COX, J.
¶ 1 Entry of a judgment on a promissory note does not extinguish the lien of a security interest in real property that secures that note.
¶ 2 Here, Boeing Employees' Credit Union (BECU) is the holder of a subordinate deed of trust for property sold at a trustee's sale at the direction of Wells Fargo Bank, the holder of a senior deed of trust. The lien of the BECU deed of trust against the real property sold at this trustee's sale was transferred to and attached in first priority to the surplus funds deposited into the court registry.
¶ 3 In December 2004, the Burnses executed and delivered a promissory note in the face amount of $220,000.00 to Wells Fargo. In order to secure payment of that note, the Burnses also executed and delivered to Wells Fargo a deed of trust dated December 7, 2004, that encumbered their residential property. The deed of trust was recorded on December 13, 2004.
¶ 4 In October 2005, the Burnses also executed and delivered to BECU a promissory note in the face amount of $85,000.00. In order to secure payment of that note, the Burnses executed and delivered to BECU a deed of trust dated October 24, 2005, that also encumbered their residential property. The deed of trust was recorded on November 3, 2005. This deed of trust is subordinate in priority to the lien of the Wells Fargo deed of trust on the Burnses' residence.
¶ 5 The Burnses defaulted on the note to BECU. Based on these defaults, the successor trustee for the deed of trust in favor of BECU recorded a notice of trustee's sale on December 5, 2008.
¶ 6 BECU then commenced an action against the Burnses on the delinquent promissory note. On April 14, 2009, the superior court entered its Order of Default and Default Judgment in favor of BECU against the Burnses for $81,986.52.
¶ 7 BECU began garnishment proceedings against the Burnses. Due to the Burnses' filing of a petition in bankruptcy, BECU ultimately failed to collect any payments to satisfy the Burnses' debt.
¶ 8 On November 20, 2008, the successor trustee for Wells Fargo's deed of trust recorded a notice of trustee's sale because of the Burnses' delinquencies under their promissory note to the bank. The sale was originally scheduled for February 20, 2009. Following several continuances, the sale occurred on August 20, 2010.
¶ 9 Following the deposit of the surplus funds from the trustee's sale into the King
¶ 10 A court commissioner ruled that "BECU's deed of trust and promissory note merged when BECU obtained a judgment" on the promissory note.
¶ 11 BECU moved for revision of the court commissioner's ruling. The superior court denied the motion.
¶ 12 BECU appeals.
¶ 13 We review de novo questions of legal interpretation of the Deeds of Trust Act.
¶ 14 Where the superior court has made a decision on a motion for revision, the appeal is from the superior court's decision, not from the commissioner's decision.
¶ 15 Here, the dispositive question is whether BECU's deed of trust was extinguished by entry of judgment in its favor on the Burnses' promissory note. If the deed of trust was not extinguished, then it is undisputed that the homestead exemption is not effective to defeat BECU's claim to the surplus funds.
¶ 16 The Burnses argue that we should review the lower court's decision for abuse of discretion. They are mistaken.
¶ 17 They cite to our decision in Wilson v. Henkle.
¶ 18 Here, BECU has not moved to vacate the judgment. It has appealed the superior court's decision. Wilson is inapposite.
¶ 19 BECU argues that its deed of trust was not extinguished by entry of judgment on the delinquent Burnses' promissory note. It also argues that the doctrine of merger does not defeat its claim to the surplus sales proceeds. In sum, it claims that it has a right under RCW 61.24.080(3) to so much of the sales proceeds as are necessary to satisfy the Burnses' unpaid debt. We agree.
¶ 20 Our examination of the questions before us begins with consideration of relevant Washington case law regarding mortgages. First, the state supreme court has stated that a deed of trust is "in general a species of mortgage."
¶ 21 Second, a note is a separate obligation than the deed of trust or mortgage that secures that note.
¶ 22 Hanna v. Kasson,
¶ 23 At issue was whether the suit on the note that led to the entry of a personal judgment against Savage affected the later foreclosure of the mortgage that secured that note.
¶ 24 The court held that entry of the judgment did not extinguish the lien of the mortgage:
¶ 26 Thus, Washington case law makes clear that the entry of a judgment on a promissory note secured by a real property security interest does not extinguish the lien of that security interest in the collateral. Specifically, the holder of the real property security interest has the option to sue on the note, obtain a judgment, and later foreclose the security interest to satisfy any unpaid obligation of the borrower on the note.
¶ 27 Here, BECU directed the successor trustee for the Burnses' deed of trust to commence a nonjudicial foreclosure proceeding due to defaults under the Burnses' note. The recording of a notice of trustee's sale on December 5, 2008, followed. But the successor trustee recorded a notice of discontinuance of this scheduled sale on February 24, 2009, terminating this nonjudicial foreclosure proceeding.
¶ 28 Thereafter, BECU commenced an action on the delinquent promissory note against the Burnses. On April 14, 2009, the superior court entered a default judgment for $81,986.52 in favor of BECU against the Burnses.
¶ 29 The above-described procedure was entirely consistent with the mortgage law principle that, while simultaneous actions against one obligated on a note are not permitted,
¶ 30 There is no material distinction between this case and Hanna. Both lenders held promissory notes secured by security interests in real property. Both sued on the notes and obtained judgments. Both later claimed rights as secured creditors following entry of judgments on their respective notes. In Hanna. the lender exercised the right to foreclose the mortgage to collect the unpaid debt. Here, BECU asserts the lien of its deed of trust against surplus funds from the trustee's sale directed by Wells Fargo. In neither case does the entry of judgment on the note bar the lender from later enforcing available remedies to obtain payment as a holder of an enforceable security interest for the note.
¶ 31 The next question is whether the principles articulated for mortgages in the case law that we have just discussed apply equally to deeds of trust. We hold that they do.
¶ 32 BECU argues that RCW 61.24.100(2) permits it to sue on the Burnses' note, recover a judgment, and later assert its claim under the deed of trust to the surplus funds from the Wells Fargo trustee's sale to satisfy the unpaid balance. We agree.
¶ 33 As we previously stated, our task is to determine and implement the intent of the legislature.
¶ 34 RCW 61.24.100(2) provides as follows:
¶ 35 The plain language of RCW 61.24.100(2) codifies for deeds of trust the rule stated in Hanna and reiterated in American Federal. Specifically, under subsection (a), commencing an action on a promissory note that is secured by a deed of trust either before a nonjudicial foreclosure or
¶ 36 BECU strictly followed this procedure. It directed the successor trustee for the Burnses' deed of trust to discontinue the scheduled sale. BECU then sued the Burnses on the note and recovered a judgment. The lien of its deed of trust was not extinguished by entry of judgment on the note. The provisions of RCW 61.24.100(2) that permit a suit on the note, followed by a later foreclosure of a deed of trust securing that note, would have no meaning if entry of judgment extinguished the lien of the deed of trust. Thus, under the plain words of this statute, BECU had the right to assert the rights and remedies of its deed of trust by foreclosure or otherwise.
¶ 37 The Burnses' arguments otherwise are unpersuasive. First, they fail to cite any authority that holds that entry of judgment on a promissory note that is secured by a deed of trust merges the deed of trust into the judgment. There is no such authority in this state.
¶ 38 Second, the Burnses fail to persuade us that the doctrine of merger has any application to the facts of this case. As this court stated in Caine & Weiner v. Barker,
As we have already explained, RCW 61.24.100 expressly permits BECU to sue on the note and later assert its rights under the deed of trust securing that note. And BECU did so here in strict compliance with the statute. Thus, there can be no valid claim in this case of "vexatious relitigation of matters" that the merger doctrine seeks to avoid.
¶ 39 As for promoting justice, the Burnses fail to explain in any persuasive manner why it is unjust for BECU to assert its right to payment of the delinquent debt by claiming an interest in the trustee's sale surplus funds. BECU has such a right under the provisions of RCW 61.24.100(2). We see no injustice here.
¶ 40 The Burnses also argue that "[i]t is a well-established principle in Washington State that a suit on [a] promissory note waives the underlying security."
¶ 41 The Burnses cite two cases to support their waiver argument: Bradley Engineering & Machinery Co. v. Muzzy
¶ 42 The Burnses' only citation to Bradley is the following out-of-context quotation:
The above statement is a part of an 1899 statute regarding foreclosure of mortgages. That waiver language no longer exists in the foreclosure statutes of Washington. Thus, the quotation in the old opinion for a statute that no longer exists has no relevance to this case.
¶ 43 More importantly, the Bradley court neither cites Hanna nor otherwise indicates any retreat from the legal principles stated in that case. For both of these reasons, Bradley is not persuasive.
¶ 44 The Burnses' reliance on Sullins is also unpersuasive. In that case, the supreme court stated:
¶ 45 There is no dispute that a secured creditor may elect to abandon its security and sue on the note alone, as the Sullins court noted. But this record shows no evidence of such an election. Rather, as Hanna, American Federal, and RCW 64.21.100(2) expressly permit, BECU sued on the note, maintaining its ability to later assert its rights under the Burnses' deed of trust.
¶ 46 We also note that among the cases that the Sullins court cited to support its holding was Seattle Savings & Loan Ass'n v. Gardner J. Gwinn Inc.
This statement is entirely consistent with the rule stated in Hanna, American Federal, and RCW 64.21.100(2). It further undermines Burnses' argument.
¶ 47 The Burnses also argue that a judgment on the promissory note extinguishes the underlying note. But that is not the dispositive question. Rather, the question is whether a judgment on the note extinguishes the deed of trust securing the note.
¶ 48 The Burnses fail to cite any relevant authority holding that a deed of trust itself, which is a separate obligation from the note, is extinguished by a judgment on the note secured by that deed of trust. They do cite
¶ 49 Likewise, Woodcraft Construction Inc. v. Hamilton,
¶ 50 The Burnses argue that RCW 61.24.100(2), which we previously discussed in this opinion, does not apply to lien holders who do not foreclose.
¶ 51 In Beal Bank, the holder of the first deed of trust on certain property directed a nonjudicial foreclosure of a deed of trust.
¶ 52 Prior to the trustee's sale, Beal had commenced an action on the two notes against the borrowers.
¶ 53 Following the trustee's sale for the first deed of trust, Beal moved for summary judgment on the notes against the delinquent borrowers.
¶ 54 On appeal, the supreme court stated that the issue was whether the nonjudicial foreclosure by the senior deed of trust precluded Beal from pursuing its action on the notes.
¶ 55 The Burnses cite the following language from Beal Bank to support their argument: "We turn to the plain language of the relevant portion of RCW 61.24.100 and find the right of nonforeclosing junior lienholders and creditors is simply not implicated."
¶ 56 The Burnses quote this language out of context. RCW 61.24.100, as we already
¶ 57 At oral argument, the Burnses claimed that permitting BECU to enforce its right to claim a portion of the surplus funds after entry of judgment on the note violates the anti-deficiency provisions of the Deeds of Trust Act. They are wrong.
¶ 58 A deficiency judgment arises if the amount of a judgment in a judicial foreclosure exceeds the value of the security at the foreclosure sale.
¶ 59 RCW 61.24.100(1) states:
But the plain language of RCW 61.24.100(1) prohibits such a judgment where there is "a trustee's sale under
¶ 60 Here, there was never a trustee's sale under the deed of trust securing the note to BECU. The only trustee's sale was that directed by Wells Fargo under its deed of trust. Moreover, there will never be a trustee's sale under the BECU deed of trust. That is because the trustee's sale directed by Wells Fargo eliminated the lien of the BECU deed of trust against the real property sold at sale. The lien of the BECU deed of trust attached by operation of law to the surplus funds from the Wells Fargo trustee's sale. In sum, there has not been and never will be any violation of the "anti-deficiency" provisions of RCW 61.24.100(1) on which the Burnses rely to avoid BECU's claim to the surplus funds.
¶ 61 BECU argues that the Burnses' homestead is ineffective to avoid its claim to surplus funds of the trustee's sale since the deed of trust was not extinguished. We agree.
¶ 62 RCW 61.24.080(3) provides in relevant part that surplus funds from a trustee's sale shall be deposited into the court's registry and that:
¶ 63 Here, there is no dispute that the BECU deed of trust against the Burnses' residence was eliminated by the trustee's sale directed by Wells Fargo. Likewise, BECU has a first priority lien against those surplus funds.
¶ 64 The remaining question is whether the Burnses' homestead right is effective against the BECU deed of trust. We hold that it is not.
¶ 65 RCW 6.13.080 states that:
¶ 66 Here, the Burnses' homestead is not available against the BECU deed of trust, as the plain words of this statute make clear.
¶ 67 We reverse the order disbursing funds and remand for further proceedings that are consistent with this opinion.
WE CONCUR: APPELWICK, and BECKER, JJ.