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

Washington law allows lenders to foreclose on properties that are in default by using either a judicial or a nonjudicial foreclosure process. While the judicial foreclosure process involves going through the courts to obtain an order to foreclose, the nonjudicial foreclosure process allows the lender or the trustee under a deed of trust to foreclose by selling the property without court involvement.

Often referred to as a “trustee’s foreclosure” or a “foreclosure by power of sale,” nonjudicial foreclosure can only be used if a deed of trust (or other mortgage instrument) authorizes it. Today, it is widespread practice for a deed of trust to contain such an authorization by including a “power of sale” clause. This “power of sale” clause preauthorizes the sale of the property to pay off the balance of the loan in the event that the borrower defaults. Because a court is not involved in a nonjudicial foreclosure, however, there are very specific provisions, procedures, and formalities that the trustee or the lender must observe during the foreclosure process. In Washington, the statutory requirements governing nonjudicial foreclosures are set forth in Chapter 61.24 of the Revised Code of Washington. The following are the major requirements of the nonjudicial foreclosure process.

1) Notice of Default

At least thirty (30) days before initiating a foreclosure sale, the trustee must send a written notice of default to the borrower. This written notice of default must be sent to the borrower’s last known address and must be sent by both first-class mail and either registered or certified mail, with a return receipt requested. Additionally, the trustee must either personally serve the notice of default on the borrower or post a copy of the notice in a conspicuous place on the premises.  

The RCWs set forth very specific information that must be included in the notice of default. For example, a description of the subject property, a statement declaring the borrower in default, and an itemized account of all amounts in arrears are just some of the items of information that must be included in this notice. In addition, the RCWs set forth specific duties that lenders have and must complete even before a notice of default can be issued.

2) Notice of Sale

At least ninety (90) days before the foreclosure sale, the trustee must record a notice of sale in the office of the auditor in each county where the property is located. The trustee must then send a copy of the notice of sale to the borrower (and any other interested parties as set forth in the RCWs) by both first-class mail and either certified or registered mail, with a return receipt requested.

In addition to the notice of sale, the trustee must include a statement to the borrower that sets forth the steps required to cure the default and avoid foreclosure. This statement allows the borrower to stop the foreclosure process by paying past due payments, plus additional expenses. The ability to cure the default, however, ends eleven (11) days prior to the foreclosure sale.

In addition to mailing copies of the notice of sale and the statement regarding how the default can be cured, the trustee must also either personally serve the notice of sale upon any occupant of the property, or must post a copy of the notice of sale in a conspicuous place on the property. The trustee must also publish the notice of sale consecutively for four (4) weeks in a “legal” newspaper in the county where the property is located.

3) The Foreclosure Sale

The foreclosure sale itself also has rigid guidelines. The foreclosure sale must take place at a designated public place and must be on a Friday, or if the Friday is a legal holiday, on the following Monday. Additionally, the foreclosure sale must take place between 9:00 a.m. and 4:00 p.m., and it must take place at least 190 days from after the date of the first default.

4) Notice to Occupants or Tenants

If the property subject to the foreclosure proceeding is occupied by a tenant or other occupant, the trustee must, in addition to the requirements set out above, mail a specific notice in an envelope addressed to the “Resident of property subject to foreclosure sale.” Like many of the other notices, the specific language of this notice is set forth in the RCWs.   

After the foreclosure sale is completed, the purchaser of the property is entitled to possession of the property on the twentieth day following the trustee’s sale, as against the borrower and anyone having an interest junior to the deed of trust, including occupants who are not tenants. When the occupants of the property are tenants, however, the purchaser cannot merely enter the property on the twentieth day following the sale. In this situation, the purchaser has two options: 1) The purchaser can negotiate a new purchase or rental agreement with the tenant or subtenant; or 2) The purchaser can elect to terminate the rental agreement. If the purchaser elects to terminate the rental agreement, the purchaser must give the tenant or subtenant sixty (60) days written notice to vacate. It is not until this sixty days notice has lapsed that the purchaser can lawfully remove the tenant or subtenant from the property.

 

Understanding these major requirements of Washington’s nonjudicial foreclosure process is important. Whether you are a homeowner who is facing foreclosure, a lender who is considering beginning the foreclosure process, or a tenant living in a property that is being auctioned at a foreclosure sale, understanding these requirements can help you to know your rights and your duties. The process of nonjudicial foreclosure can be a time-consuming and complex process, requiring strict adherence to the applicable RCWs and their substantive forms and language. Always keep in mind that because each situation involving nonjudicial foreclosure presents unique issues, seeking professional legal assistance to guide you through this complicated time may ultimately be that best decision you make in protecting your interests.

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             For people experiencing severe financial difficulties and who are overwhelmed with debt, bankruptcy may be an important option. Whether difficult times are brought on by job loss, medical problems, family breakups, or even financial irresponsibility, bankruptcy can grant you much desired relief. Understanding some basic principles of consumer bankruptcy, however, is imperative in knowing which form of bankruptcy is appropriate.

Within bankruptcy law, there are several different “chapters.” Each “chapter” is specifically designed to help either individuals or businesses in eliminating, resolving, and/or repaying their debts. Selecting which bankruptcy chapter to proceed under, depends on the individual’s or business’s specific circumstances. For individuals (“consumers”) who are seeking relief through the bankruptcy process, two chapters are available: Chapter 7 and Chapter 13. These two bankruptcy chapters differ significantly and offer different results.

Chapter 7 Bankruptcy

             Chapter 7 is commonly referred to as “liquidation bankruptcy.” When an individual proceeds under Chapter 7, a trustee is appointed by the bankruptcy court. The trustee then gathers all of the individual’s property (except any property that is exempt), sells (“liquidates”) it, and distributes the proceeds of the sale to the individual’s creditors. At the end of this process, any outstanding debts are discharged (eliminated). The creditors then chalk-up their losses and move on, while the individual must start anew with very little assets leftover. The Chapter 7 process generally takes about four to six months.

             Not everyone is allowed to proceed under Chapter 7, however. To be eligible under Chapter 7, an individual must pass the “means test” (a mechanical formula that is used to determine who can and cannot repay some debt.) If it is determined by the court that the individual’s “current monthly income” is above a certain amount and the individual has the ability to repay some debt, the individual may be denied Chapter 7 relief and may be forced to proceed under Chapter 13. Most people who meet the eligibility requirements proceed under Chapter 7 because, unlike Chapter 13, Chapter 7 takes less time to complete and does not require the individual to pay back any portion of his or her debts.

Chapter 13 Bankruptcy

             Chapter 13 differs significantly from Chapter 7’s liquidation method. Commonly referred to as an “Adjustment of Debt” or “Wage Earner’s Plan,” Chapter 13 focuses on using the individual’s future earnings, rather than liquidated property, to pay creditors. When an individual files under Chapter 13, a court-approved plan allows the individual to keep all of his or her property, but the individual must pay a portion of all future income to the creditors. This payout plan lasts for three to five years, depending on the circumstances and the court-approved plan. When the individual has completed the agreed payout plan, any remaining obligations are discharged.

             Naturally, eligibility to proceed under Chapter 13 requires that an individual must prove that he or she is capable of paying a portion of his or her future monthly income to creditors for a period of three to five years. If the individual’s income is not regular or is too low, Chapter 13 may be denied. Likewise, if the individual’s total amount of debt is too high, the court may deny Chapter 13. Unlike Chapter 7, Chapter 13 takes much more time to complete. However, the major benefit of Chapter 13 is that the individual is allowed to keep his or her property.

             Understanding the main differences between Chapter 7 and Chapter 13 can assist you in knowing which form of bankruptcy will most likely work best for you. Keep in mind, however, that because the bankruptcy process is complex and oftentimes requires professional knowledge to be successful, seeking professional help is your best bet.

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One of my favorite websites I visit to keep a pulse on the Puget Sound residential real estate market is the Seattlebubbleblog. Its founder and editor is Seattle resident named Timothy Ellis who goes by the blog name “The Tim.” http://seattlebubble.com/blog/ 

The blog has daily posts which include some great graphs, charts and analysis of the Puget Sound real estate market.  What makes the posters on the Seattle Bubble Blog unique is their credibility.  They were one of a few vocal media sources in Washington State that consistently and loudly predicted the current real estate crash before it happened.  In addition to good posts and analysis by “The Tim,” the comment section provides a lively discussion about Puget Sound real estate issues.  *Be aware homeowner: many of the comments made are from bloggers who predict continued steep declines in the Puget Sound real estate - so the blog isn’t for the faint of heart. 

The effect of local and federal laws as they relate to the residential real estate market in the Puget Sound area are also frequently discussed by the blog posters and authors with links to news articles and additional resources.

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In a recent case, the issue arose as to what options a party has when their home has already been foreclosed upon, and sold in a trustee's sale.  Washington's Deed of Trust Act provides direction for this issue in RCW 61.24.130.  

As interpreted in In re Marriage of Kaseburg,126 Wash.App. 546, 108 P.3d 1278 (2005), a party waives the right to post-foreclosure-sale remedies under the Deed of Trust Act where the party:

1. received notice of the right to enjoin the sale; 
2. had actual or constructive knowledge of a defense to foreclosure prior to the sale; AND
3. failed to bring an action to obtain a court order enjoining the sale

This Act provides a the only manner in which ANY party may prevent or restrain a trustee's sale on any proper ground, once the foreclosure has begun with a "receipt of the notice of sale and foreclosure."  Id. at 236.

It would seem that the safeguards required before a trustee's sale can go through, influenced what that legislature allows in post-foreclosure-sale remedies.  In other words, even if there is a valid reason to undue a trustee's sale, you must take those steps prior to the sale.  IF, of course, you did not receive proper notice and were not aware of the sale, you are NOT barred from bringing an action to stop the sale.

To be safe, if one is facing a foreclosure and his/her home has a scheduled trustee's sale date, the best thing is to hire an attorney to initiate the legal process.  At a minimum, therefore, the home owner is not guilty of waiving his or her rights to post-foreclosure-sale remedies and can forestall the process before it is too late.  

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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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 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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