Opinion
No. 31171-2-II
Filed: March 30, 2005 UNPUBLISHED OPINION
Appeal from Superior Court of Pierce County. Docket No. 03-2-09778-6. Judgment or order under review. Date filed: 11/21/2003. Judge signing: Hon. Katherine M. Stolz.
Counsel for Appellant(s), Beth Prieve Gordie, Short Cressman Burgess PLLC, 999 3rd Ave Ste 3000, Seattle, WA 98104-4088.
Christina Gerrish Nelson, Short Cressman Burgess PLLC, 999 3rd Ave Ste 3000, Seattle, WA 98104-4088.
Scott Arnold Smith, Riddell Williams PS, 1001 4th Ave Plaza Ste 4500, Seattle, WA 98154.
Counsel for Respondent(s), Andrew Robert Hay, Attorney at Law, 110 S 9th St, Tacoma, WA 98402-5102.
The Sorensens and their lenders appeal a summary judgment declaring the McLaughlins' judgment liens superior to all other interests in property the Sorensens purchased. Because issues of material fact exist as to the priority of the McLaughlins' liens, we reverse.
FACTS I. The Judgment Lien and Sale to the Sorensens
Patrick and Lerae McLaughlin obtained judgments for securities fraud and consumer protection act violations against Richard and Danielle Zieske and corporations they owned. The judgments against the Zieskes totaled $143,000 in principal. They were entered on February 7, 2003, and recorded with the Pierce County Auditor on April 24, 2003. On the date the judgments were entered, the Zieskes owned a home in Pierce County (the Property).
The McLaughlins are mother and son.
Larae's judgment is for $17,500 plus $1,650 in interest and costs; Patrick's judgment is for $125,500 plus $15,047 in interests and costs.
Patrick states that on April 17, 2003, he learned of a pending sale of the Property from the Zieskes to Timothy and Shannon Sorensen. Chicago Title Insurance Company was insuring title on the deed of trust, and Fidelity Escrow, Inc. was providing escrow services. Patrick claims that on May 5 and 13, he spoke to Chicago Title about the McLaughlin judgment liens. In response, Chicago Title issued a Supplemental Commitment on May 13, 2003, acknowledging the liens.
Patrick also declares that on May 18, 2003, the listing agent for the Property called him to discuss the judgments 'and their status as an encumbrance' against the Property. Clerk's Papers (CP) at 32. He also claims that he warned the title company that the Department of Financial Institutions found Zieskes to have committed many illegal acts and that the McLaughlin judgment was based on substantial fraud claims. He claims he told them that they should be 'extra careful with all documents' and that he would not release his interest unless all debts were paid in full. CP at 33.
On May 23, 2003, the sale from the Zieskes to the Sorensens closed for $367,000. Countrywide Bank and America's Wholesale Lender, co-appellants in this appeal, are the beneficiaries of a deed of trust recorded with the Pierce County Auditor securing amounts loaned to the Sorensens to purchase the Property. The Sorensens obtained the Property from the Zieskes by statutory warranty deed recorded with the Pierce County Auditor.
We refer to Sorensens and their lenders collectively as the Sorensens.
II. The Judgment Satisfaction
Patrick declares that after the Sorensen sale closed, Chicago Title presented him with 'a copy of a document purporting to be a satisfaction of judgment' he signed. CP at 33. He denies signing the document and denies that payment was made to him or his mother. The document does not bear his mother's signature, genuine or forged. The document also does not bear a notary's seal. Linda Mead, Notary Public Program Manager for the Department of Licensing in Washington, declares that the notary who signed the Satisfaction of Judgment either did not exist or was not a licensed notary in Washington at the time she signed the document. Patrick asserts, and the Sorensens do not provide evidence to the contrary, that no Satisfaction of Judgment was filed with the superior court.
III. Pay-Offs After the Sale
The McLaughlins assert that at the time of the sale, the Property was also encumbered by a first and second mortgage to Litton Loan Servicing and Jeffrey Green. Similarly, the Sorensens assert that these lien holders were in first and second position with deeds of trust. During the sale, these lenders were paid. The difference between the sale price and the pay-off of these encumbrances was $22,837.63. From this amount, $5,390 was paid on a Department of Social and Health Services lien. The Sorensens claim that the escrow company distributed the remaining funds for sale costs, realtor's commission, closing fee, title insurance, escrow fee, excise tax, and association dues.
The record contains a document from Fidelity Escrow confirming that during the sale, Litton Loan Servicing was paid $327,739.82 and Jeffrey Green was paid $15,217.30.
Richard Zieske also declares that he and his wife received no proceeds from the Property sale. He claims that he and his wife thought that even if the Property went into foreclosure, the McLaughlins' lien was so far down the priority list that the McLaughlins would have received no money from the sale.
IV. Suit at Superior Court
On July 24, 2003, the McLaughlins sued the Sorensens, seeking (1) a declaration that they had priority over the Sorensens' lenders, and (2) an order authorizing a sheriff's sale if the judgment was not satisfied in full immediately on establishment of that priority. Then the McLaughlins moved for summary judgment. The Sorensens moved for additional time to submit interrogatories, requests for production, and to take Richard Zieske's deposition to determine 'the validity of the Satisfaction of Judgment and obtaining additional information about the closing of the Subject Property.' CP at 74.
The trial court denied the Sorensens more discovery time, adjudged the McLaughlins' liens superior to the Sorensens' interests, and authorized a sheriff's sale to satisfy all amounts due under the McLaughlins' judgments.
ANALYSIS
The Sorensens contend that the trial court erred in failing to consider the Zieskes' possible homestead exemption and its affect on the McLaughlins' lien rights. They also argue that the trial court should have granted a continuance for further discovery and should have found they were protected as bona fide purchasers. Finally, they argue that the trial court's ruling has unjustly enriched the McLaughlins.
I. Standard of Review
We review a summary judgment de novo. See Ret. Pub. Employees Council of Wash. v. Charles, 148 Wn.2d 602, 612, 62 P.3d 470 (2003). Summary judgment is appropriate only if the pleadings, affidavits, depositions, and admissions on file demonstrate the absence of any genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. CR 56(c); Charles, 148 Wn.2d at 612. We consider all facts submitted and all reasonable inferences from them in the light most favorable to the nonmoving party. Wagg v. Estate of Dunham, 146 Wn.2d 63, 67, 42 P.3d 968 (2002); Wilson v. Steinbach, 98 Wn.2d 434, 437, 656 P.2d 1030 (1982).
II. Bona Fide Purchasers
The Sorensens argue that they are bona fide purchasers because they purchased the Property in good faith, for value, with no knowledge of any outstanding creditors. We address this issue first because if they were bona fide purchasers, they would have taken the Property free and clear of the McLaughlins' judgments.
Purchasers of real property may take advantage of the bona fide purchaser doctrine. Tomlinson v. Clarke, 118 Wn.2d 498, 500, 825 P.2d 706 (1992). A good faith purchaser for value, who is without actual or constructive notice of another's interest in the property purchased, has the superior interest in the property. Tomlinson, 118 Wn.2d at 500 (citing Glaser v. Holdorf, 56 Wn.2d 204, 209, 352 P.2d 212 (1960)). The notice "need not be actual, nor amount to full knowledge." Casa del Rey v. Hart, 110 Wn.2d 65, 70-71, 750 P.2d 261 (1988) (quoting Daly v. Rizzutto, 59 Wash. 62, 65, 109 P. 276 (1910)). Constructive notice may be given either by means of a public record or by inquiry notice. Ellingsen v. Franklin County, 117 Wn.2d 24, 33, 810 P.2d 910 (1991) (Smith, J. dissenting); Paganelli v. Swendsen, 50 Wn.2d 304, 308-09, 311 P.2d 676 (1957).
In general, a good faith purchaser of real property is entitled to rely on the condition of title shown in the county auditor's records. Biles-Coleman Lumber Co. v. Lesamiz, 49 Wn.2d 436, 439, 302 P.2d 198 (1956) (citing Beckmann v. Ward, 174 Wash. 326, 24 P.2d 1091 (1933)). "[A] purchaser of real property . . . may rely upon a title which the record shows to be in his grantor, and . . . he is not required, in the absence of notice . . . to make inquiry as to the status of the title outside of that shown by the recorded conveyances." Ellingsen, 117 Wn.2d at 28-29 (emphasis in original) (quoting Kroetch v. Hinnenkamp, 171 Wash. 518, 521-22, 18 P.2d 491 (1933)). But where a purchaser knows facts sufficient to alert an ordinarily prudent person of possible problems, and a reasonably diligent inquiry would lead to discovery of the title's defects or the equitable rights of others in the property, the purchaser is charged with knowing of the problems. Casa del Rey, 110 Wn.2d at 71 (citations omitted).
The McLaughlins assert that the Sorensens were not bona fide purchasers because they had actual or constructive notice that the satisfaction of judgment was forged or fraudulent. We agree.
Patrick states that the Zieskes made no payments on the judgment and he did not sign the Satisfaction of Judgment. The McLaughlins also presented unrebutted evidence that the Satisfaction of Judgment did not comply with the statutory requirements and was not filed with the superior court clerk. RCW 4.65.100. The McLaughlins provided an affidavit from a Program Manager at the Department of Licensing verifying that the document was not signed by a licensed notary. They also point out that the document did not bear the notary seal or stamp. In addition, Larae's lien was not listed on the document, and the document contains no signature, valid or forged, on her behalf. Yet the document recites that all judgments held by Patrick and Larae were satisfied.
RCW 4.56.100 provides:
When any judgment for the payment of money only shall have been paid or satisfied, the clerk of the court in which such judgment was rendered shall note upon the record in the execution docket satisfaction thereof giving the date of such satisfaction upon either the payment to such clerk of the amount of such judgment, costs and interest and any accrued costs by reason of the issuance of any execution, or the filing with such clerk of a satisfaction entitled in such action and identifying the same executed by the judgment creditor or his or her attorney of record in such action or his or her assignee acknowledged as deeds are acknowledged. . . . Every satisfaction of judgment and every partial satisfaction of judgment which provides for the payment of money shall clearly designate the judgment creditor and his or her attorney if any, the judgment debtor, the amount or type of satisfaction, whether the satisfaction is full or partial, the cause number, and the date of entry of the judgment. A certificate by such clerk of the entry of such satisfaction by him or her may be filed in the office of the clerk of any county in which an abstract of such judgment has been filed. When so satisfied by the clerk or the filing of such certificate the lien of such judgment shall be discharged.
'The signature and seal or stamp of a notary public are prima facie evidence that the signature of the notary is genuine and that the person is a notary public.' RCW 42.44.080(9).
Further, Patrick stated that he spoke to the title company twice about his judgment lien. After these conversations, the title company revised the title report to show the existence of the judgment. Patrick also warned the title company about the Zieskes' history with fraud, asked them to be 'extra careful' with all documents, and told them he would not release his interest until he was paid in full. CP at 33. Finally, Patrick declares that on May 18, 2003, he talked with the Property's listing agent about the liens 'and their status as an encumbrance.' CP at 32.
We conclude that the unrebutted evidence shows that the Sorensens had constructive notice of the McLaughlin liens and that the liens were not properly satisfied. Particularly telling are the facial defects of the Satisfaction of Judgment. These alone were sufficient to give the Sorensens notice of problems with the lien satisfaction sufficient to require further investigation. And a single phone call to the McLaughlins would have revealed the real possibility that the satisfaction was forged. Because the Sorensens had constructive notice of the problems with the Satisfaction of Judgment, they do not qualify as bona fide purchasers.
III. Zieske Homestead
The McLaughlins argue that the Sorensens did not raise the homestead exemption below. Generally, we do not consider issues not raised before the trial court. RAP 2.5(a); Pulcino v. Fed. Express Corp. 141 Wn.2d 629, 649, 9 P.3d 787 (2000). Although the Sorensens did not argue before the trial court the effect of their homestead rights on the transaction, they did argue that the Zieskes' homestead rights prevented the McLaughlins' judgment from attaching to the Property or any interest in the Property.
1. Homestead Exemption
Generally, superior court judgments become liens on the real property of a judgment debtor. RCW 4.56.190. If the judgment is rendered in the county in which the real estate is located, these liens commence from the time of entry or filing of the judgment. RCW 4.56.200.
Pierce County Superior Court entered the McLaughlins' judgments on February 7, 2003. The Property is in Sumner, Washington, Pierce County; therefore, the lien commenced on February 7, 2003.
A judgment debtor cannot destroy a lien by assigning or quitclaiming his interest in real property to a third party after entry of a judgment. Fed. Intermediate Credit Bank of Spokane v. O/S Sablefish, 111 Wn.2d 219, 227, 758 P.2d 494 (1988); Heath v. Dodson, 7 Wn.2d 667, 673, 110 P.2d 845 (1941). Thus, judgments are liens on the interest of a real estate contract purchaser within the meaning of RCW 4.56.190 and RCW 4.56.200. O/S Sablefish, 111 Wn.2d at 227 (citing Cascade Sec. Bank v. Butler, 88 Wn.2d 777, 780, 567 P.2d 631 (1977)).
Nevertheless, the Washington State Constitution provides: 'The legislature shall protect by law from forced sale a certain portion of the homestead and other property of all heads of families.' Wash. Const. art. 19, sec. 1. Consistent with this mandate, the legislature enacted the homestead exemption statutes 'for the purpose of providing a shelter for the family and an exemption for a home.' Great N.W. Fed. Sav. and Loan Ass'n v. T.B. R.F. Jones, Inc., 23 Wn. App. 55, 57, 596 P.2d 1059 (1979) (citing Bank of Anacortes v. Cook, 10 Wn. App. 391, 395, 517 P.2d 633 (1974)).
RCW 6.13.010(1) defines a homestead as 'real or personal property that the owner uses as a residence.' Property constituting a homestead is automatically protected by the homestead exemption described in RCW 6.13.070 from and after the time the real or personal property is occupied as a principal residence by the owner. RCW 6.13.040. An 'owner' includes but is not limited to 'a purchaser under a deed of trust, mortgage, or real estate contract.' RCW 6.13.010(2).
A homestead is exempt from attachment and from execution or forced sale for the debts of the owner up to the statutory amount specified in RCW 6.13.030. RCW 6.13.070(1). This amount will not exceed the lesser of (1) the total net value of the lands, mobile home, improvements, and other personal property, as described in RCW 6.13.010; or (2) the sum of $40,000 in the case of lands. RCW 6.13.030. The 'net value' is the market value less all liens and encumbrances senior to the judgment being executed on and not including the judgment being executed on. RCW 6.13.010(3).
With certain exceptions, a judgment against the owner of a homestead becomes a lien on the value of the homestead property in excess of the homestead exemption from the time the judgment creditor records the judgment with the recording officer of the county where the property is located. RCW 6.13.090. Entry of a judgment lien by a superior court serves as constructive notice to purchasers that a judgment lien has attached to judgment debtor's property; while a judgment may also be separately filed for record in the county auditor's office, such a recording is not necessary for a lien to be effective against purchasers of property to which a lien has attached. O/S Sablefish, 111 Wn.2d at 224-25.
A. Zieskes' Homestead Exemption
The Sorensens argue that the Zieskes had a homestead exemption of $40,000 or the net value of their equity. And, according to the Sorensens, because the Zieskes' equity was at most approximately $23,000, there was no value in excess of the Zieskes' homestead exemption to which the McLaughlins' lien could attach. The Sorensens reason that because the McLaughlin lien did not attach to the Property, it did not follow the Property in the sale from the Zieskes to the Sorensens. The McLaughlins assert that the Sorensens do not have standing to assert the Zieskes' homestead exemption rights.
Standing 'requires that the plaintiff demonstrate an injury to a legally protected right.' Sprague v. Sysco Corp., 97 Wn. App. 169, 176 n. 2, 982 P.2d 1202 (1999). Generally a party may not assert another person's legal right. Haberman v. WPPSS, 109 Wn.2d 107, 138, 744 P.2d 1032, 750 P.2d 254 (1988); Timberlane Homeowners Ass'n, Inc. v. Brame, 79 Wn. App. 303, 307, 901 P.2d 1074 (1995). Instead, a party has standing if it demonstrates "a real interest in the subject matter of the lawsuit, that is, a present, substantial interest, as distinguished from a mere expectancy, or future, contingent interest, and the party must show that a benefit will accrue it by the relief granted." Timberlane, 79 Wn. App. at 307-08 (quoting Primark, Inc. v. Burien Gardens Assoc., 63 Wn. App. 900, 907, 823 P.2d 1116 (1992)).
We agree that the Sorensens cannot assert the Zieskes' homestead rights. But the Sorensens are not asserting a right to claim the Zieskes' homestead exemption. Rather, the Sorensens argue that the Zieskes' homestead right prevented the McLaughlins' judgment lien from attaching to the Property. And upon this question turns the status of the Property when the Sorensens acquired it and whether it was then encumbered with the McLaughlins' judgment lien. Clearly, the Sorensens have a real interest in the status of title to the Property when the Zieskes transferred it to them. Under these circumstances, the Sorensens have standing to argue that the Zieskes' homestead rights affect the lien priorities on the Property.
But the parties disagree as to whether the Zieskes had homestead rights. Because homestead rights attach automatically to the homeowner's residence, the only question is whether the Zieskes lived on the Property at the time of these events. Neither party submitted an affidavit from the Zieskes or any other witness on this question. Accordingly, we must decide who had the burden of proving the Zieskes' homestead status.
The homestead protection is automatic and protects property owners from the time the property is occupied as a principal residence. RCW 6.13.040. To enforce a judgment not within the classes enumerated at RCW 6.13.080, a creditor must apply to the superior court in the county where the homestead is located to have the value appraised. RCW 6.13.100-.110. But here, as we have discussed, the Sorensens are not claiming the benefit of the Zieskes' homestead rights. Instead, the Sorensens simply point out that the Zieskes likely had homestead rights and that those rights could have affected the status of title. According to the Sorensens, the McLaughlins have not met their burden of proving the absence of disputed material facts. Seven Gables Corp. v. MGM/UA Entm't Co., 106 Wn.2d 1, 13, 721 P.2d 1 (1986). We agree.
As the party moving for summary judgment, the McLaughlins had to demonstrate a prima facie case and that no disputed material facts prevented a summary judgment for them. Essentially, they had to show that their lien was first in priority. As part of this proof, the McLaughlins had to show that their lien attached to the Property. If the Zieskes lived on the Property, they had a homestead exemption and, according to the sale figures in the record, there was not equity in excess of that exemption for the McLaughlins' lien to attach to the Property. Thus, to prove their lien attached and was first in priority, the McLaughlins had to make out a prima facie case that the Zieskes had no homestead exemption in the Property. Because they did not do so, we reverse and remand for further proceedings.
Because the unjust enrichment and discovery issues are either moot or unlikely to arise on remand, we do not address them.
A majority of the panel having determined that this opinion will not be printed in the Washington Appellate Reports, but will be filed for public record pursuant to RCW 2.06.040, it is so ordered.
MORGAN, A.C.J. and HUNT, J., Concur.