Borrower had an 80/20 on a home in WA state…both loans originated from the same bank, on the same day, and all proceeds went to the purchase of the home. Never refinanced or took out any equity. Home foreclosed last year (2009)…non judicial foreclosure.
Allegedly the sale covered the 1st mortgage (perhaps a little more). Yet the bank is still billing for the purchase money mortgage. No 1098A has been issued, nor any 1099C. Borrower was not served any court documents (deficiency judgment). Isn't Washington a non recourse mortgage state, absent a judicial foreclosure? Can the bank do this to the borrower? If not, can you point me to the authority that address's this particular issue?
Chapter 7 Bankruptcy Attorney
In Washington State a home "mortgage" is is made up of two legal documents. The first document is a promissory note which evidences the terms of the obligation. The second document is a deed of trust which creates a lien against the property which is security for the performance of the obligation set forth in the promissory note.
One of the real advantages available to the lender in connection with a deed of trust is the ability to cause the property subject to the lien of the deed of trust to be sold at a trustee's sale without going to court to obtain a judgment. When a lender uses this non-judicial power of sale included in a deed of trust to cause the property to be sold, the promissory note secured by that deed of trust is deemed to be fully satisfied. However, only the promissory note secured by the deed of trust under which the property is sold is deemed to be satisfied. Any other promissory note remains unsatisified.
The specific statute preventing a lender from collecting more money on a promissory note after the property is sold under the deed of trust securing the promissory note is RCW 61.24.100(1), which provides in part as follows: "(1) ...[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."
A bank which holds two promissory notes, each of which is secured by a separate deed of trust, can cause the property to be sold under one of the deeds of trust without losing the right to attempt to collect on the promissory note secured by the other deed of trust. That second promissory note survives the sale of the property under the power of sale included in the deed of trust which secured payment of the first promissory note.
In many instances a bankruptcy proceeding may be advisable to discharge the debt evidenced by the second promissory note. Before the sale it may have been possible to remove the lien of the second deed of trust from the property through an adversary proceeding in a Chapter 13 case, allowing the property owner to keep the property by paying the first mortgage only and completing a Chapter 13 Plan. After the sale this is no longer possible. However, the surviving debt from the second promissory note can still be discharged in a bankruptcy case, allowing the property owner to move forward with a fresh start free of the burden of any debt related to the former residence.
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