IN THE SUPREME COURT OF THE STATE OF WASHINGTON
WASHINGTON FEDERAL, a federally ) chartered savings association, ) ) Respondent, ) No. 90078-7 ) (consol. w/ No. 90085-0) v. ) ) LANCE HARVEY, individually and the ) marital community comprised of LANCE ) HARVEY and "JANE DOE" HARVEY, ) husband and wife, ) ) EnBanc Petitioners. ) --------------------------------------------------------) ) WASHINGTON FEDERAL, a federally ) chartered savings association, ) ) Respondent, ) ) v. ) Filed JAN 0 8 2015 ) KENDALL GENTRY and NANCY ) GENTRY, and the marital community ) comprised thereof, ) ) Petitioners. ) _____________________________) Wash. Fed. v. Harvey, No. 90078-7
GONZALEZ, I.-Washington's deeds oftrust act (DTA), chapter 61.24 RCW,
balances the interests of borrowers and lenders. It provides a comparatively
inexpensive mechanism for lenders to foreclose on real property pledged to secure a
debt through nonjudicial foreclosure, 1 making certain types of loans easier for
borrowers to obtain because lenders have faster recourse if the loan is not repaid. In
exchange, generally, the act limits the recovery of those benefiting from a nonjudicial
foreclosure to whatever is recouped from that foreclosure. It does not, generally, also
allow the lender to pursue a deficiency judgment against the borrower; once the lender
chooses nonjudicial foreclosure, it must be satisfied with what it gets. Today, in the
consolidated cases before us, we must decide whether guarantors of commercial loans
whose own property has not been foreclosed are protected from deficiency judgments
1 "The Legislature has provided two methods of foreclosure for deeds of trust: judicial foreclosure under chapter 61.12 RCW and nonjudicial foreclosure under chapter 61.24 RCW. There are substantial differences in the respective rights oflenders and borrowers under each." Donovick v. Seattle-First Nat'! Bank, 111 Wn.2d 413, 419, 757 P.2d 1378 (1988) (Dore, J., dissenting). Judicial foreclosure, on one hand, involves filing a lawsuit to obtain a court order of foreclosure.
The order may provide for an upset price, that is, a minimum price at which the property can be sold which ensures an adequate return to the borrower. RCW 61.12.060. Property sold pursuant to judicial foreclosure ordinarily may be redeemed by the borrower within 1 year. RCW 6.23.020. Since sale under a decree of foreclosure is a forced sale, the state constitution requires that a certain portion of the value of residential property be preserved to the borrower as homestead. Const. art. 19, § 1. Thus, judicial foreclosure provides for a significant level of protection ... : the right to an upset price, the right to redeem and the right to homestead.
!d. (Dore, J., dissenting). Nonjudicial foreclosure, on the other hand, "is a quick and inexpensive alternative to judicial foreclosure" that does not require a court order. !d. at 420 (Dore, J., dissenting). Nonjudicial foreclosure provides a "quid pro quo"; borrowers' "rights to redemption, upset price and homestead [are] surrendered" in exchange for protection from deficiency judgments. !d. at 420-21 (Dore, J., dissenting).
2 Wash. Fed. v. Harvey, No. 90078-7
under the DTA after the borrower's property has been foreclosed. We find they are
not.
FACTS
Wash. Fed. v. Harvey
In November 2008, Kaydee Gardens 9 LLC borrowed approximately $2.6
million from Horizon Bank, evidenced by a promissory note and a loan agreement.
The loan was secured by a deed of trust encumbering property located in Everett,
Washington, granted by Kaydee Gardens. Lance Harvey guaranteed the loan on
behalf of himself and his marital community but did not grant a separate deed of trust
to secure the guaranty.
In June 2011, the Federal Deposit Insurance Corporation assigned Horizon
Banlc's interest in the loan, the deed of trust, and the guaranty to Washington Federal.
By that time, Kay dee Gardens had defaulted on the loan. Kay dee Gardens's defaults
were not cured by Kaydee Gardens, Harvey, or Harvey's marital community.
Washington Federal initiated nonjudicial foreclosure proceedings and had the
property in Everett sold by a trustee. Washington Federal was the successful
purchaser at the sale. After the sale, a deficiency of approximately $1.2 million
remained outstanding. Washington Federal sought the deficiency amount from the
Harveys. The trial court granted the Harveys' motion for summary judgment. The
Court of Appeals reversed the trial court. Wash. Fed. v. Harvey, noted at 179 Wn.
3 Wash. Fed. v. Harvey, No. 90078-7
App. 1033 (2014). We granted the Harveys' petition for review. Wash. Fed. v.
Harvey, 180 Wn.2d 1021,328 P.3d 902 (2014).
Wash. Fed. v. Gentry
In December 2005, Blackburn Southeast LLC borrowed approximately $2.6
million from Horizon Bank (Loan 1), evidenced by a promissory note and a loan
agreement. Loan 1 was secured by a deed of trust encumbering a property located on
Little Mountain Road in Mount Vernon, Washington, granted by Little Mountain East
LLC (the Little Mountain Deed of Trust).
In April2009, Landed Gentry Development Inc. borrowed approximately $3.6
million from Horizon Bank (Loan 2), evidenced by a promissory note and a loan
agreement. Loan 2 was secured by the Little Mountain Deed of Trust and a junior
deed of trust encumbering a property located on East Blackburn Road in Mount
Vernon, Washington, granted by Blackburn Southeast, Little Mountain East, and
Blackburn North LLC.
In September 2010, Gentry Family Investments LLC borrowed approximately
$1.1 million from Horizon Bank (Loan 3), evidenced by a promissory note and a loan
agreement. Loan 3 was secured by the Little Mountain Deed of Trust.
Kendall Gentry and Nancy Gentry each guaranteed all three loans in their
personal capacities, but neither of the Gentrys granted a separate deed of trust to
secure any of the guaranties.
4 Wash. Fed. v. Harvey, No. 90078-7
In April 2010, the Federal Deposit Insurance Corporation assigned Horizon
Bank's interest in the three loans, the deeds of trust, and the guaranties to Washington
Federal. By that time, the borrowers had defaulted on all three loans. Neither the
borrowers nor the Gentrys cured all of the borrowers' defaults.
Washington Federal initiated nonjudicial foreclosure proceedings and had the
Little Mountain and Blackburn properties sold by trustees. Washington Federal was
the successful purchaser of the properties at the sales. After the sales, a deficiency of
approximately $7.6 million remained outstanding. Washington Federal sought the
deficiency amount from the Gentrys. The trial court granted the Gentrys' motion for
summary judgment. The Court of Appeals reversed the trial court. Wash. Fed. v.
Gentry, 179 Wn. App. 470, 319 P.3d 823 (2014). We granted the Gentrys' petition
for review. Wash. Fed. v. Gentry, 180 Wn.2d 1021, 328 P.3d 902 (2014).
ANALYSIS
A. Standard of review
"The standard of review of an order of summary judgment is de novo, and the
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IN THE SUPREME COURT OF THE STATE OF WASHINGTON
WASHINGTON FEDERAL, a federally ) chartered savings association, ) ) Respondent, ) No. 90078-7 ) (consol. w/ No. 90085-0) v. ) ) LANCE HARVEY, individually and the ) marital community comprised of LANCE ) HARVEY and "JANE DOE" HARVEY, ) husband and wife, ) ) EnBanc Petitioners. ) --------------------------------------------------------) ) WASHINGTON FEDERAL, a federally ) chartered savings association, ) ) Respondent, ) ) v. ) Filed JAN 0 8 2015 ) KENDALL GENTRY and NANCY ) GENTRY, and the marital community ) comprised thereof, ) ) Petitioners. ) _____________________________) Wash. Fed. v. Harvey, No. 90078-7
GONZALEZ, I.-Washington's deeds oftrust act (DTA), chapter 61.24 RCW,
balances the interests of borrowers and lenders. It provides a comparatively
inexpensive mechanism for lenders to foreclose on real property pledged to secure a
debt through nonjudicial foreclosure, 1 making certain types of loans easier for
borrowers to obtain because lenders have faster recourse if the loan is not repaid. In
exchange, generally, the act limits the recovery of those benefiting from a nonjudicial
foreclosure to whatever is recouped from that foreclosure. It does not, generally, also
allow the lender to pursue a deficiency judgment against the borrower; once the lender
chooses nonjudicial foreclosure, it must be satisfied with what it gets. Today, in the
consolidated cases before us, we must decide whether guarantors of commercial loans
whose own property has not been foreclosed are protected from deficiency judgments
1 "The Legislature has provided two methods of foreclosure for deeds of trust: judicial foreclosure under chapter 61.12 RCW and nonjudicial foreclosure under chapter 61.24 RCW. There are substantial differences in the respective rights oflenders and borrowers under each." Donovick v. Seattle-First Nat'! Bank, 111 Wn.2d 413, 419, 757 P.2d 1378 (1988) (Dore, J., dissenting). Judicial foreclosure, on one hand, involves filing a lawsuit to obtain a court order of foreclosure.
The order may provide for an upset price, that is, a minimum price at which the property can be sold which ensures an adequate return to the borrower. RCW 61.12.060. Property sold pursuant to judicial foreclosure ordinarily may be redeemed by the borrower within 1 year. RCW 6.23.020. Since sale under a decree of foreclosure is a forced sale, the state constitution requires that a certain portion of the value of residential property be preserved to the borrower as homestead. Const. art. 19, § 1. Thus, judicial foreclosure provides for a significant level of protection ... : the right to an upset price, the right to redeem and the right to homestead.
!d. (Dore, J., dissenting). Nonjudicial foreclosure, on the other hand, "is a quick and inexpensive alternative to judicial foreclosure" that does not require a court order. !d. at 420 (Dore, J., dissenting). Nonjudicial foreclosure provides a "quid pro quo"; borrowers' "rights to redemption, upset price and homestead [are] surrendered" in exchange for protection from deficiency judgments. !d. at 420-21 (Dore, J., dissenting).
2 Wash. Fed. v. Harvey, No. 90078-7
under the DTA after the borrower's property has been foreclosed. We find they are
not.
FACTS
Wash. Fed. v. Harvey
In November 2008, Kaydee Gardens 9 LLC borrowed approximately $2.6
million from Horizon Bank, evidenced by a promissory note and a loan agreement.
The loan was secured by a deed of trust encumbering property located in Everett,
Washington, granted by Kaydee Gardens. Lance Harvey guaranteed the loan on
behalf of himself and his marital community but did not grant a separate deed of trust
to secure the guaranty.
In June 2011, the Federal Deposit Insurance Corporation assigned Horizon
Banlc's interest in the loan, the deed of trust, and the guaranty to Washington Federal.
By that time, Kay dee Gardens had defaulted on the loan. Kay dee Gardens's defaults
were not cured by Kaydee Gardens, Harvey, or Harvey's marital community.
Washington Federal initiated nonjudicial foreclosure proceedings and had the
property in Everett sold by a trustee. Washington Federal was the successful
purchaser at the sale. After the sale, a deficiency of approximately $1.2 million
remained outstanding. Washington Federal sought the deficiency amount from the
Harveys. The trial court granted the Harveys' motion for summary judgment. The
Court of Appeals reversed the trial court. Wash. Fed. v. Harvey, noted at 179 Wn.
3 Wash. Fed. v. Harvey, No. 90078-7
App. 1033 (2014). We granted the Harveys' petition for review. Wash. Fed. v.
Harvey, 180 Wn.2d 1021,328 P.3d 902 (2014).
Wash. Fed. v. Gentry
In December 2005, Blackburn Southeast LLC borrowed approximately $2.6
million from Horizon Bank (Loan 1), evidenced by a promissory note and a loan
agreement. Loan 1 was secured by a deed of trust encumbering a property located on
Little Mountain Road in Mount Vernon, Washington, granted by Little Mountain East
LLC (the Little Mountain Deed of Trust).
In April2009, Landed Gentry Development Inc. borrowed approximately $3.6
million from Horizon Bank (Loan 2), evidenced by a promissory note and a loan
agreement. Loan 2 was secured by the Little Mountain Deed of Trust and a junior
deed of trust encumbering a property located on East Blackburn Road in Mount
Vernon, Washington, granted by Blackburn Southeast, Little Mountain East, and
Blackburn North LLC.
In September 2010, Gentry Family Investments LLC borrowed approximately
$1.1 million from Horizon Bank (Loan 3), evidenced by a promissory note and a loan
agreement. Loan 3 was secured by the Little Mountain Deed of Trust.
Kendall Gentry and Nancy Gentry each guaranteed all three loans in their
personal capacities, but neither of the Gentrys granted a separate deed of trust to
secure any of the guaranties.
4 Wash. Fed. v. Harvey, No. 90078-7
In April 2010, the Federal Deposit Insurance Corporation assigned Horizon
Bank's interest in the three loans, the deeds of trust, and the guaranties to Washington
Federal. By that time, the borrowers had defaulted on all three loans. Neither the
borrowers nor the Gentrys cured all of the borrowers' defaults.
Washington Federal initiated nonjudicial foreclosure proceedings and had the
Little Mountain and Blackburn properties sold by trustees. Washington Federal was
the successful purchaser of the properties at the sales. After the sales, a deficiency of
approximately $7.6 million remained outstanding. Washington Federal sought the
deficiency amount from the Gentrys. The trial court granted the Gentrys' motion for
summary judgment. The Court of Appeals reversed the trial court. Wash. Fed. v.
Gentry, 179 Wn. App. 470, 319 P.3d 823 (2014). We granted the Gentrys' petition
for review. Wash. Fed. v. Gentry, 180 Wn.2d 1021, 328 P.3d 902 (2014).
ANALYSIS
A. Standard of review
"The standard of review of an order of summary judgment is de novo, and the
appellate court performs the same inquiry as the trial court." Jones v. Allstate Ins.
Co., 146 Wn.2d 291, 300, 45 P.3d 1068 (2002) (citing Lybbert v. Grant County, 141
Wn.2d 29, 34, 1 P.3d 1124 (2000)). "A court may grant summary judgment if the
pleadings, affidavits, and depositions establish that there is no genuine issue as to any
material fact and the moving party is entitled to judgment as a matter of law."
5 Wash. Fed. v. Harvey, No. 90078-7
Lybbert, 141 Wn.2d at 34 (citing Ruffv. King County, 125 Wn.2d 697, 703, 887 P.2d
886 (1995)).
B. The DTA Does Not Protect the Guarantors from Deficiency Judgments
Under the DTA, "a deficiency judgment shall not be obtained on the
obligations secured by a deed of trust against any borrower, grantor, or guarantor after
a trustee's sale under that deed of trust." RCW 61.24.100(1). The DTA, however,
contains certain exceptions to that general rule in connection with commercial loans
such as the loans at issue in these consolidated cases. Relevant to the cases at hand,
RCW 61.24.1 00(3 )(c) allows for a deficiency judgment against a guarantor of a
commercial loan "[s]ubject to this section ... if the guarantor is timely given ...
notices." "Subject to this section" in subsection (3)(c) refers to the entirety ofRCW
61.24.100 because "section" is not equivalent to "subsection," and"[ w ]here the
language of a statute is clear, legislative intent is derived from the language of the
statute alone." City of Spokane v. Rothwell, 166 Wn.2d 872, 876, 215 P.3d 162
(2009) (citing State v. Wentz, 149 Wn.2d 342, 346, 68 P.3d 282 (2003)). Within
RCW 61.24.1 00, subsection (6) states that "[a] guarantor granting a deed of trust to
secure its guaranty of a commercial loan shall be subject to a deficiency judgment
following a trustee's sale under that deed of trust only to the extent stated in
subsection (3)(a)(i) ofthis section." RCW 61.24.100(6). Reading these provisions
together, the DTA extends protection from deficiency judgments-with some
exceptions-to a guarantor who grants a deed of trust to secure its guaranty of a
6 Wash. Fed. v. Harvey, No. 90078-7
commercial loan when the property burdened by the guarantor's deed of trust is
nonjudicially foreclosed. The DTA provides a trade-off in relation to nonjudicial
foreclosure of secured property; a guarantor of a commercial loan must secure its
guaranty by granting a deed of trust in order to be protected from deficiency
judgments when the property burdened by its deed of trust is nonjudicially foreclosed.
Here the guarantors did not secure their guaranties by granting deeds of trust, and,
even if they had, the foreclosed properties were not the properties of the guarantors.
Therefore, the guarantors are not protected from deficiency judgments under the
DTA. Accordingly, Washington Federal may seek deficiency judgments against the
guarantors.
Given that the guarantors are not protected from deficiency judgments under
the DTA, we decline to reach whether the borrowers' deeds of trust secured the
guaranties 2 and whether the guarantors could waive DTA antideficiency judgment
protection.
2 We note that RCW 61.24.100(10) provides that "[a] trustee's sale under a deed oftrust securing a commercial loan does not preclude an action to collect or enforce any obligation of a borrower or guarantor if that obligation, or the substantial equivalent of that obligation, was not secured by the deed of trust." Subsection (10) is clear; it provides clarity about when a deficiency judgment may be brought, but does not protect a guarantor of a commercial loan from deficiency judgments solely because the guarantor's guaranty is secured by a deed of trust regardless of who granted such deed of trust. Accordingly, here, even if the borrowers' deeds oftrust secured the guarantors' guaranties, subsection (10) would not preclude deficiency judgments against the guarantors because the guarantors did not grant such deeds of trust.
7 Wash. Fed. v. Harvey, No. 90078-7
CONCLUSION
We affirm the Court of Appeals and find that Washington Federal may bring
deficiency judgments against the guarantors. We remand to the superior court for
further proceedings consistent with this opinion.
8 Wash. Fed. v. Harvey, No. 90078-7 (consol. w/ No. 90085-0)
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WE CONCUR:
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