Washington Trustee Licensure Bill Dies; UTA Changes Redemptioner Qualification;
and Reconveyance Issues Addressed

Holly Chisa

SB 5840, legislation to license trustees, failed to pass from the Senate, and died during session.  The bill would have licensed trustees, and included mandatory credit checks of employees, background checks, and criminal penalties for trustees that violated provisions of the statute.  Under Washington law, these kind of licensure requirements cannot be applied to licensed attorneys, so only non-attorneys would have been subject to most of the requirements, fees and penalties prescribed under the bill.  It is likely this issue will continue to be examined during the interim.

SB 5541 was legislation offered by a UTA member.   The bill — a one-word amendment — clarifies who qualifies as a redemptioner.  The redemption statute enacted in 1899 (codified under RCW 6.23.010) states that only a lien holder “subsequent in time” qualified as a redemptioner.  The bill clarifies that a lien holder “subsequent in priority” can redeem.  The reason for the bill stems from a 2012 published decision by the Washington Court of Appeals. [Summerhill Village Homeowners Ass’n v. Roughley, 166 Wash. App. 625 (Feb. 21, 2012)].

In Summerhill, the deed of trust was recorded in 2006. The unit owner defaulted on her condominium association assessments in 2008. Washington law provides a condominium association (COA) with a super-priority lien senior to each deed of trust for an amount equal to six months of assessments. The deed of trust beneficiary did not defend the COA collection lawsuit or pay the six-month super-priority lien prior to the sheriff sale.  A third party purchased the condominium for $10,302 at the sheriff sale, and the $191,800 deed of trust was extinguished.

The deed of trust beneficiary then attempted triage by exercising the one-year right of redemption.  The sheriff sale purchaser successfully argued that the deed of trust beneficiary did not qualify as a redemptioner under RCW 6.23.010 because the 2006 deed of trust was not subsequent in time to the 2008 COA super-priority lien.  The purchaser asserted that the plain meaning of the word “time” controls, and the 2006 mortgage was not “subsequent in time” to the 2008 COA delinquency; therefore, the deed of trust beneficiary did not qualify as a redemptioner under RCW 6.23.010(1)(b).

This legislation passed quickly through the Senate and House, and was signed by the Governor.  The bill is effective on July 28, 2013.

HB 1435 addresses issues of reconveyance, and was supported by the Washington Land Title Association.  The WLTA argued that there are properties in which the lender has been paid in full for the property, but the title is not reconveyed.  They provided examples of homeowners who provided evidence that their mortgage had been paid in full, but the lender had failed to request reconveyance.  The homeowner is left in limbo.  Under this bill, if the “trustee of record” (changed from the current language in the law that just says, “trustee,”) fails to reconvey within 120 days of pay off, then the agent may record a notarized declaration of payment with the county auditor.  That declaration must be sent to the trustee and the beneficiary, and the trustee or beneficiary has 60 days to respond.  If there is no response from either party, then any lien of the deed of trust against the property encumbered ceases to exist.

UTA expressed some concerns with this legislation to the Title Association that this type of practice does have the potential for abuse.  We were told that their intention is only to address those specific circumstances when the debt has been paid, but there is no identifiable financial institution to reconvey.  They have told us that, should issues arise over the interim about this language, they are open to additional legislation for the 2014 session.

The bill is effective July 28, 2013.

The UTA will also continue to work with stakeholders regarding the Foreclosure Fairness Act.  As you will recall, during the 2012 session, changes were made to the FFA to allow for a homeowner to file for mediation up to 20 days after the NOTS was filed.  It appears now that some individuals are taking advantage of this language, and are requesting mediation if an NOTS is refilled.  They argue that the statute states that mediation can be requested up to 20 days after the NOTS is filed; it doesn’t specify that it can only be requested after the first NOTS is filed.  This may be an issue that needs to be addressed in future legislation or rulemaking with the Department of Commerce, depending on how many homeowners we see taking this opportunity to request mediation on a second or third NOTS.

As always, I appreciate the continued input I receive from those UTA members that operate in Washington, and thank you for your support during the Washington session and interim.