The Washington Supreme Court has held that a trustee's practice in a nonjudicial foreclosure of deferring to the lender on whether to postpone a foreclosure sale violates the state's Washington's Consumer Protection Act (the CPA). In an opinion issued on February 28, 2013, the court found that the trustee failed to fulfill its duty to act impartially toward all of the parties to the deed, and that its practice constituted an unfair or deceptive practice. Further, the court found that a trustee's act of having a notary falsely date notices of sale – part of the practice known as "robo-signing" – also violated the CPA.
Two years after borrowing $73,000 from the lender, an elderly borrower developed dementia and was appointed a guardian by the court. After being placed in a care facility, the borrower became delinquent on her mortgage. A notice of trustee's sale was executed shortly thereafter. Though the notice was dated and notarized on November 26, 2007, it was not signed that day. Before the scheduled sale took place, the borrower's guardian informed Quality Loan Services, acting as the trustee of the deed of trust on the home, that the guardianship intended to sell the property. The guardian also contacted the trustee more than 20 times to get the trustee's sale postponed.
Although the guardian believed the trustee would postpone the sale if the guardian presented the lender with a signed purchase and sale agreement, the trustee had an express agreement with the lender that it would not delay a sale unless otherwise directed by the lender. By February 19, 2008, the guardianship had a signed agreement with a closing date set for nearly a month after the scheduled foreclosure sale, but within the 120-day window for a trustee to hold a sale under Washington law. Nevertheless, the trustee sold the property on February 29, 2008.
The borrower sued the trustee, alleging claims of negligence, breach of contract, and violation of the CPA. The crux of the borrower's claims was that the trustee's practices of deferring to the lender on requests for postponement and falsifying notarized documents were unfair and deceptive, and the trustee was negligent in failing to delay the sale. The jury found for the plaintiff on all claims, and the trustee appealed. The Court of Appeals found that the negligence verdict was sustainable, but the evidence was insufficient to support the breach of contract and CPA claims. The guardianship then sought review by the Supreme Court.
The Supreme Court reversed the Court of Appeals on the CPA claims and restored the trial court's award based upon the CPA. The trial court had determined that the notice was one of many foreclosure documents that had been falsely notarized, and that having a notary predate notices of sale was a common practice the trustee and its employees had been trained to do. The Supreme Court noted that it "does not take lightly the importance of a notary's obligation to verify the signor's identity and the date of signing by having the signature performed in the notary's presence." Considering its previous opinions in which it held notaries liable for falsifying documents and failing to determine the identity of those whose signatures they notarize, the court held that the act of false dating by a notary employed by a trustee violates the CPA.
As for the trustee's failure to exercise independent discretion to postpone the sale, the court found that trustees have obligations to all of the parties to the deed, not just the lender. At a minimum, an independent trustee owes a duty to act in good faith in impartially exercising a fiduciary duty, respecting the interests of both the lender and the debtor. Here, the trustee failed to act impartially toward both sides.
Finally, the court granted the guardianship's motion for an injunction to require the trustee to follow Washington law relating to foreclosures and notarizing documents. The court reasoned that the trustee "has demonstrated little understanding or regard for Washington law." Given that the trustee continues to function as a trustee and conduct sales in Washington, the court held injunctive relief was appropriate.