[WSBARP] Foreclosure Question

[David R. Ambrose]

James and all,

The first position trust deed doesn't have to do anything.  Any foreclosure sale will be subject to its interest (you'd be surprised at how often it appears a bidder at a nonjudicial foreclosure sale thinks they're getting a great deal, only to find that they get title subject to prior interests), although presumably the default under the second is a default under the first and it could at some point start its own foreclosure.  The holder of the third trust deed is in trouble.  If the foreclosure sale proceeds, its' interest in the property will be eliminated, although it will still hold an unsecured claim against the borrower, and guarantors, if any.  Any purchaser at the sale will take subject to the first position trust deed.  Notwithstanding there may be substantial equity in the property, there is no obligation on the part of the holder of the second position lender to bid anything more than the amount of its second position loan (indeed, it doesn't even have to bid that amount, although if it's a nonjudicial foreclosure, no right to a deficiency in any event, with certain limited exceptions).  The second position holder can credit bid up to the amount of the second position loan, but there may be other reasons (tax treatment among others), where the second position won't credit bid the whole amount, unless there are other competing bidders.   Proceeds will be applied to pay off the second first, and if the second is paid off in full, then applied to the third, and then if for some reason the bid is high enough to pay off the third as well, then if there are no other recorded judgments or liens against the property, any remaining proceeds get paid by the trustee to the property owner (presumably the borrower).  The trustee handling the foreclosure sale handles the disbursements (I am presuming this is a nonjudicial foreclosure).

If a judicial foreclosure, other rules also come into play, such as the right to establish an upset price.  See RCW Chapter 61.24.

Regards,

David Ambrose
drambrose at ambroselaw.com

From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of James W. Spencer
Sent: Friday, November 5, 2021 10:25 AM
To: 'wsbarp at lists.wsbarppt.com' <wsbarp at lists.wsbarppt.com>
Subject: [WSBARP] Foreclosure Question

Greetings All:

Since I (almost) exclusively work on the T&E side of things, I have a question for you dirt attorneys about what, practically, happens at foreclosure for the various property creditors.

In the case at hand, there are three deeds of trust against the real property. Significant equity, so paying off all three should be no problem. The second DOT holder is initiating foreclosure. Do DOT holders 1 and 3 need to do anything? Is there something like escrow at a Trustee's sale that will ensure that all three promissory notes are satisfied?

Your insights are appreciated. DOT holder 3 may need legal assistance if that is the best advice, so referrals (including self) are also appreciated.

Thank you,
James

James W. Spencer
Attorney at Law
Brothers & Henderson, P.S.
2722 Eastlake Avenue East, Suite 200
Seattle, Washington 98102
Phone: (206) 324-4300 x106
Fax: (206) 324-3106
e-mail:  jamess at brothershenderson.com<mailto:jamess at brothershenderson.com>
www.brothershenderson.com<http://www.brothershenderson.com/>
pronouns: he/him

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