Washington Real Estate Law Blog : Washington Real Estate Lawyer & Attorney : Dickson Steinacker Law Firm : WA HOA, Building & Zoning Updates

A recent opinion from the Court of Appeals address the issue of standing (“a party’s right to make a legal claim or seek judicial enforcement of a duty or right” according to Black’s).  Division Two handed down its decision in Vance v. XXXL Development, Inc., involving a property owner’s nuisance claim against a developer.  The developer had built a 25-foot high concrete block wall just two feet north of the homeowner’s property line.  The homeowner sold her home prior to trial, and claimed that the sale price was $100,000 lower due to the nuisance.  After the sale, the developer moved to dismiss the suit, claiming that the homeowner no longer had standing to sue.

The developer relied on RCW 7.48.020, which provides that a nuisance action “may be brought by any person whose property is … injuriously affected or whose personal enjoyment is lessened by the nuisance.”  Because the statute describes the damages in the present tense, the developer argued that the homeowner lost standing when she sold the home (ie, at the time of trial, she wasn’t one who is injuriously affected or whose enjoyment is lessened).  The trial court agreed with the developer.

The homeowner argued that the statute was not meant to be read so narrowly.  For example, RCW 7.48.180 allows recovery of damages even after a nuisance has been abated.  Further, the homeowner pointed out that seemingly arbitrary outcomes could result: a homeowner who sold the day before trial cannot recover, but one who sells the day after trial can.  Also, the tortfeasor would have an incentive to drag out litigation and intensify the nuisance, hoping that the homeowner would be forced to move due to the noxious nuisance before trial.

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The first thing you should do is record your judgment at the County Auditor’s office.   By recording your judgment, it becomes a lien on all real property owned by the debtor in that county. 

You have several options for collecting on your judgment, so take the time to investigate the most efficient way to do so.    Judgments in Washington State are good for ten (10) years.  If you have not collected on your judgment at the end of the ten year period, you can renew your judgment for another ten (10) years as long as you do so within 90 days of its expiration.

One method of collection is to garnish the debtor’s wages or bank account.  You must know where the debtor works or banks and there must be enough funds or income available that are not exempt from garnishment.

A second method of collection is to execute on the debtor’s personal property.  This involves taking non-exempt property from the debtor’s residence or business and selling it at auction.  You must have sufficient funds upfront, including the Sheriff’s fees, mover’s fees, storage fees, and auction fees.

A third method of collection is to execute on the debtor’s real property.   This also involves taking the debtor’s property and selling it at a public sale.  Again, the debtor will be permitted a certain amount in equity that is exempt from execution.   You must also demonstrate that the debtor did not have sufficient personal property to execute on first.

Finally, you may be able to sell or assign your judgment to a third party such as a collection agency.  These companies will either buy your judgment at a reduced amount or will attempt to collect the debt on your behalf, charging a percentage of the judgment or a fee.

In order to find out exactly where the debtor banks and works and to find out the assets available for execution, including how much equity there is, you can have the debtor ordered to go into court and testify under oath in supplemental proceedings.   In addition, you may require the debtor to bring documents with him such as his tax return or pay stub. 

It is important to remember that even with the availability of these collection tools, you may not be able to collect on your judgment.  Some debtors are known as “judgment proof.”  This typically means that the debtor does not have enough income or assets to satisfy your judgment or that you simply cannot locate the debtor to determine whether or not there are.   Of course, twenty years is a long time and people’s circumstances can change so even if you cannot collect on your judgment right away, it may be worth your while to periodically check the debtor’s status.  

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In Cox v. O’Brien, No. 37194–4–II the Court of Appeals Div. II reinforced the economic loss rule: 

“Citing Alejandre v. Bull, 159 Wn.2d 674, 682, 153 P.3d 864 (2007), both parties appear to concede that the economic loss rule applies and that the loss at issue here is the structural damage within the walls of the home, undiscovered until after the home sale closed and the Coxes moved in.  In Alejandre, our Supreme Court discussed the economic loss rule as maintaining the fundamental boundaries of tort and contract law.   Alejandre, 159 Wn.2d at 682 (citing Berschauer/Phillips Constr. Co v. Seattle Sch. Dist. No. 1, 124 Wn.2d 816, 826, 881 P.2d 986 (1994)). 

       Where economic losses occur, recovery is confined to contract to ensure that the allocation of risk and the determination of potential future liability is based on what the parties bargained for in the contract.  Alejandre, 159 Wn.2d at 683.  A seller sets a price in consideration of potential contractual liability.  Id. The economic loss rule prevents a party to a contract from obtaining through a tort claim benefits that were not part of the contractual bargain.  Id.

In short, the purpose of the economic loss rule is to bar recovery for alleged breach of tort duties where a contractual relationship exists between the parties and the losses are economic in nature.  If the economic loss rule applies, a party will be held to the contractual remedies, regardless of how the plaintiff characterizes the claims.  Id. at 684.” Cox at 8–9. 

For those readers who are not attorneys and don’t understand some of the intricacies of the economic loss rule, if there is a contractual relationship between the parties, the court will look to the contract and NOT tort law to govern how damages are determined.  Consequently, negligence in representing the condition of the home are controlled by the selling contract, and not general tort law. 

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John Parnass of Davis Wright Tremaine, LLP maintains an informative and well-researched blog called the Washington Construction Law blog. 

Given that construction and real estate are often joined at the hip on legal matters, it would be a great idea for people interested in real estate to monitor the latest construction law developments on John’s blog. 

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The US News and World Report online provides a dynamic breakdown of the basic components of the federally-backed loan modification program. 

According to the article, here are “Seven things you need to know” about a loan modification:

1. The plan focuses on payments made to lenders rather than the price of the loan.  Experts believe that even if the value of the home possesses little or no equity, if the modified loan payment is affordable, the homeowner will continue making payments.

2.  The plan would seek to reduce the mortgage payment to 31 percent of the borrower’s gross monthly income.  “To that end, the administration's plan requires participating loan servicers to reduce monthly payments to no more than 38 percent of the borrower's gross monthly income. The government would then chip in to bring payments down further, to no more than 31 percent of the borrower's monthly income. In lowering the payment, the servicer would first reduce the interest rate to as low as 2 percent. If that's not enough to hit the 31 percent threshold, they would then extend the terms of the loan to up to 40 years. If that's still not enough, the servicer would forebear loan principal at no interest.” 

3.  The plan would then encourage loan servicer participation by providing cash incentives:  “To encourage participation, servicers will be paid $1,000 for each modification and will get an additional $1,000 payout each year for as many as three years, as long as the borrower continues making payments. Borrowers, meanwhile, can get up to $1,000 knocked off the principal of their loan each year for as many as five years if they make their payments on time. Neither party can receive the cash incentives until the modified loan payments have been made for at least three months.”

4.  The plan would only apply to those under financial hardship.  Only owner-occupied residences with an outstanding balance of $729,750 or lower would be eligible.  (Sorry, no speculators.)

5.  The plan will require the loan modification to meet the net present value test.  What this means is that the lenders would compare the expected cash flow of the proposed modified loan with the expected cash flow of the loan unmodified.  If the modified loan would create more cash flow, then the loan will be modified and or restructured. 

6.  The plan will offer loan servicers with incentives to extinguish second liens like home equity lines of credit. 

7.  The plan may or may not work.  (Not the most satisfying conclusion, I know).  

Please refer to the full US News and World Report  article by Luke Mullins here. 

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The Washington Construction Law blog submitted a recent post about a decision in Division III Court of Appeals.  In Walla Walla College v. Ohio Cas Ins. Co., No. 26647–8–III, the court had to decide when damage occurred to property from leaking of underground storage tanks. 

Walla Walla College obtained an insurance policy with Ohio Cas Ins. Co. covering the installation of gas tanks on its property in the early 1990s.  Though the tanks failed in 2001 (leaking gas resulting in property damage) Walla Walla College claimed that the policy from the early 1990s should cover the cleanup costs because the tank failure was caused to faulty installation by an construction company.

Washington Construction Law blog sums it up as follows:

“Division III held that mere stress to the tank was not enough to constitute "property damage" and therefore denied coverage for the loss under the 1990-1992 policies.  First, the Court noted that the "your product" exclusion" negated any coverage for loss in value to the tank itself.  Next, the Court distinguished continuous trigger cases such as Groul Construction Co., Inc. v. Ins. Co. of North America, 11 Wn.App 632 (1974) by noting that while "a process began" in 1991, the "property damage did not occur until the tank failed in September 2001, long after the policies had expired."

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So you purchased a home where the seller represented on the Form 17 that there was a new roof but now the “new roof” is leaking. A contractor tells you that the roof is not new, rather there is merely new metal placed over layers of old metal. Now you have had to replace the roof for a cost of $6,000.00. Can you sue the seller for misrepresentation to recover your loss? 

The short answer is No.  

The first claim that comes to mind is misrepresentation. However, the economic loss rule bars a claim for negligent misrepresentation in the context of the sale of a home. Alejandre v. Bull, 159 Wn.2d 674, 685, 153 P.3d 864 (2007). “The economic loss rule applies to hold parties to their contract remedies when a loss potentially implicates both tort and contract relief. Id. at 681. 

 In Alejandre, the buyer of a home sued the seller for negligent misrepresentation regarding the condition of a septic system. Id. at 679-80. However, because a contract governed the parties’ transaction, and the parties had the opportunity to allocate the risk of lost in the contract, the tort claim was barred. Id. at 685-86. The buyer’s claimed damages from the failed septic system were purely economic losses, and the buyer was therefore limited to contract remedies. Id.

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 If you can find the funds to pay your arrears, but just need more time, then a forbearance is the way to go.  Working with your lender’s loss mitigation or foreclosure department to request a six-month forbearance can lower your monthly payments temporarily, allowing you more time to find the funds to bring your loan current. 

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The Homeowner Affordability and Stability Plan is a mortgage modification plan that is currently helping some homeowners lower their monthly mortgage payments.  Although eligibility is determined by your mortgage lender based on your financial situation and other guidelines, below are some of the plan’s features:   

The program is intended to help those who are current on their mortgage payments, but are unable to refinance because they owe more than their home’s current value.

• The program allows homeowners to modify their current loan into a 15 or 30 year fixed rate loan.
• The new first mortgage may not exceed 105% of the current market value of the home.
• The second mortgage holder must agree to remain in second position.
•  You must occupy the home as your primary residence.

 The biggest downside to this program is that you must have a Fannie Mae or Freddie Mac loan to qualify.    

In most cases you will need the following to apply:

• An application packet from your lender.
• Last two paycheck stubs.
• Last two years' tax returns
• Proof of financial hardship

 This program started on March 4, 2009.  There is no telling how long funds will last, so borrowers are encouraged to apply early.  

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Tacoma's City Council wants to modify the current zoning law to attract new business to many of Tacoma's neighborhoods.  The Council hopes to make Tacoma more attractive by easing height and building limitations. 

In a recent article by Peter Callaghan, one of the central issues to the new re-zoning plan is balancing the goal of having attractive, well-built development vs. the ability for developers to have projects that "pencil" (meaning that a project can be projected to be profitable). 

What the article does not discuss, curiously, are the impacts on development by state  environmental agencies.  Often times, it is the extra cost involved with preparing environmental studies and altering business practices to meet regulatory standards which impacts whether a project is ultimately profitable.

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