Non-Judicial Foreclosure Case Clarifies When a Borrower Waives Claims by Not Enjoining the Sale

Non-Judicial ForeclosureAs a recent Washington Supreme Court case illustrated, failure to obtain a restraining order prior to a non-judicial foreclosure sale may prevent a borrower from being able to challenge the sale. Further, if a loan is for commercial purposes or if the property is not owner-occupied residential property, such failure may also prevent the borrower from asserting any claims against the lender. Lenders should ensure that “commercial loans” have supporting documentation to this characterization. Borrowers should immediately consult an attorney when they receive notice of a non-judicial foreclosure sale that they believe may be unjust.

In Frizzell v. Murray, 313 P. 3d 171 (2013) Gregory Murray brokered a loan from Barbara Murray to Tamara Frizzell for $100,000. Mr. Murray explained that the loan had to be a “commercial loan.” He suggested that because Ms. Frizzell had 40 to 50 wheelchairs and scooters at her home, she should use the funds to start a wheelchair business. Ms. Frizzell signed a declaration stating the loan would be used for such a purpose, and not for personal or household purposes. Ms. Frizzell’s loan application showed $1,600 a month in income, the monthly payments for the loan totaled $1,000, and the loan fees totaled $12,000.

Ms. Frizzell defaulted three months after obtaining the loan, Mrs. Murray instituted a non-judicial foreclosure proceeding. Ms. Frizzel filed a legal action to enjoin (or stop) the non-judicial foreclosure sale. The trial court issued a preliminary order enjoining the non-judicial foreclosure sale, but, as required by statute, conditioned the order on Ms. Frizzell depositing with the court $25,000 to protect the lender in the event Ms. Frizzell’s claims had no merit. Ms. Frizzell failed to make the deposit. The non-judicial foreclosure sale occurred as scheduled and the trial court dismissed all of Ms. Frizzell’s claims.

On appeal, the Supreme Court held that the trial court correctly conditioned the order upon Ms. Frizzell depositing money with the court, and that Ms. Frizzell’s failure to deposit the funds waived any claim she might have to challenge the non-judicial foreclosure sale. This was true because Ms. Frizzell received notice of her right to enjoin the sale, had knowledge of her defenses to the sale, and failed to obtain the order enjoining the sale. However, with respect to Ms. Frizzell’s claims for money damages, the Supreme Court explained that these claims were only waived if the loan involved owner-occupied residential property and was not a commercial loan. The Supreme Court transferred the case back to the trial court in order to make factual findings concerning the nature of the property and the loan.

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