Marion Rucker, App. v. Novastar Mortgage Inc., Et Ano, Res.

Citation: Not availableDocket: 67770-5

Court: Court of Appeals of Washington; August 5, 2013; Washington; State Appellate Court

Original Court Document: View Document

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Marion Rucker, April Miller, and Carl Miller appealed a summary judgment that dismissed their claims under the Washington Deeds of Trust Act (DTA) against NovaStar Mortgage, Inc. and Quality Loan Service Corporation of Washington (QLS). They argued that genuine issues of material fact existed regarding whether Rucker's property was sold at a trustee's sale, challenging the validity of the sale due to the alleged improper appointment of QLS as the trustee. The Court found sufficient material factual disputes regarding QLS's authority and reversed the trial court's decision, remanding the case for further proceedings.

In early 2006, Carl Miller signed a purchase agreement for a home in Woodinville, with Marion Rucker assisting from California. Rucker granted his daughter Micaela power of attorney to sign documents on his behalf. The purchase was finalized on March 23, 2006, with Rucker as the borrower on two loans from NovaStar, secured by deeds of trust listing him as grantor. Both loans were recorded on March 24, 2006. After the purchase, Rucker made payments on the loans, which were later transferred to JPMorgan Chase Bank and J.P. Morgan Trust Company, serving as co-trustees of a securitization trust.

NovaStar was appointed as the servicer of Rucker's loans under a pooling and servicing agreement, which granted it authority to manage foreclosure processes and other actions related to delinquent mortgage loans. In September 2006, after Rucker stopped making payments, a nonjudicial foreclosure was initiated on his second position loan. NovaStar executed an "Appointment of Successor Trustee" on December 6, 2006, appointing QLS as trustee, and a notice of default was subsequently sent to Rucker's residence, demanding payment to cure the default. 

On March 16, 2007, MERS transferred the beneficial interest in the deed of trust to NovaStar, and a notice of trustee's sale was issued by QLS, indicating a sale would occur on June 29, 2007. Despite discussions about postponement due to loan origination uncertainties, the sale proceeded as scheduled, with NovaStar purchasing the property for $106,852.95. Following the sale, NovaStar sought to evict Rucker and others from the property. 

In response, Rucker and others filed a lawsuit to challenge the validity of the trustee's deed and the eviction process, resulting in a preliminary injunction against NovaStar executing the eviction. Throughout the litigation, Rucker experienced procedural delays and filed for Chapter 13 Bankruptcy twice, which led to further stays in the state court proceedings. The writ of restitution was reissued multiple times, and on July 16, 2010, the trustee's deed was amended and re-recorded, substituting The Bank of New York Mellon as the grantee in place of NovaStar.

Both parties filed motions for summary judgment, resulting in the trial court's order on September 22, 2011, granting NovaStar's motion and denying that of Rucker and April. The court ruled that NovaStar was entitled to immediate possession of the Woodinville property and ordered the reissuance of a writ of restitution. Rucker and April appealed, arguing that the court erred by granting summary judgment due to genuine issues of material fact concerning the occurrence of a trustee's sale. The court's review of the summary judgment follows the same inquiry as the trial court, requiring facts and reasonable inferences to be viewed in favor of the nonmoving party. Summary judgment is appropriate when there are no genuine issues of material fact, and the moving party is entitled to judgment as a matter of law. Unsupported allegations or speculative assertions cannot establish a genuine issue. 

The Deed of Trust Act (DTA) governs nonjudicial foreclosure processes in Washington, distinguishing deeds of trust from standard mortgages by involving a trustee alongside the lender and borrower. In cases of borrower default, the trustee may conduct a nonjudicial foreclosure sale, which must occur in a designated public location within the county. The purchaser at the sale is entitled to possession of the property 20 days post-sale. In this case, NovaStar's claim to Rucker's property hinges on the existence of a trustee's sale. NovaStar acquired title through a trustee's deed after being the winning bidder at the sale. Rucker and April's contention that no sale occurred is countered by evidence. The foreclosure sale was properly scheduled and conducted on June 29, 2007, at 10 a.m. at the King County Administration Building, with the authorized agent confirming the sale proceeded as planned and the property was sold back to the beneficiary for the opening bid amount. Thus, there is no genuine issue of material fact regarding the existence of the sale.

Patterson provided multiple "certificates of sale" demonstrating that properties, including the Woodinville property, were sold back to the beneficiary at trustee's sales. In contrast, the testimonies of April and Carl lacked substantive evidence and were based on speculation. April claimed an employee from QLS mentioned a potential postponement of the sale, yet she and Carl attended out of concern. Upon arrival, they spoke to several individuals but received no information about the property, and neither could identify whom they spoke with. Patterson, however, stated he did not cancel or postpone the sale, describing the chaotic nature of foreclosure sales where properties are called concurrently. April's claim that she was informed by a QLS employee is insufficient to prove no sale occurred, particularly since the sale was conducted by North West Legal Support, Inc., not QLS. Patterson affirmed that the property was sold to NovaStar, supported by documentation. Consequently, the evidence supports the conclusion that the property was sold at the trustee's sale, and the trial court correctly granted summary judgment on this issue.

Rucker and April argued that the trustee's sale was invalid because NovaStar allegedly lacked authority to appoint QLS as successor trustee, claiming NovaStar was not the holder of the promissory note at the time of the appointment. The trial court, however, erred in dismissing this claim on summary judgment. According to former RCW 61.24.040(4), a nonjudicial foreclosure must be conducted by a trustee or its authorized agent, and the trustee may be designated in the deed of trust or replaced by the beneficiary, defined as the holder of the associated obligation. Once the appointment is properly recorded, the successor trustee holds all powers of the original trustee.

The Deed of Trust Act (DTA) requires strict compliance by lenders, prioritizing borrower protections, and mandates that courts interpret statutes favorably for borrowers. The Washington Supreme Court clarified that only the actual holder of a promissory note can appoint a trustee for nonjudicial foreclosure. If an unlawful beneficiary appoints a trustee, that trustee lacks the authority to conduct foreclosure actions, constituting a material violation of the DTA. In the case at hand, Rucker and April argue that NovaStar, which appointed QLS as successor trustee, did not hold the promissory note at the time of appointment and therefore was not a proper beneficiary under the DTA. Consequently, NovaStar could not lawfully appoint QLS for the foreclosure. NovaStar admits it did not hold the note but argues that its pooling and servicing agreement allowed it to act as an agent for the true beneficiaries. While Washington law permits a note holder to use agents, there must be a specific principal controlling the agent. The agreement between NovaStar and JPMorgan Chase and J.P. Morgan Trust, while allowing NovaStar to act in its name for foreclosure, explicitly stated that NovaStar was an independent contractor, not an agent. Thus, the agreement does not support NovaStar's claim of acting as an agent for the true beneficiary.

The agreement grants NovaStar extensive authority to initiate foreclosure actions without accountability to any principal. There is no evidence that NovaStar acted as an agent for JPMorgan Chase or J.P. Morgan Trust, which raises questions about NovaStar's statutory authority to appoint QLS as successor trustee. If proven at trial that NovaStar lacked such authority, QLS would have been unauthorized to conduct the trustee's sale of Rucker's property, rendering the foreclosure proceedings invalid under the Deed of Trust Act (DTA). Rucker and April seek to vacate the foreclosure sale rather than seek damages for the alleged DTA violation. 

Recent Supreme Court cases indicate that vacation of a foreclosure sale is warranted if a trustee conducts a sale without statutory authority. In *Schroeder v. Excelsior Management Group, LLC*, the court held that a nonjudicial foreclosure sale must be vacated if the property, primarily agricultural, was improperly sold without judicial foreclosure as mandated by the DTA. Similarly, in *Albice v. Premier Mortgage Services of Washington, Inc.*, the court ruled that exceeding the statutory time limits invalidated the trustee's authority, necessitating the declaration of the sale as invalid.

Rucker and April argue that QLS was never a legitimate trustee and that even if a properly-appointed trustee's procedural failure warrants vacation of a sale, the same applies when an entity acts without any authority. Genuine material facts exist regarding QLS’s authority in conducting the sale. If NovaStar is found not to be an agent of a true beneficiary, the appointment of QLS would be invalid, supporting the need to vacate the sale. The trial court incorrectly granted summary judgment to NovaStar, affirming the sale's validity without a trial to examine QLS's appointment. NovaStar argues that Rucker and April waived their right to contest the sale by not filing a presale lawsuit.

Waiver is an equitable principle that can negate legal rights if a party delays or fails to assert available remedies. In the context of foreclosure, waiver may occur if the party received notice to enjoin the sale, had knowledge of a defense prior to the sale, and did not seek a court order to stop the sale. However, waiver applies only when it is equitable and aligns with the goals of the foreclosure process, particularly ensuring that parties can prevent wrongful foreclosures. 

In the case of Albice, homeowners in a forbearance agreement made late payments to delay foreclosure but had their final payment rejected, leading to an immediate sale. The court found that waiver could not be established because the homeowners reasonably believed the sale would not occur, as they had consistently made late payments without previous penalties. The loan servicer's acceptance of these payments created an expectation of continued acceptance. The homeowners were not notified of any breach and assumed their final payment would cure the default, which misled them about the impending sale.

The court determined that the homeowners did not waive their rights as they were deprived of the opportunity to prevent an unlawful foreclosure due to the servicer's misleading actions. Additionally, there are unresolved factual disputes regarding the decision not to file a lawsuit to restrain the sale, as the homeowners claimed they relied on an employee's representation about the sale's cancellation, although there was no corroborating testimony or written confirmation.

The failure to pursue a lawsuit to restrain the sale was not solely due to the representation made by a QLS employee. April testified her inaction stemmed from a lack of awareness of her rights as a tenant to challenge the sale. Rucker indicated he was unaware that a foreclosure sale was imminent. In evaluating the summary judgment, evidence must be considered favorably to the nonmoving party. Both Rucker and April claim that had they known about the foreclosure sale, they would have sought legal action. NovaStar did not present evidence contradicting April's assertion that a QLS employee assured her that no sale would occur, nor did it argue that a homeowner could not rely on such a representation. Instead, NovaStar only demonstrated that the sale occurred as planned, which does not address the issue of reliance. Genuine issues of material fact exist regarding whether a representation was made and if Rucker and April reasonably relied on it, leading to the conclusion that the trial court incorrectly ruled on summary judgment that they waived their right to contest the sale. The ruling is reversed.