Foreclosure Agents Are Not Simply Agents For The Lender

In a landmark case, the Washington Supreme Court re-affirmed the principal that a trustee conducting a non-judicial foreclosure (a foreclosure that is not under the auspices of the Superior Court) owes an duty to both the lender and the borrower and can be liable to the borrower for failure to properly exercise the trustee’s discretion in conducting a sale.[i] 

Justice Chambers, writing for the majority, provided: “The power to sell another person’s property, often the family home itself, is a tremendous power to vest in anyone’s hands.”  Chambers wrote that the law “requires that trustee to be evenhanded to both sides and to strictly follow the law.”  In this case, the Supreme Court ruled that Washington Mutual Bank (“WaMu”), one of the West Coast’s major players in the foreclosure industry, violated the state Consumer Protection Act (“CPA”) by falsely notarizing legal documents and not considering requests to delay the auction of a Whidbey Island home.

In 2008, the nonprofit group Puget Sound Guardians sued WaMu and Quality Loan Service Corporation (“Quality”) for allegedly violating the CPA after the trustee (Quality) sold Dorothy Halstien’s home at a foreclosure auction for a dollar more than the $83,087.67 that the disabled senior owed, stripping Halstien of more than $150,000 in equity.  The property’s new owners quickly flipped the home, selling the property for $235,000.  Halstien owed WaMu about $75,000 at the time she developed dementia and had a guardian appointed.  The cost of her medical care ate up funds to pay the mortgage.  She died in late 2008 at 76.

The Court held that Quality falsely notarized the date on the notice of trustee sale and apparently trained its notaries to do this regularly from 2004 to 2007.  Had the notice of sale been correctly dated, the foreclosure auction would have been delayed at least a week, the Court said.  That was important because there was a pending sale that Halstien’s guardian had secured that may have closed had the trustee agreed to continue the sale at the request of the guardian. 

In Washington, trustees have the discretion to postpone foreclosure sales.  However, Quality testified that it only would continue a sale if agreed to by the lender.  In fact, Quality had a written agreement with WaMu that forbade it from postponing a sale without the bank’s approval.

In the majority opinion, Justice Chambers concluded “that it is an unfair or deceptive act or practice under the CPA for a trustee of a nonjudicial foreclosure to fail to exercise its authority to decide whether to delay a sale.”


[i] Klem v. Washington Mutual Bank, 2013 WL 791816, 295 P.3d 1179 (2013).

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