For Lenders and Borrowers alike, the foreclosure process can be daunting. The “nonjudicial” aspect means that the Lender can foreclose without needing to first obtain a court order or judgment. While this process is generally quicker and less expensive than judicial foreclosure, it is governed by strict statutory requirements that, if missed, can delay or invalidate the foreclosure. In this article, we wanted to take a moment to detail the nonjudicial foreclosure process, as well as highlight some common pitfalls lenders can encounter while pursuing their foreclosure action.
Principles of Foreclosure
Before we get into the mechanics of a nonjudicial foreclosure, it is important to first understand the underlying principles of a foreclosure. Foreclosure is a remedy for a breach of an obligation (typically a promissory note) whereby a party is deeded the right to sell real property via public auction to satisfy the debt obligation. The legal instrument granting this right to sell the real property collateral is called a “deed of trust”. In Washington, the deeds of trust and the foreclosure process, are governed by Washington’s Deeds of Trust Act (the “DTA”), which is codified as RCW 61.24.
A deed of trust involves three parties: the Borrower (a “Grantor”), the Lender (a “Beneficiary”), and a neutral third party that administers the foreclosure process (a “Trustee”). If the Borrower defaults, the Trustee has, after making the requisite notices and publications, the authority to sell the property to satisfy the debt, without court intervention, at a public auction – the Foreclosure Sale.
Simplified timeline for nonjudicial foreclosure process
The nonjudicial foreclosure process follows a series of highly regulated steps. A simplified timeline looks like this:
- Foreclosure begins when the Borrower defaults on their loan. The Lender must then wait at least 30 days after the default before issuing a Notice of Default. This Default Notice informs the Borrower of the default and gives them an opportunity to cure.
- The Notice of Default must be mailed and personally served or posted on the property.
- The Notice of Default must contain an itemized account of the default, including the total arrears, late charges, and any other fees. If the numbers are off or inadequately supported, the notice can be challenged.
- If the Borrower does not cure the default within 30 days of receipt of the Notice of Default, the lender may instruct the Trustee to move forward with the foreclosure process. The Trustee’s next step is to issue a Notice of Trustee’s Sale and Notice of Foreclosure (two separate documents). These Notices must be Served upon the Borrower and other interested parties in the same manner as the Notice of Default was issued and the Notice of Trustee’s Sale must be recorded with the county auditor at least 90 days before the sale date.
- Publication must be made of the Foreclosure Sale between the 35th and 28th day prior to the Foreclosure Sale and again between the 14th and 7th day prior to the Foreclosure Sale.
- Assuming all notices are properly served, and the Borrower has not reinstated the loan or initiated mediation, the Trustee may conduct the Foreclosure Sale – a public auction – on a Friday between 9:00 a.m. and 4:00 p.m. at the place designated within the Notice of Trustee’s Sale. The collateral being foreclosed upon is to be sold to the highest bidder via a Trustee’s Deed. At that point, title passes, and the Borrower loses their interest in the property.
After the Trustee’s Sale, if the previous owner does not vacate, the purchaser may initiate an unlawful detainer action (commonly known as an “eviction”) after serving a 3-day Notice to Vacate upon the prior owner.
A Borrower may reinstate the loan being foreclosed upon by paying the past-due amounts, late fees, and costs, thus cancelling the foreclosure, up to and including the 11th day prior to the Trustee’s Sale. Any time thereafter, and the Borrower’s only option is to bid.
Foreclosure Fairness Act (FFA)
RCW 61.24.163 also provides that certain Borrowers have the right he right to request foreclosure mediation through the Foreclosure Fairness Act (FFA). All qualifying Borrowers must contact a housing counselor or attorney within 30 days of receipt of the Notice of Default and submit a formal request for mediation within 20 days of receipt of the Notice of Trustee’s Sale.
Washington’s nonjudicial foreclosure process offers an efficient means for lenders to recover secured properties while giving Borrowers certain protections and opportunities to cure the default. However, the system’s rigid timelines, specific notice requirements, and potential pitfalls require careful attention. Mistakes in notice, publication, or timing can jeopardize the foreclosure which can cause delays, expand legal exposure, or even void the sale. On the other hand, Borrowers who fail to act quickly may forfeit important rights, including mediation and reinstatement.
If you’re involved in a foreclosure, whether as a Borrower, Lender, or Trustee, it’s critical to understand the process and consult legal counsel when needed. The stakes are high, and the margin for error is small.
Resources and Citations
- RCW 61.24.030 – Requisites to Trustee’s Sale
- RCW 61.24.040 – Notice of Trustee’s Sale
- RCW 61.24.060 – Possession after sale; unlawful detainer
- RCW 61.24.070 – Sale procedure
- RCW 61.24.090 – Reinstatement
- RCW 61.24.100 – Deficiency judgments
- RCW 61.24.163 – Foreclosure mediation program
This is intended to be a source of general information, not an opinion or legal advice on any specific situation, and does not create an attorney-client relationship with our readers. If you would like more information regarding whether we may assist you in any particular matter, please contact one of our lawyers, using care not to provide us with any confidential information until we have notified you in writing that there are conflicts of interest and that we have agreed to represent you on the specific matter that is the subject of your inquiry.
Authors:
Imants Holmquist
He strongly cares about the outcomes he obtains for his clients. He understands that when a client has a favorable outcome, he or she will be a client for life. To develop this relationship, Imants starts from the position that responsiveness is essential: where possible he tries to respond to all communications within 24 hours.
Michael Gladstein
His varied background in psychology, litigation, bankruptcy, probate, real estate, debt collection, public defense, loan review, and business transactions allows him to provide the highest quality service to his clients.
