The Washington Supreme Court issued an opinion today affirming the right of a lender to obtain a deficiency judgment against a commercial guarantor following a nonjudicial foreclosure. Divisions One and Two of the Washington State Court of Appeals had reached contrary holdings on whether a lender could seek a deficiency judgment against a guarantor of a commercial loan following the nonjudicial foreclosure of a widely used form of deed of trust. In Washington Federal v. Gentry, 179 Wn. App. 470, 319 P.3d 823 (2014), Division One held that a lender’s right to a deficiency judgment action against a guarantor exists even where the foreclosed deed of trust secures both the borrower’s loan and the guarantor’s guaranty. In First Citizens Bank & Trust Co. v. Cornerstone Homes & Development, LLC, 178 Wn. App. 207, 314 P.3d 420 (2013), Division Two held the opposite.
The Washington Supreme Court, in a consolidated case argued by Lane Powell, unanimously held that “guarantors of commercial loans whose own property has not been foreclosed” are not “protected from deficiency judgments under the [Deed of Trust Act] after the borrower’s property has been foreclosed,” even if the foreclosed deed of trust also secured the guarantors’ guarantees. Washington Federal v. Harvey / Washington Federal v. Gentry, No. 90078-7 (consol. w/ No. 90085-0), Slip. Op. at 6-7 (Wash. Sup. Ct. January 8, 2015). The Court noted the inapplicability of RCW 61.24.100(10) and relied on RCW 61.24.100(3)(c) and (6), which establish a clear rule regarding a guarantor’s post-foreclosure deficiency liability — i.e., a lender may obtain a deficiency judgment against a guarantor of a commercial loan, unless the guarantor granted the foreclosed deed of trust on his or her own property to secure the guaranty.