demand because it was in default on principal and interest payments and did not tender cure of that item in default.

A notice that fails to give a certain date on which forfeiture will occur and demands attorney fees that are not due under the contract is defective and constitutes a material failure to comply with the Act. Powell v. Moss, 51 Wn.App. 530, 754 P.2d 697, review denied, 111 Wn.2d 1005 (1988).

Failure to record the contract and to provide the recording number of the contract in the Notice of Intent to Forfeit is not a material failure to comply with the Act. McLean v. McLean, 51 Wn.App. 635, 754 P.2d 1033 (1988).

(4) Notice of Intent to Forfeit

The Notice of Intent to Forfeit is the initial required notice to commence a statutory real estate contract forfeiture. The Notice of Intent to Forfeit may be given before it is recorded, but it must still be given no later than 10 days after it has been recorded. RCW 61.30.060. Notice is "given" for purposes of the Act when served or mailed or when both posted and first published. RCW 61.30.060. The Notice of Intent to Forfeit must be in writing and signed...