Washington State Supreme Court reverses Division II in part and holds that failure to meet conditions to terminate a foreclosure sale and further appeal the trial court’s ruling constitutes a waiver of the right to challenge the foreclosure sale, but not other post-sale relief in Frizzell v. Murray, No. 87927-3.

Background and Analysis

Despite her relatively low income of $1600 a month, and despite a learning disability and dementia, Tamara Frizzell obtained from lenders a $100,000 loan secured by the $250,000 home she inherited from her late husband.  She had initially sought a $20,000 loan to pay bills, but the lenders, Barbara and Gregory Murray, convinced Frizzell that she could get a better interest rate on a $100,000 loan.  The Murrays explained that they would only loan money for business purposes, so Frizzell’s live-in friend convinced her that the two of them could launch a wheelchair and scooter business with the 40-50 wheelchairs and scooters he had stored on Frizzell’s property.  Without any business background, business plan, or any other indicia that a wheelchair/scooter business would work, Frizzell received the $100,000 loan, minus $12,000 that the Murrays retained for fees. 

After three payments, Frizzell defaulted on the loan and the Murrays moved to foreclose her home. Before the trustee’s sale, Frizzell obtained an order restraining the sale, but the trial court conditioned the order on Frizzell depositing a $15,000 payment and $10,000 bond into the court registry by the following morning. Because Frizzell had no money, she failed to meet this condition, and a trustee sold her home the next day to the Murrays for $125,011.  Frizzell also sued the Murrays on various common law and statutory grounds, but the trial court granted the Murrays’ summary judgment motion, reasoning that Frizzell waived her right to post-sale relief because she failed to actually restrain the trustee’s sale.  The Court of Appeals, Division II, reversed the trial court’s summary judgment order, holding that Frizzell did not waive her right to pursue post-sale relief against the lenders, reasoning that Frizzell did sue to restrain the foreclosure sale, and it would have been inequitable to conclude that an indigent borrower waived a right to seek relief when she lacked the money to satisfy the $25,000 payment that would have actually halted the foreclosure proceedings.

The Washington Supreme Court, in a five-member majority opinion authored by Chief Justice Madsen, reversed the Court of Appeals in part, and held that because Frizzell did not deposit the $25,000 to actually restrain the sale of her home, and because she did not seek a motion for reconsideration or appeal the trial court’s order on the restraining order, she waived any opportunity to later attempt to invalidate the foreclosure sale of her home.  The Supreme Court then remanded Frizzell’s remaining damages claims to the trial court for consideration in light of RCW 61.24.127 and Schroeder v. Excelsior Management Group, LLC, a more recent Supreme Court opinion that held that state statute did not necessarily preclude damages actions even when a party waived its chance to challenge the foreclosure sale itself.

A four-member concurring opinion authored by Justice Steven Gonzalez agreed with the majority that Frizzell should be able to pursue her damages claims against the Murrays.  It disagreed with the majority, however, in its determination of what should constitute waiver of one’s rights to challenge the foreclosure sale itself.  The concurring justices believed that waiver should not apply when the validity of the underlying deed of trust is called into question because applying waiver under such circumstances would be inequitable.

Commentary

The majority opinion appears to turn the notion of “equity” on its head.  Here, it appeared that lenders loaned Frizzell money that they knew she would not repay and for a “business” that they knew never did or would exist.  Then, when she quickly defaulted, they were ready to take her home.

Traditionally, “waiver” involved the voluntary and intentional relinquishment of one’s known rights.  Here, the majority holds that Frizzell “waived” her right to challenge the foreclosure sale simply because she could not come up with $25,000 in one day following the trial court’s conditioned restraining order.  Indigence should not constitute waiver of one’s rights, and the concurring opinion recognized this, explaining that the majority selectively applies some of the goals of  Washington’s Deed of Trust Act, but both the Deed of Trust Act and Supreme Court precedent contain express language allowing for permissive application of waiver rules when equity allows.  Looking at the language of the statute itself, RCW 61.24.040(f)(IX) states that “[f]ailure to bring such a lawsuit may result in a waiver of any proper grounds for invalidating the Trustee’s sale.” (emphasis added).  The majority’s holding appears to be even more stringent than the permissive language adopted by the Legislature.

Though the Washington Supreme Court held that Frizzell waived her right to challenge the validity of the foreclosure sale, it left open the possibility that she may pursue her damages claims against the Murrays.  Overall, having these damages-related claims decided by a trier-of-fact appears to be the result that Frizzell wanted and the Murrays did not.