[WSBARP] redemption

[Eric Nelsen]

Rod--I just went through this rigamorale under similar circumstances. It's a thicket and the exact procedure and exact state of the judgment are critical. I think there is a gap in the law and the case law on this point, also, where it's unresolved.

If a living Borrower redeems, they are restored to ownership of the property, but the deficiency judgment - like any other personal judgment - automatically attaches to real property owned by the Borrower. So the redemption clears the mortgage lien, but the deficiency judgment now attaches to the property and the bank can execute on the deficiency judgment, using the execution of judgment procedures rather than mortgage foreclosure procedures.

A "successor in interest" to a Borrower can redeem. If such a successor redeems, the successor receives an estate that is derived from the Borrower's estate; the successor can receive no greater estate than what the Borrower had, and subject to the encumbrances of the Borrower that attach to it. The case law on this point is from a situation where the successor-in-interest received a quitclaim deed from a living Borrower, rather than receiving the interest by intestacy. And it says, if you're successor to the Borrower and you redeem, you take subject to any deficiency judgment owed by the Borrower--the deficiency judgment essentially attaches to the property in the theoretical instant when the redemption reinstates the Borrower's interest (which then passes to the successor).

HOWEVER, here, the Borrower has been dead for more than two years. All monetary claims against a decedent are barred 24 months after date of death. RCW 11.40.051. Case law indicates that a bank that fails to file a Creditor Claim is barred from pursuing a deficiency judgment against a decedent. The bank can still foreclose of course, but is limited to the collateral.

So now what? I don't know. What is the effect of a judgment against a Borrower that is entered by the court more than two years after date of death? Does the judgment even attach to the real property when the debt itself is already barred (if it is)?

What does it mean to name the "Estate" as the judgment debtor? Does that mean it is a post-death debt that is not affected by the 24-month bar? But the amount owed was definitely a debt of the decedent while living, not a debt incurred by the Estate, so it should be barred.

The lawsuit named "heirs and devisees" as defendants, but the judgment does not mention them. I dunno how that affects the situation either.

Excerpts from my prior research:

"Former RCW 6.24.130 [now, RCW 6.23.010] requires that a successor in interest succeed to the judgment debtor's interest in the property [in order to redeem]." Fidelity Mut. Sav. Bank v. Mark, 112 Wn.2d 47, 767 P.2d 1382 (1989). Accord, Capital Inv. Corp. of Wash. v. King County, 112 Wn.App. 216, 47 P.3d 161 (2002) (a redemptioner by virtue of a judgment lien cannot assign the right to redeem separate from its judgment, but must assign the judgment itself in order for the assignee to have redemption rights as the assignor redemptioner's successor in interest). An heir at law's interest in a decedent's real property automatically vests in her/his interest at the death of the ancestor. RCW 11.04.250. Thus, an heir at law is eligible to redeem.

Multiple heirs at law stand as equal tenants in common to the property. One cotenant may redeem a property from foreclosure on a common debt, and takes on behalf of all, subject to a right of reimbursement from the other cotenants. Dwight v. Waldron, 96 Wn. 156, 164 P. 761 (1917); McSorley v. Lindsay, 62 Wn. 203, 113 P. 267 (1911).

If a judgment debtor or her/his successor in interest redeems, there is a specific effect when the foreclosure is of a mortgage lien. The effect of the foreclosure sale is to strip off the mortgage lien - but if the mortgage holder has a deficiency judgment, then the general judgment lien re-attaches to the real property once it is redeemed. Damascus Milk Company v. Morriss, 1 Wn.App. 501, 463 P.2d 212 (1969). Damascus at 507-509 specifically distinguishes earlier case law which has language making no distinction between these two qualities of lien, distinguishing Bollong v. Corman, 125 Wn. 441, 217 P. 27 (1923) and De Roberts v. Stiles, 24 Wn. 611, 64 P. 795 (1901).

Damascus at 504 also cites Ford v. Nokomis State Bank, 135 Wn. 37, 237 P. 314 (1925) for the proposition that, if the judgment debtor or his grantee redeems, "sufficient of the lien is revived" to allow resale to satisfy the deficiency. The same distinguishing feature outlined in Damascus would appear to apply to Ford as well as Bollong and De Roberts.

The early case law also relies upon specific language in former RCW 6.24.160 stating that "If the judgment debtor redeem, the effect of the sale is terminated and he is restored to his estate." This language was deleted by laws of 1987, chapter 442, section 706 (and recodified per section 1121, now RCW 6.23.160). An echo of this language does remain in RCW 6.23.040(2), which specifies that the judgment debtor may redeem from a redemptioner who already has redeemed from the bidder (or another redemptioner), in which case "the effect of the sale is terminated and the estate of the debtor is restored." But that statute on its face applies only to redemption from a redemptioner, not redemption from the original bidder.

However, if a mortgage holder has elected to waive a deficiency judgment in order to shorten the redemption period from one year to eight months, RCW 6.23.020(1), then there is no deficiency judgment that can re-attach to the property after redemption. I have found no case law on this proposition, though it seems obvious-no deficiency judgment, therefore no judgment that could attach to the property. As stated in Damascus, the effect of the foreclosure sale is, "I now advise you of the value I placed upon the land; you may annul my interest and clear your title in the land by repayment of the amount of the purchase price, subject nevertheless, to the lien of my judgment against you personally." Id. at 507. Except, where deficiency judgment has been waived, the mortgage holder has waived the personal judgment.

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 Rod Harmon
Sent: Monday, February 22, 2016 11:37 AM
To: 'WSBA Real Property Listserv'
Subject: [WSBARP] redemption

A Borrower dies intestate leaving one heir.  Title vests in heir at time of death.  RCW 11.04.250.  There is no probate of the estate. Four years after death, Bank judicially forecloses deed of trust, naming Estate of Borrower and Borrower's heirs and devisees as defendants, and obtains judgment against "Estate of Borrower and the real property."  At the sheriff's auction, Bank bids half the amount of its judgment, but is outbid.

If the heir redeems, does the heir take free of the lien for the unsatisfied judgment?


Rod Harmon

RODNEY T. HARMON
       Attorney at Law
         P.O. Box 1066
      Bothell, WA   98041
     Tel:   (425) 402-7800
     Fax:  (425) 458-9096
    www.rodharmon.com<http://www.rodharmon.com>
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