[WSBARP] Bank Foreclosure - life estate holder granted DOD

[Josh Grant]

I have mentioned a client who I am assisting in defending a judicial foreclosure in earlier posts.  Some of you said “keep me posted”.  This is both a “dirt” and “estate” question.

Client’s folks gave client (son) a home, retaining a life estate.  About a year later they borrowed on it, they made payments til they died.  Title company apparently didn’t notice the deed to the son when they did a lender’s policy.  The parents died way over 2 years ago. The statute of limitations has therefore run on the note.

Bank now says that 
“You may not realize that the majority of the proceeds from the 1998 loan  were used to pay off a prior loan.   The prior deed of trust, which secured the earlier loan, was recorded on February 4, 1997, before the quit claim deed conveying the property to son was recorded. [This was the same bank giving the two loans. The loans were then sold to current bank].



Under the well-established doctrine of equitable subrogation,. Bank, as successor to lending bank, is subrogated to the first lender’s position.  Since the first loan was made at a time when parents held a fee simple interest in the property,  Bank is entitled to step into the position of the first lender and enforce its lien against the property.  See, e.g., Columbia Community Bank v. Newman Park, LLC, 177 Wn.2d 566, 304 P.3d 472 (2013); Bank of America, N.A. v. Prestance Corp., 160 Wn.2d 560, 160 P.3d 17 (2007). 



I have read Bank of America, N.A. v. Prestance Corp.  This is a fight between various banks who have financed the same borrower in subsequent loans and in which the borrower at the time of the loans held the same fee interest in the property.  The Court did hold that a subsequent filed deed of trust would be given a priority over one that was filed in second position reasoning that the 2nd position bank got what it bargained for, i.e. second position.

My thought is that this may be applicable when the party who did the borrowing continued to have some type of fee interest when he repeatedly borrowed, however, it might not be applicable where a borrower has lost his fee interest before the subsequent loan.



I have read Columbia Community Bank v. Newman Park, LLC,   This seems a closer case to me.  In this case the borrower defrauded the lender.  The new loan paid in full an earlier loan (different bank).  The borrower didn’t have the authority of the fee owner ( LLC) to take out this new loan and in fact fraudulent changed documents when the loan was given. The court decided that the newest lender took the security position of the 1st lender (who had been paid off) as a matter of equity.

It seems to me that this may not be controlling here because the son didn’t have anything to do with defrauding the bank and again, in fact there is no evidence parents defrauded anyone (I presume they forgot about the gift deed) when the newest loan was given, and again the benefited borrower didn’t have the same quality of title when the loans were made.  



Anyone have any thoughts?



thanks



Joshua F. Grant, PS
Attorney at Law
P. O. Box 619
Wilbur, WA 99185
tel 509 647 5578
fax 509 647 2734
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