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Styrk v. Cornerstone Investments Inc.

as corrected: April 29, 1991.

WILLIAM R. STYRK, ET AL., APPELLANTS,
v.
CORNERSTONE INVESTMENTS, INC., DEFENDANT, DAVID L. MICHIE, ET AL, RESPONDENTS



Scholfield, J. Grosse, C.j., and Webster, J., concur.

Author: Scholfield

Appellants/cross respondents William Styrk and Ellen Styrk appeal the trial court's order denying prejudgment interest on the jury verdicts entered in their favor against respondents/cross appellants David Michie and Nancy Stroman. They also appeal the amount of the trial court's award of attorney's fees.

Michie and Stroman have cross-appealed, contending that the trial court erred in directing a verdict against them on the issue of negligence and also in failing to instruct the jury on the contributory negligence of the Styrks. They contend further that the trial court erred in failing to dismiss the Styrks' Consumer Protection Act claims. Stroman assigns error to the court's instruction to the jury that she was to be held to the standard of an attorney at law, and to the court's failure to dismiss the Styrks' claims of negligence, breach of fiduciary relationship, and breach of escrow duties against her. Finally, Michie assigns error to the award of attorney's fees in favor of the Styrks.

Facts

Ellen Styrk was the owner of a home located at 2501 S.W. Dakota Street in Seattle (hereinafter 2501). Her son, William Styrk, owned three homes nearby (hereinafter 4109, 4110, and 4111). In April 1983, a decision was made to sell Ellen's property at 2501. She had no experience in real estate matters and relied on her son to assist her.

The Styrks were contacted by Kris Sellers, a real estate agent with Ron Turner Realty, about an offer on the 2501 property. Ellen Styrk eventually agreed to sell 2501 to Cornerstone Investments, Inc., for a price of $39,950 with a down payment of $6,000 and monthly payments of $350 on the balance. The unpaid balance was represented by a promissory note in the amount of $33,950, signed by Cornerstone Investments. The terms of the agreement with Cornerstone required Styrk to take as her security a second deed of trust on the property. She was told by agent Kris Sellers that the first deed of trust was needed to secure a loan to the buyers in order to "update" the 2501 property.

Because Ellen Styrk was reluctant to subordinate her security to a first deed of trust, Kris Sellers arranged an addendum to the purchase and sale agreement providing that the total of the first and second deeds of trust would not exceed 90 percent of the appraised value of the property. Sellers told Styrk that she had worked with Cornerstone Investments for 2 years, that they were reliable, and that the principals in the company were millionaires. There was evidence that the Styrks relied on these statements and the 90 percent loan/appraisal cap in agreeing to the transaction.

At the time of the sale of 2501, Ellen Styrk signed a form presented by Ron Turner Realty which advised her to seek an attorney. The form was also shown to William Styrk, who testified that he did not see any need to consult with an attorney regarding the transactions.

In May 1983, William Styrk decided to list his homes at 4109 and 4110 for sale. Agent Kris Sellers once again

brought offers on the properties from Cornerstone Investments. The parties agreed to a price of $65,000 for both properties, with Styrk taking a second deed of trust as security. Styrk received the down payment and two promissory notes from Cornerstone Investments. The notes were in the amount of $25,000 each, representing the balance of the purchase price on the homes sold. The agreement with William Styrk also provided that the amount of the first and second deeds of trust was not to exceed 90 percent of the appraised value of the properties. William Styrk was not advised to seek the help of an attorney regarding these transactions. The Styrks were never shown an appraisal of any of the properties sold.

Attorney David Michie and his assistant, Nancy Stroman, handled the escrow closings for the sale of the Styrk properties. Stroman, who had considerable experience in the escrow business, was hired by Michie in March 1983 to handle escrows. Her responsibility was to carry out the escrow instructions, subject to Michie's approval.

A large portion of Michie's escrow business came from mortgage broker Pacific Home Equity (hereinafter PHE). PHE was in the business of making private loans to real estate investors, and Michie closed many of their escrows. PHE loaned the money to Cornerstone Investments to enable it to purchase the Styrk properties. The loans were arranged so that Cornerstone got cash out of the closing, which means that it put up no money for the purchases and kept any loan proceeds which were not needed to purchase the properties. To secure the loans, individual investors in PHE held the first deeds of trust to the properties. PHE obtained appraisals of all three of the Styrk properties: 2501 was appraised at $65,000; 4110 was appraised at $45,000, and 4109 was appraised at $52,000.

In carrying out the escrow instructions, Stroman did not examine the appraisals of the Styrk properties to determine compliance with the 90 percent loan/appraisal limit. The sales of 4109 and 2501 were completed in violation of the 90 percent restriction. The closing statements sent to the

Styrks did not include the amount of the first deed of trust on any of the properties. However, Ellen Styrk did sign a second deed of trust on 2501 acknowledging that her interest was subordinate to a first deed of trust in the amount of $25,000. There was testimony that copies of the first deeds of trust were given to the real estate agents.

Neither Michie nor Stroman ever advised the Styrks to get independent legal counsel regarding the transactions. Michie acknowledged that if he or Stroman became aware that a transaction was not in compliance with the 90 percent limitation, their normal procedure would be to let the parties or their agents know of that fact. He testified that he saw no records indicating that the Styrks had been so notified.

Cornerstone Investments defaulted on all amounts owing to the Styrks. Cornerstone also defaulted on its obligations to the holders of the first deeds of trust, who subsequently foreclosed on the properties in 1984. Styrk was unsuccessful in trying to sell the second deeds of trust and did not have the money to pay off the first deed holders. No one bid at the foreclosure sale, and the homes went to the holders of the first deeds of trust.

The Styrks brought suit against Cornerstone Investments, the real estate agents involved, and Michie and Stroman. The real ...


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