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Centrum Financial Services, Inc. v. Union Bank, N.A.

Court of Appeals of Washington, Division 1

December 18, 2017

CENTRUM FINANCIAL SERVICES, INC., a Washington Corporation, Appellant,
v.
UNION BANK, N.A., a California chartered commercial bank; HACKER & WILLIG, INC., P.S., a Washington Professional Services Corporation, as Trustee, Respondents.

          SCHINDLER, J.

         The "Deeds of Trust Act" (DTA), chapter 61.24 RCW, defines a "grantor" as a person or its successor "who executes a deed of trust to encumber the person's interest in property as security for the performance of all or part of the borrower's obligations."[1] The DTA gives the grantor the right to cure the default on the obligation and discontinue a nonjudicial foreclosure sale. Centrum Financial Services Inc. foreclosed on property owned by Prium Development Company LLC and obtained a "Trustee's Deed." Centrum's title to the property was subject to the first position "Deed of Trust" that secured the $1, 875, 000 promissory note Prium executed in favor of Frontier Bank. Centrum claims that as the current owner of the property, Centrum had the right to cure the default on the promissory note between Prium and Frontier Bank, reinstate the obligation, and discontinue the bank's nonjudicial foreclosure sale. Because Centrum is not a party to the promissory note and assumed no liability, we hold Centrum did not have the right to cure the default, reinstate the promissory note, or discontinue the nonjudicial foreclosure sale. The undisputed record also establishes the bank had the right to demand payment for the full amount due on the promissory note. We affirm dismissal of Centrum's lawsuit to enjoin the trustee's sale.

         Frontier Bank First Position Deed of Trust

         The material facts are not in dispute. Prium Development Company LLC owned a 43, 124 square-foot parcel of property with a large two-story office building in Monroe. Prium leased approximately 20, 000 square feet of office space to the State.

         On October 6, 2004, Frontier Bank loaned Prium $1, 875, 000. Prium executed a promissory note payable to Frontier Bank for $1, 875, 000 with interest. The promissory note identifies Prium as the "Borrower" and Frontier Bank as the "Lender." Prium agreed to pay monthly installments or "119 regular payments of $12, 376.80 each" beginning November 10, 2004 and a final payment "for all principal and all accrued interest not yet paid" on October 10, 2014.

         On October 20, 2004, Prium executed and recorded a Deed of Trust on the Monroe property and an assignment of rents as security for the promissory note. The Deed of Trust identifies Prium as the "Grantor" and Frontier Bank as the "Lender" and "Beneficiary" of the note. Chicago Title Insurance Company is identified as the "Trustee" for the Beneficiary. The Deed of Trust states, in pertinent part:

CONVEYANCE AND GRANT. For valuable consideration, Grantor conveys to Trustee in trust with power of sale, right of entry and possession and for the benefit of Lender as Beneficiary, all of Grantor's right, title, and interest in and to the following described real property ... located in SNOHOMISH county, State of Washington:
LOT 25, MAIN STREET VILLAGE, ACCORDING TO THE PLAT THEREOF, RECORDED IN VOLUME 49 OF PLATS, PAGES 221 THROUGH 223, INCLUSIVE, RECORDS OF SNOHOMISH COUNTY, WASHINGTON.
The Deed of Trust also states:
THIS DEED OF TRUST, INCLUDING THE ASSIGNMENT OF RENTS AND THE SECURITY INTEREST IN THE RENTS AND PERSONAL PROPERTY, IS GIVEN TO SECURE (A) PAYMENT OF THE INDEBTEDNESS AND (B) PERFORMANCE OF ANY AND ALL OBLIGATIONS UNDER THE NOTE, THE RELATED DOCUMENTS, AND THIS DEED OF TRUST. THIS DEED OF TRUST IS GIVEN AND ACCEPTED ON THE FOLLOWING TERMS.

         The Deed of Trust includes a "Due On Sale" provision that states if the property is sold without the written consent of Lender Frontier Bank, the bank has the right to "declare immediately due and payable all sums secured by this Deed of Trust."

DUE ON SALE - CONSENT BY LENDER. Lender may, at Lender's option, (A) declare immediately due and payable all sums secured by this Deed of Trust or (B) increase the interest rate provided for in the Note or other document evidencing the indebtedness and impose such other conditions as Lender deems appropriate, upon the sale or transfer, without Lender's prior written consent, of all or any part of the Real Property, or any interest in the Real Property.

         The Deed of Trust also states that if Prium defaults on the promissory note, either the Lender or the Trustee has the right to accelerate the maturity of the loan, foreclose on the Monroe property, and collect rents.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Deed of Trust, at any time thereafter, Trustee or Lender may exercise any one or more of the following rights and remedies:
Election of Remedies. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Deed of Trust, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise its remedies.
Accelerate Indebtedness. Lender shall have the right at its option to declare the entire indebtedness immediately due and payable, including any prepayment penalty which Grantor would be required to pay.
Foreclosure. With respect to all or any part of the Real Property, the Trustee shall have the right to exercise its power of sale and to foreclose by notice and sale, and Lender shall have the right to foreclose by judicial foreclosure, in either case in accordance with and to the full extent provided by applicable law.
Collect Rents. Lender shall have the right, without notice to Grantor to take possession of and manage the Property and collect the Rents, including amounts past due and unpaid, and apply the net proceeds, over and above Lender's costs, against the indebtedness. In furtherance of this right, Lender may require any tenant or other user of the Property to make payments of rent or use fees directly to Lender. If the Rents are collected by Lender, then Grantor irrevocably designates Lender as Grantor's attorney-in-fact to endorse instruments received in payment thereof in the name of Grantor and to negotiate the same and collect the proceeds. Payments by tenants or other users to Lender in response to Lender's demand shall satisfy the obligations for which the payments are made, whether or not any proper grounds for the demand existed. Lender may exercise its rights under this subparagraph either in person, by agent, or through a receiver.'[2]

         The Deed of Trust includes a successors and assigns provision that states if the property "becomes vested in a person" other than Prium, Frontier Bank has the discretion to negotiate on "forbearance or extension" without releasing Prium from the obligations under the Deed of Trust or the promissory note.

Successors and Assigns. Subject to any limitations stated in this Deed of Trust on transfer of Grantor's Interest, this Deed of Trust shall be binding upon and inure to the benefit of the parties, their successors and assigns.
If ownership of the Property becomes vested in a person other than Grantor, Lender, without notice to Grantor, may deal with Grantor's successors with reference to this Deed of Trust and the indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Deed of Trust or liability under the indebtedness.

         Centrum Second Position Deed of Trust

         Centrum Financial Services Inc. is a Washington corporation that makes "short term commercial real estate loans, secured by real property collateral." According to the Centrum chief executive officer, Centrum loans "typically have been for six months or less."

         On December 7, 2006, Centrum loaned Prium $1, 610, 000. Prium signed a promissory note payable to Centrum. The promissory note was secured by a second position Deed of Trust on the Monroe property.

         Union ...


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