United States District Court, W.D. Washington, Seattle
ORDER DISBURSING FUNDS
ROBERT S. LASNIK, District Judge.
This matter comes before the Court on "Defendant Eastside Funding, LLC's Motion for Partial Summary Judgment and to Release Sale Proceeds Deposited in Court Registry" (Dkt. # 69) and "Plaintiff's Motion for Relief From Deadline, and Offer of Proof" (Dkt. # 93). Pursuant to the prior orders of the Court, the property having a common address of 25730 38th Avenue NW, Stanwood, WA 98292 was sold on September 12, 2014, and the proceeds of the sale ($424, 556.74) were deposited in the registry of the Court. The proceeds were deposited with the understanding that the funds would be held "subject to the liens and claims of all parties in the same manner and with the same priority as the parties' liens or claims against the Property prior to its sale." Dkt. # 65 at 3. Eastside Funding seeks a summary determination that its Deed of Trust enjoys first priority and that it is entitled to immediate disbursement of $356, 540.75 ($328, 811.28 in principal and $27, 729.47 in non-default interest through January 5, 2015).
Summary judgment is appropriate when, viewing the facts in the light most favorable to the nonmoving party, there is no genuine issue of material fact that would preclude the entry of judgment as a matter of law. The party seeking summary dismissal of the case "bears the initial responsibility of informing the district court of the basis for its motion" ( Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)) and "citing to particular parts of materials in the record" that show the absence of a genuine issue of material fact (Fed. R. Civ. P. 56(c)). Once the moving party has satisfied its burden, it is entitled to summary judgment if the nonmoving party fails to designate "specific facts showing that there is a genuine issue for trial." Celotex Corp., 477 U.S. at 324. The Court will "view the evidence in the light most favorable to the nonmoving party... and draw all reasonable inferences in that party's favor." Krechman v. County of Riverside, 723 F.3d 1104, 1109 (9th Cir. 2013). Although the Court must reserve for the jury genuine issues regarding credibility, the weight of the evidence, and legitimate inferences, the "mere existence of a scintilla of evidence in support of the non-moving party's position will be insufficient" to avoid judgment. City of Pomona v. SQM N. Am. Corp., 750 F.3d 1036, 1049 (9th Cir. 2014); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Factual disputes whose resolution would not affect the outcome of the suit are irrelevant to the consideration of a motion for summary judgment. S. Cal. Darts Ass'n v. Zaffina, 762 F.3d 921, 925 (9th Cir. 2014). In other words, summary judgment should be granted where the nonmoving party fails to offer evidence from which a reasonable jury could return a verdict in its favor. FreecycleSunnyvale v. Freecycle Network, 626 F.3d 509, 514 (9th Cir. 2010).
Having reviewed the memoranda, declarations, and exhibits submitted by the parties,  the Court finds as follows:
On August 10, 2012, defendant Laurie Luckovich signed a Promissory Note in the amount of $328, 811.28 in favor of Eastside Funding. The Note was secured by a Deed of Trust. Eastside Funding disbursed the loan proceeds, which Luckovich used to purchase the Stanwood property. The Deed of Trust was recorded on August 14, 2012. Luckovich defaulted on the loan in January 2013.
Plaintiff Lynott alleges that Luckovich improperly used $83, 000 of Lynott's money to make the down payment on the Stanwood property. Lynott recorded a claim against the property on February 28, 2014. The United States recorded notice of a federal tax lien on the property in June 2014. Because Washington generally applies a "first in time, first in right" rule, the "priority of competing lien claims depends on the order in which those claims attached to the encumbered property, subject to recording requirements." Summerhill Village Homeowners Ass'n v. Roughley, ___ Wn.App. ___, 289 P.3d 645, 647 (2012). Thus, absent an applicable exception to the "first in time" rule,  Eastside Funding's first-recorded lien takes precedence over the claims of Lynott and the United States.
A. Effectiveness of the August 14, 2012, Recording
Lynott argues that the Deed of Trust recorded on August 14, 2012, is invalid or otherwise not entitled to priority because (1) Eastside Funding was not the source of the funds loaned to Luckovich and was simply disbursing funds provided by a third party, DLG, Inc., and/or (2) the priority afforded to the original recording was lost when the beneficial interest in the Deed of Trust was assigned to DLG., Inc., shortly after the loan originated or when it was assigned back to Eastside Funding as part of the sale of the property.
Lynott offers no case law or analysis in support of his first proposition. Whatever the original source of the funds, it was Eastside Funding that disbursed them to Luckovich and that held her promise to repay the debt. It was that promise that was secured by the Deed of Trust and noted in the property records of Snohomish County. Neither the Deed of Trust Act nor the relevant case law require more to obtain a priority interest in the property. As a practical matter, plaintiff's theory that a lender has no protectable interest unless it provides funds for the loan from its own savings account is unworkable. Such a rule would arbitrarily exclude from the protections of the recording system any lender that raises capital in order to fund its lending activities, fundamentally altering real estate lending practices that have been the norm for decades, if not centuries. More importantly, the property recording system would be thrown into disarray because subsequent purchasers and lenders would have to figure out who or what was the "true" lender in order to determine whether previously recorded liens were entitled to priority. Such an outcome would vitiate the purpose of the "first in time" rule. Absent some indication that Washington law supports plaintiff's theory, the Court declines to adopt the proposed exception to the general rule.
Plaintiff's second theory is based on the unstated assumption that the recording date of the Deed of Trust is altered every time the beneficial interest is assigned or transferred. That is simply not the case under Washington law: as "assignee of a contract steps into the shoes of the assignor, " and "a priority once acquired by the recording of a mortgage is not lost because one holds it under an unrecorded assignment.... Priority once obtained cannot be lost." Fed. Fin. Co. v. Gerard, 90 Wn.App. 169, 177 (1998); John M. Keltch, Inc. v. Don Hoyt, Inc., 4 Wn.App. 580, 582-83 (1971). Lynott offers no authority in support of his argument that assignment of a recorded interest destroys or alters the initial recording.
B. Bona Fide Purchaser
Lynott argues that Eastside Funding was not a bona fide purchaser and cannot, therefore, rely on its August 14, 2012, recording date to assert priority. If a purchaser or lender
has knowledge or information of facts which are sufficient to put an ordinarily prudent man upon inquiry, and the inquiry, if followed with reasonable diligence, would lead to the discovery of defects in the title or of equitable rights of others affecting the property in question, the purchaser [or lender] will be chargeable with knowledge thereof and will not be heard to say that he did not actually know of them. In other words, knowledge of facts sufficient to excite inquiry is constructive notice of all that the inquiry would have disclosed.
Mieback v. Colasurdo, 102 Wn.2d 170, 175-76 (1984) (quoting Peterson v. Weist, 38 Wash. 339, 341 (1908)). Lynott maintains that (1) Eastside Funding's past business dealings with Luckovich put it on inquiry notice regarding the source of the down payment she used to purchase the Stanwood property and/or (2) Luckovich was Eastside Funding's agent in the transaction, ...