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Washington Federal Savings & Loan Ass'n v. McNaughton Group

Court of Appeals of Washington, Division 1

February 3, 2014

Washington Federal Savings and Loan Association, Appellant,
The McNaughton Group et al., Respondents

Superior Court County: Snohomish. Superior Court Cause No: 10-2-10927-5. Date filed in Superior Court: June 1, 2012. Superior Court Judge Signing: Linda Krese.

Gregory R. Fox, Michael A. Nesteroff, and Ryan P. McBride (of Lane Powell PC ), for appellant.

Christopher I. Brain and Adrienne McEntee (of Tousley Brain Stephens PLLC ) and John W. Milne and Eric C. Frimodt (of Inslee Best Doezie & Ryder PS ), for respondents.

AUTHOR: Spearman, A.C.J. WE CONCUR: Dwyer, J., Grosse, J.


Page 806

Spearman, A.C.J.

[179 Wn.App. 322] ¶ 1 The McNaughton Group LLC (TMG) entered into agreements with Silver Lake Water and Sewer District (District) to construct sewer facilities that it would transfer to the District in exchange for the provision of sewer and water services. The sewer facilities were to serve the " Sommerwood Property," a residential subdivision being developed by TMG. After the sewer facilities were constructed, TMG conveyed them to the District and TMG received a right to future " latecomers fees" from the District that would reimburse it for the cost of constructing the facilities. Meanwhile, TMG obtained a loan from Horizon Bank that was secured by a deed of trust on the Sommerwood Property. After TMG defaulted, Horizon acquired the property at a foreclosure sale. The sale left a deficiency on the loan. Washington Federal Savings and Loan Association (Washington Federal) subsequently acquired Horizon's rights related to the Sommerwood Property. Washington Federal filed a declaratory relief action against TMG, asserting that it acquired, under the deed of trust, TMG's right to the latecomers fees. The trial court dismissed Washington Federal's action on summary judgment. The issue on appeal is whether Washington Federal has a claim to the latecomers fees. We conclude that the provisions of the deed of trust on which Washington Federal relies did not grant a security interest in the latecomers fees and affirm.

Page 807


¶ 2 In 2003, TMG began acquiring real estate in Snohomish County to develop a residential subdivision, the [179 Wn.App. 323] Sommerwood Property. Clerk's Papers (CP) at 940. To obtain approval of its development plans, TMG had to ensure that sewer facilities would be available to serve the Sommerwood Property and surrounding subdivisions.[1] Accordingly, on April 16, 2003 and July 14, 2006, TMG and the District entered into agreements (Extension Agreements), under which TMG agreed to construct and connect an extension to the District's existing sewer and water system. The extension would consist of a sewer lift station, wet well, and related improvements (collectively Sewer Facilities). Some of the Sewer Facilities would be on the Sommerwood Property and some would be in the public right-of-way. The Extension Agreements provided that once the Sewer Facilities were constructed, TMG would transfer them to the District under a bill of sale.[2] The tract on which the wet well and lift station would be constructed was to be severed from the Sommerwood Property and dedicated to the District.[3] The Extension Agreements also stated that the District had the discretion to agree to a " latecomers agreement" with TMG. Under a latecomers agreement, TMG would be entitled to recover a portion of the costs of constructing the Sewer Facilities, through connection charges paid to the District by other property owners who subsequently used the facilities. RCW 57.22.020(2).

¶ 3 Meanwhile, in March 2005, TMG obtained a $7 million " Line of Credit" from Horizon Bank. The Line of Credit, which allowed TMG to acquire bare land and to develop plats, was eventually secured by a " Deed of Trust" on the [179 Wn.App. 324] Sommerwood Property.[4] The Deed of Trust was executed on March 15, 2007 and gave Horizon a security interest in:

all of Grantor's right, title, and interest in and to the following described real property, together with all existing or subsequently erected or affixed buildings, improvements and fixtures; all easements, rights of way, and appurtenances; all water, water rights and ditch rights (including stock in utilities with ditch or irrigation rights); and all other rights, royalties, and profits relating to the real property, including without limitation all minerals, oil, gas, geothermal and similar matters (the " Real Property" ) located in Snohomish County, State of Washington.

CP at 1269. The Deed of Trust provided a legal description of the land comprising the Sommerwood Property. The Deed of Trust also gave a security interest in " all of [TMG's] right, title, and interest in and to all leases, Rents, and profits of the Property," with " Rents" defined as " all present and future rents, revenues, income, issues, royalties, profits, and other benefits derived from the Property." CP at 1269. At the time the Deed of Trust was executed, Horizon was not aware of TMG's plans to build the Sewer Facilities. At the time, Horizon valued the Sommerwood Property on an " as is" /raw land basis of $16,820,000. The loan amount for the Line of Credit was increased to $11,700,000 in November 2007.

¶ 4 After the Sewer Facilities were built, TMG conveyed and transferred them to the District under a February 26, 2009 " Bill of Sale." [5] The Bill of Sale ...

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