Brown v. Dep’t of Commerce, 359 P.3d 771 (2015).
Update by: Joshua Schaer, Senior Associate Attorney
On October 22, 2015, the Washington Supreme Court issued its decision in Brown v. Dep’t of Commerce, unanimously concluding that a note holder is legally entitled to modify and enforce the obligation under state law. The Court rejected Brown’s claim that only a note “owner” could be a proper beneficiary.
Brown demanded statutory mediation with M&T Bank (“M&T”), although Freddie Mac owned her loan. In response to a notice from the Washington Department of Commerce (“Commerce”), who oversees the mediation program, M&T produced a declaration stating that it was the actual holder of Brown’s note. M&T also asserted a mediation exemption based on a statute excluding beneficiaries with a low volume of secured mortgage loans in the state. Brown’s lawsuit arose after Commerce denied her an opportunity to mediate with M&T.
Brown argued that Freddie Mac should be compelled to mediate because the Washington Deed of Trust Act (“DTA”) requires a beneficiary to also be the note’s owner, and Freddie Mac would not qualify for the same exemption as M&T.
The Supreme Court analyzed a statute that allows “a declaration by the beneficiary made under the penalty of perjury stating that the beneficiary is the actual holder of the promissory note or other obligation secured by the deed of trust” to establish sufficient proof of the note’s “ownership.” The Court decided that the Legislature intended for the party with authority to modify a loan to act as the beneficiary under the mediation law. The Court also reaffirmed its holding in Bain v. Metropolitan Mortg Co., i.e., that a beneficiary is strictly defined in Washington as the note holder.
The Court limited the recent decisions of Lyons v. US Bank and Trujillo v. NW Trustee Services to situations where a beneficiary’s declaration contains alternative language concerning non-holder authority under the state law equivalent to UCC 3-301 (which governs a “Person Entitled to Enforce” negotiable instruments).
In sum, the Court found that “a party satisfies the proof of beneficiary provisions” in the DTA when “it submits an undisputed declaration under penalty of perjury that it is the actual holder of the promissory note.” Thus, Commerce acted properly to deny Brown’s request for mediation.
The Brown case resolves a longstanding question concerning authority to foreclose in light of the “proof of ownership” requirement. The law is now clear in Washington that owners such as Freddie Mac or Fannie Mae need not initiate non-judicial foreclosures in their own names or directly participate in mediation, and loan servicers can execute declarations of note holder status in order to satisfy the DTA. Brown is a significant victory that supports the legal position of servicers, investors, and trustees.
The Court’s opinion is at www.courts.wa.gov/opinions/pdf/906521.pdf.