JEFFREY POOLE v. DARREN WATTS, 146 Wn. App. 1060 (2008)

No. 60681-6-I.The Court of Appeals of Washington, Division One.
September 22, 2008.

Appeal from a judgment of the Superior Court for Snohomish County, No. 05-2-06115-2, Ronald L. Castleberry, J., entered August 22, 2007.

UNPUBLISHED OPINION

APPELWICK, J.

Trustee Bishop, White, Miersma and Marshall, P.S. foreclosed upon the Poole residence due to default on a deed of trust. The Watts purchased the property at a nonjudicial foreclosure sale. Poole brought suit against Bishop White and the Watts, seeking to have the sale set aside because of substantive and technical defects in the sale process and a grossly inadequate sales price. The trial court denied summary judgment for Bishop White, but granted summary judgment for the Watts, dismissed the claims and quieted title in their favor.[1] We affirm the trial court. Even if the trustee committed technical, procedural defects in the foreclosure process, Watts is a bona fide purchaser who can take clear title.

Facts
The Poole property was subject to three deeds of trust, the first held by Washington Mutual for $166,000, the second held by Bank of America for $90,000 and the third held by Partners Mortgage Corporation for $40,000. Bishop, White, Miersma and Marshall, P.S. (Bishop White) was the trustee for the third deed of trust that was given to secure repayment of a balloon note. The terms of the loan required Poole to make monthly interest only payments until April 1, 2003, when the entire principal became due. Poole failed to pay the principal. After the loan remained unpaid through July 2004, Bishop White was retained to initiate the nonjudicial foreclosure proceedings. Beginning in July 2004, Bishop White issued three notices of default to Poole through both regular and certified mail, and by posting a notice on the property, as required by statute. The notice was also published in the newspaper. The foreclosure sale was set for November 29, 2004 at 10:00 a.m. inside the Wall Street entrance of the Snohomish County Courthouse. As required by the statute, Poole received notice of the sale date and location.

Prior to November 29, 2004, Snohomish County foreclosure sales moved from immediately inside the Wall Street entrance of the courthouse to outside the same entrance. Darren Watts, his father-in-law, and his real estate agent planned to attend the sale in order to bid on the Poole home. Early on the morning of the sale, Watts called Bishop White to ensure the sale was going forward and was told to call back closer to the time of the sale. He went to the courthouse and met his father-in-law in case the sale went forward. The two men collectively held $200,000 in cashiers checks for use in the bidding. They went into the courthouse looking for the sale and were eventually told that foreclosure sales occurred outside. They returned to the car and the real estate agent called Bishop White, who informed him that the sale had been postponed. It was rescheduled for until December 3, 2004 at the same time and place.

At the appointed time on November 29, the crier, hired by Bishop White to conduct the sale, announced that the auction was continued to December 3, 2004. This continuance occurre outside the Wall Street entrance of the courthouse. The parties disagree as to the exact language used to continue the sale. Bishop White claims that the crier announced that the sale would occur at the same time and location on December 3, 2004. Poole contends the crier read the declaration supplied by Bishop White, but it lacked any information on the location for the final sale. Poole also states that he received no notice of the continuance. He forgot the original date of the sale and failed to attend. Poole claims that he called Bishop White when he realized he had forgotten about the sale. After he identified himself to the woman who answered the phone, she merely informed him that “the sale did not go forward” and gave him no information about the postponement. Clerk’s Papers at 352.

On December 3, 2004, Watts arrived at the sale outside
the Wall Street entrance with his father-in-law and real estate agent. Watts testified that at least two other bidders found the sale and engaged in “spirited bidding.” Clerk’s Papers at 466-67. Watts won the bidding. He paid $165,000 and assumed the two remaining notes ($256,000 total) on the property for a total purchase price of $421,000. On December 14, 2004, Bishop White executed a trustee’s deed that recited the facts showing the sale was conducted in compliance with the requirements of the Deed of Trust Act, chapter 61.24 RCW.

Poole did not attend the final sale. He claims he became aware that the sale had gone forward only after a telephone conversation with Watts, which was prompted by a note Watts left at the house. Poole did not vacate the home after the sale. On December 27, 2004, Watts filed an unlawful detainer suit against Poole in order to evict him from the home and take possession. Watts was denied a writ of restitution on February 3, 2005.

In January 2005, Poole filed suit against Watts, Bishop White and Partner’s Mortgage to set aside the sale, quiet title and prevent the unlawful detainer action. Watts counterclaimed against Poole to quiet title and for negligence in failing to prevent the foreclosure sale from going forward. Watts also cross-claimed against Bishop White for damages. Watts and Bishop White both moved for summary judgment on Poole’s claims. The trial court denied summary judgment for Bishop White. However, the court granted summary judgment for Watts, quieted title in his favor, issued a writ of restitution and dismissed the claims against him. The court reserved Watts’ remaining claims against Poole for later determination. Poole appealed the ruling in Watts’ favor. This court determined that the appeal did not comply with CR 54(b), reviewed the action as a petition for discretionary review, and found no probable error by the trial court to give grounds for discretionary review. The petition was denied in June 2007. The Supreme Court subsequently denied Poole’s motion for discretionary review.

In August 2007, the Watts moved for a final judgment on less than all claims as required by CR 54(b). The trial court determined the Watts faced hardship due to the delay in taking possession of the home that can only be remedied by prompt and final resolution of the appeal. The court granted the motion and entered final judgment for Watts. Poole now appeals the same issues.

Discussion
When reviewing a summary judgment order, the appellate court undertakes the same inquiry as the trial court. Thompson v. Peninsula School District No. 401, 77 Wn. App. 500, 504, 892 P.2d 760 (1995). Summary judgment is proper when there are no genuine issues of material fact and the moving party is entitled to a judgment as a matter of law. CR 56(c). The moving party bears this burden of proof. La Plante v. State, 85 Wn.2d 154, 158, 531 P.2d 299 (1975). A material fact is one upon which the outcome of the litigation depends. Barrie v. Hosts of Am, Inc., 94 Wn.2d 640, 642, 618 P.2d 96 (1980). The nonmoving party cannot rely on speculation but must assert specific facts to defeat summary judgment. Seven Gables Corp. v. MGM/UA Entm’t Co., 106 Wn.2d 1, 13, 721 P.2d 1
(1986). All facts and inferences are considered in the light most favorable to the nonmoving party. Ashcraft v. Wallingford, 17 Wn. App. 853, 854, 565 P.2d 1224 (1977).

I. Watts is a Bona Fide Purchaser

“A bona fide purchaser for value is one who without notice of another’s claim of right to, or equity in, the property prior to his acquisition of title, has paid the vendor a valuable consideration.” Glaser v. Holdorf, 56 Wn.2d 204, 209, 352 P.2d 212 (1960). Under the Deed of Trust Act, a bona fide purchaser receives the benefit of conclusive recitals contained within a proper deed.

The purchaser shall forthwith pay the price bid and on payment the trustee shall execute to the purchaser its deed; the deed shall recite the facts showing that the sale was conducted in compliance with all of the requirements of this chapter and of the deed of trust, which recital shall be prima facie evidence of such compliance and conclusive evidence thereof in favor of bona fide purchasers and encumbrancers for value.

RCW 61.24.040(7). The deed of trust conveyed to the Watts contains the required language. Therefore, if Watts is a bona fide purchaser, then “RCW 61.24.040(7) renders these recitals conclusive as to the correctness of the foreclosure sale procedures.” Glidden v. Municipal Authority of the City of Tacoma, 111 Wn.2d 341, 347, 758 P.2d 487 (1988). Watts would be entitled to clear title. Id.

The determination of a buyer’s status as a bona fide purchaser is a mixed question of law and fact. Steward v. Good, 51 Wn. App. 509, 512, 754 P.2d 150 (1988). Constructive notice, where the purchaser “has knowledge or information of facts which are sufficient to put an ordinarily prudent man upon inquiry, and the inquiry, if followed with reasonable diligence, would lead to the discovery of defects in the title or of equitable rights of others affecting the property in question,” is sufficient to defeat a claim of bona fide purchaser Peterson v. Weist, 48 Wash. 339, 341, 93 P. 519 (1908) (quoting 23 Am. Eng. Ency. Law at 495 (2d ed.). Poole contends that questions of material fact exist as to whether Watts had actual or inquiry knowledge of defects because the notice was erroneous as to location of the sale.

Watts was not a savvy real estate investor. He and his wife had been searching for a house in the Woodway area. His real estate agent discovered the Poole home was to be sold at auction. He had never bought property at auction before. He attended the sale with his agent and father-in-law with about $200,000 in cashier’s checks, prepared to bid on the home. In these respects, he resembles the bona fide purchasers i Steward, who merely went to the sale and made the highest bid. “At or before the time of the sale, the Goods had little real estate investing experience; had no notice of any claims of any defects in the sale, nor were they aware of any other party’s claim to, any right to, or equity in, the property that might defeat a trustee’s deed.” 51 Wn. App. at 513. Similarly, Watts won the bidding and paid valuable consideration for the property. Unless Poole can demonstrate that Watts had notice of a defect in the sale or establish another means to defeat Watts’ rights as a bona fide purchaser, Watts is entitled him to clear title and possession of the property.

The only issue that would have given Watts notice of any irregularity was the location of the sale. According to his deposition, Watts initially had difficulty locating the sale on its originally scheduled date. “We didn’t know where to go. So we originally went inside the courthouse because the documents do say, inside the courthouse steps. . . . When we couldn’t find anything, somebody told us that we had to go back outside and stand out in the cold to wait for the sale to take place.” Clerk’s Papers at 530. On the day of the final sale, Watts returned to the outside locations. Two other bidders were also able find the location and engage in “spirited bidding” for the property. Clerk’s Papers at 539.

Poole relies on Miebach v. Colasurdo, 102 Wn.2d 170, 685 P.2d 1074 (1984), to support his contention that the confusion about the location of the sale was enough to put Watts on notice of procedural defects. Poole reads Miebach
as denying bona fide purchaser status where that buyer had the ability to determine from documents of record that the debtor failed to receive adequate notice and that the amount paid constituted a grossly inadequate sales price. I Miebach, the buyer, when driving by the home and looking around the property, noticed a sign referring to a permit for improvements on the property and that residents occupied the property. 102 Wn.2d at 176. He also examined the records and determined that the property had sold at the sheriff’s sale for less than two percent of its fair market value. Id. at 177. The Court found that “[i] Miebach had made a reasonably diligent inquiry, he would have discovered the Colasurdos were aware of neither the default judgment nor the sheriff’s sale.” Id. The previous owners of the home had no knowledge of the sale to satisfy their debt. The facts of Miebach differ significantly from this case. Poole concedes that they did receive knowledge of the foreclosure and sale, and there is no intervening sale to alert Watts. Miebach provides no support for Poole’s attempt to defeat Watts’ bona fide purchaser status. The change in location created minor confusion, if any, which was overcome by three bidders. But, the changed location created no notice that would signal defects in the foreclosure process. This error in the notice should not defeat bona fide purchaser status.

Poole further contends that Watts cannot receive bona fide purchaser protection because he “had constructive knowledge from recorded documents the trustee had foreclosed upon a relatively small, third position deed of trust, while no foreclosures had been started against the much larger superior liens.” Appellant’s Brief 46. The nonjudicial foreclosure statute does not restrict foreclosure to the senior most liens nor to the greatest liens. A party taking title upon foreclosure of a junior lien, however, assumes title to the property subject to all senior liens. Mann v. Household Fin. Corp. III, 109 Wn. App. 387, 392-93, 35 P.3d 1186 (2001). If Watts had inquired into the record, it would have revealed that Poole remained in default on the balloon payment and had not taken steps to pay the debt or enjoin the sale. He would have learned of the significant senior debt to be assumed and would have been able to estimate the equity in the home.

Poole claims that Watts should have noted the low price and high “free equity” he received as evidence of irregularities. Paying less than market value was not an irregularity. Property that must be sold at foreclosure auction “is simply worth less. No one would pay as much to own such property as he would pay to own real estate that could be sold at leisure and pursuant to normal marketing techniques.” BFP v. Resolution Trust Corp., 511 U.S. 531, 539, 14 S. Ct. 1757, 128 L. Ed. 2d 556
(1994) (emphasis omitted). The comparative values at issue go to the question of grossly inadequate price, which is considered only if another irregularity is already present. Steward v. Good, 51 Wn. App. 509, 514, 754 P.2d 150 (1988). An inquiry by Watts would not have revealed evidence of irregularity or defects in the sale.

Finally, Poole asserts for the first time on appeal, tha his deed of trust on the property contained a specifically bargained for, nonuniform provision that the recitals are merely prima facie-rather than conclusive-evidence of the truth of the recitals. Indeed, the deed issued to Poole reads, “[t]he recitals in the Trustee’s deed shall be prima facie evidence of the truth of the statements made therein.” CP 420. As a result, Poole claims that Watt’s trustee’s deed represents only prima facie evidence of compliance with the procedures outlined in the Act, not a conclusive presumption, and does not give Watts the protections of the Act.[2]

The Deed of Trust Act creates requirements for a foreclosure sale. RCW 61.24.040. The Act specifies the language that the trustee must include in the deed and the effect of that language: “[T]he deed shall recite the facts showing that the sale was conducted in compliance with all of the requirements of this chapter and of the deed of trust, which recital shall be prima facie evidence of such compliance and conclusive evidence thereof in favor of bona fide purchasers and encumbrancers for value.” RCW 61.24.040(7). This section is both procedural and substantive. The statute makes the trustee’s deed conclusive evidence of compliance if the purchaser is a bona fide purchaser.

Poole’s deed of trust lacks any language about the conclusive nature of the recitals as to a bona fide purchaser. He asserts this was a bargained for nonuniform provision in his deed of trust. As a result, he contends that the recitals in the trustee’s deed must be less than those required by the statute and cannot bind the sale even if Watts is a bona fide purchaser. We reject this conclusion.

The Act includes the recitals to protect an innocent purchaser.

[T]he purpose of the provision in the trust instrument, that the recitals contained in the deed of sale should be conclusive proof of the truthfulness thereof and that such deed should be conclusive against the trustor and all other persons, undoubtedly was to protect innocent third persons purchasing at the trustee’s sale, and not the beneficiary of the trust who purchased at the sale brought about by it.

Johnson v. Johnson, 25 Wn.2d 797, 804, 172 P.2d 243
(1946). Even if Poole’s own deed of trust does not advise him or the trustee that the notice of compliance in the trustee’s deed would have conclusive effect, his deed of trust did not alter the trustee’s statutory duty to include that language in the deed. Further, Poole was not prejudiced by the missing language in his deed of trust. The notice given to Poole of the foreclosure sale contained the statutorily required notice, and gave him opportunity to avoid its effect. We hold that the omission of the statutory language from the deed of trust being foreclosed cannot override the conclusive presumption that arises under RCW 61.24.040(7).

Watts is a bona fide purchaser and is entitled to clear title as a matter of law. The partial summary judgment is affirmed.

II. A Bona Fide Purchaser can take clear title despite defects in the foreclosure process absent a grossly inadequate price

Poole claims that the court can set aside a nonjudicial foreclosure sale to a bona fide purchaser where the trustee breached its fiduciary duty and violated the statutory requirements of the Deed of Trust Act. Poole alleges that summary judgment is precluded because material issues of fact exist as to whether Bishop White breached its fiduciary duty and conducted a defective sale which prejudiced Poole. Poole also contends that Watts is not properly dismissed from the suit prior to resolution of these issues because the court can void the sale and restore possession as a remedy for Bishop White’s transgressions. He bases these claims on Cox v. Helenius, 103 Wn.2d 383, 693 P.2d 683 (1985).

In Cox, the trustee proceeded with a foreclosure sale despite the existence of a lawsuit between the grantors and grantee. Id. at 386. The home was sold for a mere $1 more than the amount due on the note. Id. at 387. Upon review, the Court determined that the trustee had breached his fiduciary duty and concluded that “this trustee’s actions, along with the grossly inadequate purchase price, would result in a void sale.” Id. at 388. Given this conclusion Cox establishes that rescission of a foreclosure sale requires both improper action by a trustee and a grossly inadequate price. Here, the fact that the trial court did not grant summary judgment for the trustee implies that a question of fact remains as to a breach of fiduciary duty or sale irregularity. But, even assuming the possibility of a defect in the sale, rescission is not an available remedy unless Watts paid a grossly inadequate sales price.

Washington has not expressly defined what constitutes a grossly inadequate sales price. Cox and the judicial foreclosure cases which it cites provide fact patterns for comparison. In Roger v. Whitham, 56 Wash 190, 105 P. 628 (1909), the court set aside a foreclosure sale on a delinquent assessment, penalties, interest, and costs of $111.32. The property had a value of $3,000 when sold at auction. Id. at 191. The buyer purchased 100 percent of the equity in the property, paying nothing above the lien cost. Similarly, in a sheriff’s sale to satisfy a judgment and costs of $87.92, the property sold for that minimum amount, but had equity of over $4,000. Lovejoy v. Americus, 111 Wash. 571, 573, 191 P. 790 (1920). Again, the buyer purchased 100 percent of the equity paying nothing more than the foreclosed judgment and costs. In another case involving a sheriff’s sale for $1,340.02 in full satisfaction of the default judgment, where the property was subject to a senior lien of $29,000 and had equity of $77,000, the court overturned the sale Miebach, 102 Wn.2d at 173. The court found no indication that the sale had extinguished the $29,000 encumbrance on the property. Id. Assuming it did not, the purchaser assumed a senior lien, paid the foreclosure debt, and received 100 percent of the equity by paying nothing more than the amount of the judgment causing the sale.

In Cox, the grantor’s home had a lien or liens senior to the lien being foreclosed, but had equity of at least $100,000. The creditor bid the amount of its lien. The purchaser bid only one dollar more than the amount due on the note. 103 Wn.2d at 387. Therefore, the purchaser obtained 100 percent of the equity in the home, for a mere dollar. The court held this inadequate. Id. at 388.

Poole contends that deficiency in the sale of his home is comparatively more egregious than these cases, because Watts obtained $400,000 in equity. But, if we consider the above cases in terms of equity, Poole’s claim is in fact not as compelling. In all of the above cases, the buyer bid only enough to satisfy the debt, or satisfy the debt plus an additional dollar. In each overturned case, the buyer got 100 percent of the equity for $1 or less. The court found the purchase price grossly inadequate. In contrast, Watts assumed the senior liens, just as the purchaser in Cox, and paid $165,000 to purchase upon the foreclosed junior lien of $40,000. As a result, Watts paid nearly $125,000 toward acquiring equity. The equity was estimated to be between $473,000 and $534,000. Unlike the previous cases, Watts paid a 30 to 34 percent of the actual equity value of the property. Clearly, the payment by Watts was greater than the $1 in Cox or the zero dollars in the other cases.

While we have no judicially created benchmark for a grossly inadequate price, we do have academic guidance on the subject. The Restatement of Property recommends that a sale not be found grossly inadequate unless the amount paid after assuming senior liens and satisfying the foreclosed lien is less than 20 percent of the remaining equity: “Generally . . . a court is warranted in invalidating a sale where the price is less than 20 percent of fair market value and, absent other foreclosure defects, is usually not warranted in invalidating a sale that yields in excess of that amount.” Restatement (Third) of Property: Mortgages § 8.3 cmt. b (2006). The Restatement defines fair market value as arms length sale value less any senior liens Id. This definition is consistent with the definition of fair value in the Deed of Trust statute, RCW 61.24.005(9). Watts paid more than 30 percent of the equity value, the fair value, of the house. He paid well above the Restatement benchmark for a grossly inadequate price.[3] We hold that Watt’s purchase price was not grossly inadequate.

We need not look to the issue of Bishop White’s alleged breach of fiduciary duty because Watts did not pay a grossly inadequate purchase price. As a result, partial summary judgment for Watts is not inconsistent with denial of summary judgment on the claim against Bishop White for breach of fiduciary duty. We affirm the summary judgment and award immediate possession of the property to Watts.

III. CR 54(b) Certification was Proper

In November 2007, Watts brought a motion requesting that this court enter a ruling that the case is appealable as a matter of right under RAP 2.2(d). A court commissioner determined that the trial court’s order entering judgment on fewer than all claims included the specific findings required by CR 54(b) and RAP 2.2(d) and, therefore, ruled the case appealable. Poole brought a motion to modify this ruling, asserting that the adjudicated claims are inextricably related to the claims remaining before the trial court. A three judge panel denied the motion to modify. By asserting the impropriety of the CR 54(b) certification, Poole renews the arguments made to the commissioner who determined appealability, and the judges who denied the motion to modify the commissioner’s ruling. He essentially requests reconsideration of the motion to modify. But, under RAP 12.4(a), “[a] party may not file a motion for reconsideration of an order refusing to modify a ruling by the commissioner or clerk.” Because this court already denied the motion to modify, the decision is not subject to reconsideration in this appeal. The determination that CR 54(b) certification was proper is the law of the case.

IV. Fees on Appeal

Watts requests that he be considered the prevailing party for the purposes of RAP 18.1(a) but states “the basis for Poole’s liability for attorney’s fees has not been resolved in the trial court. Therefore, pursuant to RAP 18.1(i), the issue of attorney fees on appeal must be remanded to the trial court.” Respondent’s Brief at 50. Watts does not provide a basis for award of fees in his appeal or motions to the trial court.

RAP 18.1 requires the requesting party provide a basis for the award of fees on appeal. See RAP 18.1(b); Tippie v. Delisle, 55 Wn. App. 417, 419-20 n. 3, 777 P.2d 1080
(1989); In re Marriage of Foley, 84 Wn. App. 839, 847, 930 P.2d 929 (1997). RAP 18.1(i) has generally applied to cases where the appellate court determines fees are appropriate and remands to the trial court for calculation. See Am. Fed. Sav. Loan Assoc. v. McCaffrey, 107 Wn.2d 181, 195, 728 P.2d 155 (1986); In re Marriage of Williams, 115 Wn.2d 202, 210, 796 P.2d 421 (1990); Scott Fetzer Co. v. Weeks, 114 Wn.2d 109, 124-25, 786 P.2d 265 (1990). Here, Watts does not provide the possible grounds for his recovery of fees. He may be the prevailing party for this partial summary judgment motion and appeal, because the judgment is in his favor. McCaffrey, 107 Wn.2d at 195. However, without a discussion of the basis for fees, we will not award fees.

We affirm.