[WSBARP] DOT and Non-monetary Defaults

[Eric Nelsen]

It's a mess, for sure, but for a non-monetary default, I think it's always that way. Monetary defaults are always easy because numbers look so deceptively straightforward. The evidence looks clear, and the standard to cure looks clear.

I think, if the borrower is going to contest the default, it is going to court somehow. I think it is more a strategic question on which way to do it: do a judicial foreclosure which requires a trial on the issue of whether or not there is in fact a default; or, declare the default, proceed non-judicially, let the borrower bring a petition to halt the sale, and litigate the same issue in that action.

I can see some practical advantages to the nonjudicial, simply because it puts the burden of halting the process on the borrower. If the borrower does not seek pre-sale remedy, I think this is not the sort of dispute that can be litigated post-sale. (Not that I have engaged in much thought on that.)

Either way, it comes down to a judge's discretion on what "good repair" means. If it is a shingle roof, dabbing with black tar should not meet that standard. I do not think it requires a professional contractor to do the work, but I do think it has to be repairs of the quality that makes the property maintain its market value and insurability. Perhaps expert opinions from an insurance agent and a real estate agent?

Sincerely,

Eric

Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1320 University St
Seattle WA 98101-2837
phone 206-625-0092
fax 206-625-9040

From: wsbarp-bounces at lists.wsbarppt.com [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Paul Neumiller
Sent: Thursday, February 04, 2016 12:52 PM
To: 'WSBA Real Property Listserv'
Subject: Re: [WSBARP] DOT and Non-monetary Defaults

Eric, as you pointed out, my DOT has the provisions that you have quoted.  The problem arises with the practical question of what comes next.  The debtor has the right to cure the default, but that can be a subjective test.  For example the roof leaks, will the debtor be able to climb on the roof and slather black tar around and call it good?  Can the creditor dictate that the debtor stall a new roof (twenty year shingles?).  If the debtor challenges the foreclosure and asserts that the debtor cured the default, would a judge really be willing to cut the debtor out of the residence because the debtor didn't do enough?  I doubt it.

And Rick raises additional problems.  The debtor needs a redemption cost but that should be based on the repair/cure costs.  AND, the debtor has the right to reside in the residence during the redemption period.  So, how does the creditor make the repairs while the debtor has possession?

What a mess.

[cid:image001.jpg at 01D15F4D.7E215810]

From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Eric Nelsen
Sent: Thursday, February 4, 2016 10:48 AM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>>
Subject: Re: [WSBARP] DOT and Non-monetary Defaults

Dwight, as usual, strikes accurately on a difficulty. But I think Rick is also right--nonjudicial foreclosure was supposed to work for non-monetary defaults as well. But the statutory language is certainly not well-suited for dealing with one, and the case law that strictly construes the requirements makes it difficult to find a creative solution that involves simple cure of the non-monetary default.

Maybe the non-monetary default can be converted to a monetary default by acceleration.

In the standard deed of trust LPB 22-05 rev. 4/2014, paragraph 4 of the mutual covenants section, it says, "upon default by the grantor in the payment of any indebtedness secured hereby or in the performance of any agreement contained herein, all sums secured hereby shall immediately become due and payable at the option of the beneficiary."

Paragraph one of the grantor covenants on the previous page is that grantor covenants and agrees "to keep property in good condition and repair; to permit no waste of thereof;..."

So notice of default on keeping the property in good condition, followed by an acceleration upon failure to cure, creates a monetary default. Maybe that would work?

Sincerely,

Eric

Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1320 University St
Seattle WA 98101-2837
phone 206-625-0092
fax 206-625-9040

From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Rick Hoss
Sent: Wednesday, February 03, 2016 4:32 PM
To: 'WSBA Real Property Listserv'
Subject: Re: [WSBARP] DOT and Non-monetary Defaults

The non-judicial trustee may drag her or his feet before proceeding with foreclosure for non-monetary default, but rcw 61.24.090(3) addresses cure necessary for a default occasioned by other than a failure to make payments so this was contemplated when adopting rcw 61.24. The trustee should make it very clear about what constitutes cure and come up with an objective performance standard. With so much recent focus on trustee behaviors the trustee should be more flexible in extending cure times than with payment defaults.

A more cautious approach  is often for a judicial foreclosure with or without a request for appointment of a receiver. But thinking backward, how will the foreclosed party exercise his redemption rights unless the cost of the nonmonetary default is specified in the fof, col and/or judgment? What if there is a judgment for the cost to cure but the work isn't done?

It takes me just about the same amount of time to draft a judicial foreclosure and summary judgment pleadings as the non-judicial foreclosure notices, and there are not nearly as many recent decisions critical of judicial foreclosure processes. But there is a redemption right that needs to be planned for with the judicial foreclosure.


From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> [mailto:wsbarp-bounces at lists.wsbarppt.com] On Behalf Of Paul Neumiller
Sent: Wednesday, February 03, 2016 1:53 PM
To: wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>
Subject: [WSBARP] DOT and Non-monetary Defaults

Listmates: I have been pondering this problem for a long time.  Client is a seller-carryback holder of a deed of trust and note.  Debtor is not in default of note installments but is allowing the real property secured by the lien of the DOT to deteriorate.  Waaaay too much deferred maintenance (i.e. leaking roof in residence, dilapidated barns, etc.).  The note doesn't mature for another 20 years.  Parties used the standard WA residential DOT requiring that debtor "keep the property in good condition and repair"  and an acceleration of debt if the debtor fails to perform a duty agreed to in the DOT.

So how does this work?  Has anyone just tried a non-judicial foreclosure and "damn the torpedoes"?  Maybe, have the creditor go in and fix everything (not sure the creditor has the right to cure non-monetary defaults) and then bring a non-judicial foreclosure based on the repair costs, OR bring a judicial foreclosure and have lots of pictures and evidence of deferred maintenance?  That sure seems like a can of worms and litigator's dream.  Any ideas?

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