[WSBARP] 2nd DOT invalid?

Wed Mar 30 07:20:16 PDT 2022

Douglas,

Well, your client could still obtain a deed in lieu of foreclosure, but it would need to be a nonmerger deed in lieu of foreclosure, and your client would then still need to conduct a non-judicial foreclosure sale (no reason to do a judicial foreclosure), in order to get rid of the 2nd DOT, as well as any other junior interests which may exist.  You would want to obtain a foreclosure report from a title company to confirm the status of title.  Keep in mind that beneficiary under the 2nd DOT would always have the right to just pay off the 1st DOT and proceed with its own foreclosure.  That determination would depend on whether there is any substantial equity in the property.  You could approach the beneficiary under the 2nd DOT to see if you could buy out its interest for a nominal sum – basically a nuisance payment.

Best,

David Ambrose
drambrose at ambroselaw.com

From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Douglas Scott
Sent: Tuesday, March 29, 2022 1:43 PM
To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] 2nd DOT invalid?

I appreciate your thoughts.  In clarification, the client seller had no knowledge of the 2nd DOT.  Buyer defaulted in payments and said he'd Deed In Lieu the commercial property back to the client.  But when the title was searched, the client found the $440,000 2nd DOT.  Client would rather not foreclose.  There was no language in the 2nd DOT about it being signed before the closing but filed thereafter.
DOUGLAS W. SCOTT
Rainier Legal Advocates|LLC

465 Rainier Blvd. N., Suite C
Issaquah, Washington 98027
425.392.8550 (tel)
425.392.2829 (fax)

www.rainieradvocates.com<http://www.rainieradvocates.com/>

Notice: This communication, including attachments, may contain information that is confidential and protected by the attorney/client or other privileges. It constitutes non-public information intended to be conveyed only to the designated recipient(s). If the reader or recipient of this communication is not the intended recipient, an employee or agent of the intended recipient who is responsible for delivering it to the intended recipient, or you believe that you have received this communication in error, please notify the sender immediately by return e-mail and promptly delete this e-mail, including attachments without reading or saving them in any manner. The unauthorized use, dissemination, distribution, or reproduction of this e-mail, including attachments, is prohibited and may be unlawful. Receipt by anyone other than the intended recipient(s) is not a waiver of any attorney/client or other privilege

On Tue, Mar 29, 2022 at 12:46 PM David R. Ambrose <drambrose at ambroselaw.com<mailto:drambrose at ambroselaw.com>> wrote:
To the collective:

1.  As to the direct question, I am not aware of any Washington law which would render the 2nd DOT invalid if executed before the grantor even held title to the subject property.  There could certainly be language in the 2nd DOT and presumably some promissory note which provided that the 2nd DOT would be recorded on the subject property if and when the grantor acquired ownership of the subject property.  And even if there wasn’t any such language, as the 2nd DOT wasn’t recorded until after the grantor/buyer acquired ownership of the subject property, it wasn’t a lien or cloud on title against the seller’s property.  Query whether the beneficiary under the 2nd DOT understood what the terms of the purchase price would be and that there would be a 1st DOT in favor of the seller?

2.  Doesn’t sound like there is a priority issue, assuming the facts as stated that the seller didn’t know of the executed 2nd DOT, and that it was recorded nine days after the closing (and presumably after recording of the 1st DOT.  This would technically satisfy the race/notice provision of RCW 65.08.070, and it’s irrelevant from that standpoint as to when the 2nd DOT was executed.  I think the more interesting question is what would have happened if the seller knew of the 2nd DOT before closing?  At the time of execution, the grantor under the 2nd DOT had no interest in the subject property, and could not have validly recorded the 2nd DOT.  So, does this knowledge kick in and put the 2nd DOT effectively in first position, if the seller went ahead and just closed and recorded the seller’s deed, followed immediately by the recording of the 1st DOT?  Of course, if the seller had notice, presumably the seller would never have closed on the sale without addressing this issue.

Best,

David Ambrose
drambrose at ambroselaw.com<mailto:drambrose at ambroselaw.com>

From: wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com> <wsbarp-bounces at lists.wsbarppt.com<mailto:wsbarp-bounces at lists.wsbarppt.com>> On Behalf Of Kary Krismer
Sent: Tuesday, March 29, 2022 11:49 AM
To: wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] 2nd DOT invalid?

Assuming no knowledge of the 2nd DOT, wouldn't client be a BFP and thus take clear of the 2nd DOT?  If that's not the purpose of recording statutes, I don't know what is.

Did client have title insurance?  If so, that would cover the DOT even if it recorded a couple of hours or days before the deed.

Kary L. Krismer

206 723-2148
On 3/29/2022 11:41 AM, Douglas Scott wrote:
Client sells property to buyer securing the substantial balance of the payments by a 1st DOT.  Unknown to the client, 2 months before the sale, the buyer had signed a 2nd DOT which buyer then recorded 9 days after the sale closed.  Would executing the 2nd DOT 2 months before the buyer even bought the property render the 2nd DOT invalid?

DOUGLAS W. SCOTT
Rainier Legal Advocates|LLC

465 Rainier Blvd. N., Suite C
Issaquah, Washington 98027
425.392.8550 (tel)
425.392.2829 (fax)

www.rainieradvocates.com<http://www.rainieradvocates.com/>

Notice: This communication, including attachments, may contain information that is confidential and protected by the attorney/client or other privileges. It constitutes non-public information intended to be conveyed only to the designated recipient(s). If the reader or recipient of this communication is not the intended recipient, an employee or agent of the intended recipient who is responsible for delivering it to the intended recipient, or you believe that you have received this communication in error, please notify the sender immediately by return e-mail and promptly delete this e-mail, including attachments without reading or saving them in any manner. The unauthorized use, dissemination, distribution, or reproduction of this e-mail, including attachments, is prohibited and may be unlawful. Receipt by anyone other than the intended recipient(s) is not a waiver of any attorney/client or other privilege

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