DO NOT CITE. SEE GR 14.1(a).|
Court of Appeals Division I
State of Washington
Opinion Information Sheet
SOURCE OF APPEAL
|Title of Case:
||In Re The Trustee's Sale Of Real Property Of: Thomas And Susan Arrington
|Appeal from Snohomish Superior Court|
|Docket No: ||10-2-06089-6|
|Judgment or order under review|
|Date filed: ||09/10/2010|
|Judge signing: ||Honorable David a Superior Court Judge Kurtz|
COUNSEL OF RECORD
|Authored by||Marlin Appelwick|
|Concurring:||Mary Kay Becker|
Counsel for Appellant(s)
| ||Jan Gossing |
| ||BTA Lawgroup PLLC|
| ||31811 Pacific Hwy S|
| ||Federal Way, WA, 98003-5646|
| ||N Brian Hallaq |
| ||Attorney at Law|
| ||14201 Se Petrovitsky Rd|
| ||Renton, WA, 98058-8986|
Counsel for Respondent(s)
| ||Rhonna Kollenkark |
| ||Robinson Tait PS|
| ||710 2nd Ave Ste 710|
| ||Seattle, WA, 98104-1724|
| ||Jennifer Lynn Tait |
| ||Robinson Tait PS|
| ||710 2nd Ave Ste 710|
| ||Seattle, WA, 98104-1724|
| ||Martin E. Snodgrass |
| ||Attorney at Law|
| ||3302 Oakes Ave|
| ||Everett, WA, 98201-4410|
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
In re the Trustee's Sale of the Real )
Property of: ) DIVISION ONE
) UNPUBLISHED OPINION
THOMAS R. ARRINGTON and SUSAN )
ARRINGTON, husband and wife. FILED: March 26, 2012
Appelwick, J. -- The Arringtons appeal the trial court's order disbursing
surplus funds from the nonjudicial foreclosure sale of their house. They argue
the trial court erred by ruling Susan could not avail herself of the homestead
exemption. They argue the trial court erred by ruling Bank of America had a
valid lien against the property despite failing to publically record its interest after
a 2004 merger. And, they argue that absent proper notice from the trustee to
BOA, the foreclosure sale did not eliminate BOA's interest in the property so it is
not entitled to surplus funds. We hold that Susan abandoned the property and
relinquished her homestead claim, and BOA was the most senior remaining lien
creditor, with priority as to the surplus funds. We affirm.
Susan and Thomas Arrington owned real property in Marysville,
Washington.1 When their marriage dissolved in 1999, the court awarded
Thomas occupancy and 50 percent equity in their house. It awarded Susan the
remaining 50 percent equity. Despite the dissolution, Susan continued to live at
the house. Between 2002 and 2008, Susan embezzled money from Visual
Graphics, the company where she worked. Visual Graphics obtained a judgment
against Susan for $330,023.20 in August 2009. She pleaded guilty to first
degree theft, and the court sentenced her to 24 months in prison on November
2009, which she began serving shortly thereafter.
In 2001, Thomas and Susan entered into a line of credit agreement with
Fleet National Bank. A deed of trust secured the line of credit on the property.
In 2004, Bank of America (BOA) acquired Fleet and its assets in a merger and
became the holder of the promissory note secured by a deed of trust.
In June 2010, the house was subject to a nonjudicial foreclosure sale,
which yielded $57,381.30 in excess of what was necessary to satisfy the
obligation owed to the primary lien holder. The trustee deposited this surplus
into the court registry of the Snohomish County Superior Court in accordance
with RCW 61.24.080. As of July 21, 2010, the total amount due and owing
under BOA's promissory note and deed of trust was $25,533.61. The address
listed on the deed of trust was for Fleet, as neither Fleet nor BOA updated the
address following the 2004 merger. Before the foreclosure sale, the trustee sent
notice of the sale to the listed addresses for the no longer existent Fleet.
The trial court ruled that BOA was Fleet's successor in interest and
1 We refer to the Arringtons by their first names for clarity. No disrespect is
awarded it the first $25,533.61 of the surplus funds in satisfaction of its lien. It
awarded 50 percent of the remaining funds to Thomas for his share of equity in
the house. And, it awarded the remaining 50 percent of the funds to Visual
Graphics, rather than to Susan. It ruled that Susan could not avail herself of the
homestead exemption, since she was incarcerated and not living on the property
and Visual Graphics was the victim of her crime. The Arringtons appeal the trial
court's order disbursing the surplus funds.
I. Homestead Exemption
The Arringtons argue the trial court erred by ruling Susan could not avail
herself of the homestead exemption.2 RCW 61.24.080(3) provides, in relevant
part: "Interests in, or liens or claims of liens against the property eliminated by
sale under this section shall attach to the surplus in the order of priority that it
had attached to the property." But, as this court held in Sweet, a home owner's
interest attaches to the surplus proceeds from a nonjudicial foreclosure sale
under a deed of trust such that a judgment creditor's claim is limited to funds in
excess of the homestead, if any. In re Trustee's Sale of the Real Prop. of Sweet,
88 Wn. App. 199, 200, 944 P.2d 414 (1997); see also In re Trustee's Sale of the
Real Prop. of Upton, 102 Wn. App. 220, 223, 6 P.3d 1231 (2000) ("Generally, a
property owner's homestead interest in property takes priority over the interests
of other creditors.").
2 The homestead exemption is limited here to the lesser of (1) the total net value
of the land, or (2) the sum of $125,000. RCW 6.13.030.
While a judgment creditor generally loses out to a property owner with a
homestead interest under Sweet, the trial court concluded that Susan could not
assert the homestead exemption in the first place. The court stated first that
Susan was not entitled to the funds, because her "incarceration was based upon
a voluntary act and therefore her absence from the property eliminates her
homestead exemption." And, second, the court reasoned "that a party claiming
a priority based upon a homestead [exemption] may not do so against the
specific creditor that was the victim of her crime." The Arringtons contest both of
We review questions of statutory interpretation de novo. Dot Foods, Inc.
v Dep't of Revenue, 166 Wn.2d 912, 919, 215 P.3d 185 (2009). RCW 6.13.040
automatically protects property that constitutes a homestead by the exemption
"from and after the time the real or personal property is occupied as a principal
residence by the owner." But, RCW 6.13.050 provides:
A homestead is presumed abandoned if the owner vacates the
property for a continuous period of at least six months. However, if
an owner is going to be absent from the homestead for more than
six months but does not intend to abandon the homestead, and has
no other principal residence, the owner may execute and
acknowledge, in the same manner as a grant of real property is
acknowledged, a declaration of nonabandonment of homestead.
Susan was a co-owner of the property. She lived in the house as her sole and
exclusive residence before being incarcerated in mid-November 2009. Susan
did not execute a declaration of nonabandonment. Thus, in mid-May 2010, six
months after Susan had vacated the property, a presumption of abandonment
arose. The nonjudicial foreclosure sale occurred in June 2010, approximately
seven months after her incarceration. Susan had abandoned the house and
relinquished her right to assert the homestead exemption by then.
At the trial court hearing, Susan relied on the case of Nelsen v. McKeen,
165 Wash. 274, 5 P.2d 333 (1931), for the proposition that one who is
imprisoned has not abandoned his or her homestead. But, as Visual Graphics
points out, Nelsen does not support that proposition. In that case, both Mr. and
Mrs. Nelsen filed declarations of homestead, and Mrs. Nelsen continued to
reside on the property after Mr. Nelsen was incarcerated. Id. at 276-77. The
court determined Mrs. Nelsen was entitled to exercise the homestead exemption
based on her continued residence at the property: "[I]t is of no concern to
appellants what has become of John Nelsen or what his intention was. It is
evident that Carla Nelsen lives upon the premises declared as a homestead."
Id. at 279-80. Thus, it was not Mr. Nelsen's involuntary incarceration that
allowed the Nelsens to assert the homestead exemption, but simply Mrs.
Nelsen's continued residence at the property.
Nelsen provides no support to the Arringtons' argument. Here, Thomas
and Susan were no longer married, so she could not rely on his continued
residence to establish her homestead. She had not filed a declaration of
homestead. She had not lived on the premises for more than six months before
the foreclosure sale. Under these facts, RCW 6.13.050 establishes her
abandonment of the homestead. Visual Graphics does not rely on this provision
in its briefing.3 Nonetheless, this statutory presumption of abandonment is a
3 Visual Graphics instead contends Susan was required to execute a declaration
proper legal basis to affirm the trial court's conclusion that Susan's "absence
from the property eliminates her homestead exemption."
We affirm the trial court's order on this basis. We need not address the
trial court's alternate equitable basis for reaching this result.
II. BOA's Lien Interest as Successor
The Arringtons next argue that BOA did not have a valid lien against the
property, because it did not have a recorded interest for purposes of notice. At
the time of the foreclosure sale, the address for notice was Fleet's defunct
address, rather than BOA's. The Arringtons contend that for the deed of trust to
remain valid, BOA was required to comply with Washington's recording statute
and record an assignment of deed of trust so as to alert any third parties that it
had purchased Fleet's interest. We reject that argument.
BOA's interest in the property was the result of its being the successor in
interest to Fleet. RCW 23B.11.060(1) describes the effect of a merger in part as
(a) Every other corporation party to the merger merges into
the surviving corporation and the separate existence of every
corporation except the surviving corporation ceases;
(b) The title to all real estate and other property owned by
each corporation party to the merger is vested in the surviving
corporation without reversion or impairment.
Here, Fleet's surviving interests thus vested automatically with BOA, without
of homestead under RCW 6.13.040(2). That provision states that an owner
selecting land not yet occupied as a homestead must execute a declaration of
homestead. Id. Since Susan occupied the homestead prior to her incarceration,
it appears the abandonment provision is more on point.
reversion or impairment.
Even if BOA should have received and recorded an assignment of Fleet's
deed of trust, an unrecorded assignment will still not cause the assigned
mortgage to lose priority as against subsequent mortgages or other liens. See
Miller v. Frybers, 119 Wash. 243, 250, 205 P. 388 (1922). What is relevant for
later purchasers of mortgages is notice that an earlier mortgage exists, not that it
has been assigned. Id. BOA's lien priority was thus established by Fleet's
properly recorded deed of trust. BOA's failure to record its own interest in the
property does not impact its assumption of Fleet's interest. We hold the trial
court did not err by finding BOA was entitled to assert Fleet's interests as a
III. Notice of the Foreclosure Sale
The Arringtons suggest the trustee conducting the foreclosure sale failed
to give the proper notice required under RCW 61.24.040(1). Under that statute,
the trustee must, at least 90 days before the sale, send notice as proscribed by
subsection (f) to "[t]he beneficiary of any deed of trust . . . or any person who has
a lien or claim of lien against the property, that was recorded subsequent to the
recordation of the deed of trust being foreclosed and before the recordation of
the notice of sale." RCW 61.24.040(1)(b)(ii). Notice must be transmitted via
both first class and certified or registered mail, to the address stated in the
recorded document evidencing the party's lien interest. RCW 61.24.040(1)(b).
Here, the trustee followed these criteria. Since Fleet appears in the
record of title as the beneficiary of the deed of trust, the trustee properly
transmitted notice to the Fleet addresses listed. And, as BOA's status was not in
the public record, the trustee was not required to notify BOA of the sale in order
to comply with RCW 61.24.040(1)(b).
The Arringtons argue that the trustee was required to provide actual
notice to Fleet or BOA, which was not accomplished here. While the deed of
trust act requires strict compliance with its provisions, its plain language in RCW
61.24.040 does not require actual notice. The Arringtons rely on Amresco
Independence Funding, Inc. v. SPS Props., LLC, 129 Wn. App. 532, 119 P.3d
884 (2005), to support their argument. In that case, Amresco similarly argued
the Trustee failed to comply with statutory notice provisions, having sent notice
of sale not to Amresco's address, but to the address of its attorney. Id. at 535,
538. While Amresco, the creditor, claimed it did not receive actual notice, the
court found that no actual notice was required, and that a mailing to the legal
agent was sufficient to meet the trustee's duty of notification under RCW
61.24.040(1)(b). Id. at 540. Thus, Amresco does not support the Arringtons'
argument, but supports the opposite conclusion. What was required was not
actual notice, but rather compliance with the requirements of RCW
61.24.040(1)(b). That compliance occurred here, when the trustee mailed notice
to the addresses of record.
IV. BOA was not an Omitted Lien Holder
As an extension of their argument above, the Arringtons contend that
under RCW 61.24.040(7), BOA is an omitted lien holder by virtue of the deficient
notice. Under RCW 61.24.040(7), if the trustee fails to give the required notice
to "any person entitled to notice. . . . The lien or interest of such omitted person
shall not be affected by the sale and such omitted person shall be treated as if
such person was the holder of the same lien or interest and was omitted as a
party defendant in a judicial foreclosure proceeding." Accordingly, the
Arringtons argue that since BOA was omitted and did not receive notice, its
interest was not affected by the nonjudicial foreclosure. They further assert that,
because BOA did not prove its lien was eliminated by the operation of the
trustee sale, BOA is not entitled to obtain disbursement of the surplus funds
under RCW 61.24.080(3). We reject this argument as well.
The trustee was only obligated to notify those parties "entitled to notice."
RCW 61.24.040(7). Because BOA was not identified in the public record as
having a lien interest in the property, it was not a party entitled to receive notice,
nor could it assert the protection afforded under RCW 61.24.040(7). BOA was
not an omitted lien holder.
BOA's lien was properly extinguished by the trustee's sale, and the trial
court was correct in ruling that BOA thus remained entitled to first priority in the
distribution of the surplus funds. Again, under RCW 61.24.080(3), the liens and
claims to such a surplus attach in the same order of priority that they would have
attached to the property itself. Here, BOA's interest, as Fleet's successor, had
statutory priority to the interests of the Arringtons. The homestead act contains
an exception to its applicability, which provides the homestead exemption is not
available against an execution or forced sale in satisfaction of judgments
obtained on debts secured by "mortgages or deeds of trust on the premises."
RCW 6.13.080(2). And, BOA's interest at execution was on a debt secured by
the deed of trust on the premises granted to its predecessor and acquired in the
merger.4 Disbursement to BOA was proper.
4 BOA also notes that its interest is senior to that of Visual Graphics, based on
the principle of first in time, first in right. Homann v. Huber, 38 Wn.2d 190, 198,
228 P.2d 466 (1951). BOA's deed of trust was recorded in 2001, while Visual
Graphics' was recorded in 2009. Visual Graphics does not dispute that BOA
had priority as the senior lien interest.