Bulletin: WA2014001

Dear Associates: 

The Washington Supreme Court issued its opinion Bain v. Metropolitan Mortgage in 2012, holding that, unless MERS has an ownership interest in the underlying indebtedness, it is not a lawful beneficiary and does not have standing to participate in a non-judicial foreclosure. The Court did not rule on the legal effect of MERS acting as an unlawful beneficiary. This left title insurers with some difficult unanswered questions. While the Court has yet to answer those questions, it has issued a recent opinion which provides some guidance when examining files containing potential issues with a non-judicial foreclosure in the chain of title.

In Frizzell v. Murray, decided December 5, 2013, the Court held that failure to obtain an injunction restraining a non-judicial foreclosure will act as a waiver of defenses to the sale. This was true, despite the fact that Ms. Frizzell did obtain an injunction halting the sale. That injunction was conditioned on her paying to the court the past due amounts and a bond. When she failed to pay those amounts, the lender proceeded to sale. The Supreme Court decided that not all claims were waived, such as Ms. Frizzell’s action for damages against the lender, but that she could not contest the sale. 

Frizzell provides some clarity where a file presents a potential issue with a non-judicial foreclosure. The borrower needs to obtain an injunction restraining the sale and pay the amounts in arrears to the court for the injunction to be effective. If the borrower fails to seek an injunction or obtains the injunction, but does not make the required payment, the effect is to waive a claim that the sale should be invalidated. 

However, the rule announced in Frizzel is not absolute and there may be situations where the borrower will not be deemed to have waived their right to contest a sale. For instance, where a borrower regularly made, and a lender accepted, late payments under a Forbearance Agreement, the borrower does not waive the defenses to a sale where the sale took place the same day the borrower tendered a late payment. Therefore, please consult a Stewart Title Guaranty underwriter where there is some question as to whether a potential issue in a non-judicial foreclosure has been waived. 

The underwriting guidelines above are issued in conjunction with the guidelines contained in Stewart Bulletin SLS2010023, (Insuring at or after Mortgage or Deed of Trust Foreclosure) and WA2012004, (MERS issues in Washington State: The Bain Opinion).

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter. 

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