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Ensberg v. Nelson

Court of Appeals of Washington, Division 1

December 16, 2013

ERIK D. ENSBERG, Appellant,
v.
JASON D. NELSON and FRANCINE E. NELSON, husband and wife and the marital community comprised thereof, Respondents.

Order File Date January 14, 2014

ORDER GRANTING MOTION TO PUBLISH

Appellant, Erik D. Ensberg moved to publish the opinion in the above matter filed on December 16, 2013 and the respondents filed an answer to the motion.

A majority of the panel has determined that the appellant's motion to publish should be granted. Now, therefore, it is hereby

ORDERED that the appellant's motion to publish the opinion is granted.

Spearman, A.C.J.

The main question on appeal is whether a seller of property breaches the statutory warranty deed covenant against encumbrances when, at the time of conveyance, the property is part of a homeowner's association and there is a judgment against the homeowner's association, but the owner of the property is not a judgment debtor, there is no lien against the property, and there is no evidence of the association's ability to assess the property owner to pay the judgment. We hold that the seller does not breach the warranty against encumbrances in such circumstances. We also hold that the seller does not convey unmarketable title. Therefore, we reverse the trial court's judgment in favor of the buyers of the property, respondents Jason and Francine Nelson, and remand for entry of judgment in favor of the seller, appellant Erik Ensberg, on his claim for breach of the promissory note. We also reverse the trial court's award of attorney's fees to the Nelsons below and award attorney's fees to Ensberg on appeal based on a provision in the promissory note.

FACTS

In 2004, Erik Ensberg purchased a vacant lot ("the Property") in Chelan County at the encouragement of Jason and Francine Nelson, who had already purchased two lots adjacent to the Property. The purchase was orchestrated by the Nelsons' friend, Jack Johnson, whose company, Key Development Corporation, was developing and selling the lots.

Several years later, on January 25, 2009, the Nelsons bought the Property from Ensberg for $195, 000. They made a down payment of $10, 000 and financed the balance in the amount of $185, 000, which was comprised of an assumption of the underlying debt owed by Ensberg of $129, 603.40. Ensberg received a promissory note and deed of trust (in second position) for the balance owed by the Nelsons of $55, 396.60. Ensberg was not involved in selecting the escrow or title companies or in drafting the documents, including the statutory warranty deed. The title company performed a title search prior to closing and found no judgment encumbering the Property.

Unbeknownst to the parties, at the time of the sale there was a judgment of $523, 474 against Jack Johnson, Key Bay Development Corporation, and Key Bay Homeowners' Association (the HOA) of record with the Chelan County Auditor. The HOA is the governing body for the Key Bay subdivision in which the Property is located. The judgment was entered in Chelan County Superior Court on March 17, 2008 and recorded with the Chelan County Auditor on April 8, 2008. The judgment did not appear on the statutory warranty deed from Ensberg to the Nelsons.

Approximately six months after they bought the Property, the Nelsons listed it for sale. In October 2009, the Nelsons accepted an offer to purchase for $216, 000. After the purchase and sale agreement was signed, a title commitment was obtained. The two prior sales of the Property had involved the same escrow agent and title company. The transaction between Ensberg and the Nelsons was to be closed using a different escrow agent and title company, the latter being North Meridian Title and Escrow, LLC.

North Meridian's preliminary title commitment listed various encumbrances on the title, including the deed of trust in favor of Ensberg. Exhibit (Ex.) 26 at 4. Paragraph 12 of Schedule B stated the following "special exception":

12. JUDGMENT:

AGAINST:

KEY BAY HOMEOWNERS ASSOCIATION, ET AL

IN FAVOR OF:

DEEP WATER BREWING, LLC

AMOUNT:

$523, 474.00

CHELAN COUNTY JUDGMENT NO.:

08-9-00369-8

SUPERIOR COURT CAUSE NO.:

02-2-00848-2


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