WHAT IS THE APPROPRIATE DEED TO USE IN AN DECEASED ESTATE SALE CLOSING?

WHAT IS THE APPROPRIATE DEED TO USE IN AN DECEASED ESTATE SALE CLOSING?

This has been a question that our firm has been involved in on many occasions and was the source of a call just last week from a local Broker over on the Eastside seeking clarification and confirmation.

We represented a while back an estate that was sued because it used the incorrect deed at closing. One of the issues was whether the Listing Broker had any liability for making sure the proper deed was utilized for that sale.

The facts are not that complicated:

****Seller was an estate of a deceased in King County, Washington. Personal Representative had been appointed appropriately by the court and had full power to sell the property without any further intervention of the court.

****Personal representative had never physically seen the real property and, in fact, lived in another state. Listing Broker appropriately listed the property for sale.

****Purchase offer came through by a cash purchaser and closed on that sale in escrow with estate conveying the real estate to the purchaser by Statutory Warranty Deed. Life was good. No problems.

****Purchaser, in anticipation of building fences along another border of the subject property, had the whole property surveyed only to find out to their initial dismay (and subsequent delight) that a forty (40) foot strip along the whole 480-foot boundary line had been adversely possessed by the neighbor and there was in place a fence there and all elements of adverse possession had been met years earlier. That 40ft x 480ft area had been adversely possessed by the adjoining land-owner.

****The purchaser never even imagined that property was part of the purchase, but it WAS INCLUDED in the legal description in the Statutory Deed and was a basis for a claim of breach of warranty of title against the estate and the escrow company.

****The escrow/title company was dismissed from the lawsuit as they told the court that they closed the real estate transaction according to the Purchase and Sale Agreement and that since it said (as contained in the state-wide forms) to use a Statutory Warranty Deed (and they did) that they should be dismissed. They were dismissed and rightfully so.

****The estate had, by Purchase and Sale Agreement, agreed to sell the real property. If they had not used a Statutory Warranty Deed, but a PERSONAL REPRESENTATIVE’S DEED, which is appropriate, then the extent of warranties offered would be far less reaching. The estate could purchase the land from the adversely possessing party in settlement of the lawsuit. That cost the original Estate seller a substantial amount of money.

****The estate looked to its Listing Broker to explain why the Listing Broker in taking a listing for an estate sale of property did not change by Addendum the type of Deed to the one appropriate for that type of transaction. The Broker and estate settled that issue. Was the Listing Broker negligent? I think so?

PRACTICE POINTER:  In any transaction where you are representing the seller and the seller is an estate of a decreased person, make certain that you draft an appropriate Addendum changing the deed specified in the statewide forms to a Personal Representative’s Deed. Quick. Easy. Easy to explain to the buyer and their broker. This is the appropriate deed used in decreased estate transactions.

GOOD NEWS!!!!  You now have your escrow and title company also looking out to protect you (as they protect themselves as well). You see, until last year a Personal Representative Deed had to be prepared by an attorney. Now your friendly LPO at your escrow dept. can draft it as part of their Limited Practice Officer’s license. That’s right. It is now one of the LPB approved forms for LPO’s to choose and prepare. This is good news.

PRACTICE POINTER TO LPO’ READERS:  I would focus on requiring an Addendum every time it is appropriate as I am not convinced that you are relieved of liability especially now with the ability of an LPO to prepare this deed. Escrow folks need to be vigilant of this Deed requirement as well. 

THE MATTER OF THE CASE OF THE PASSAGE OF STATUTES OF LIMITATIONS (A CASE STUDY)

Recently, our office was successful in eliminating a second mortgage lien from a King County property because it was unenforceable under the statute of limitations. In that case, the borrower defaulted on their second mortgage obligation around 2008. In response, in 2009, the second mortgage holder elected to “accelerate” the second mortgage debt by calling the full amount of principal due. However, despite accelerating the debt, the second mortgage holder did not commence any sort of formal collection on the note or foreclosure under the deed of trust for over six (6) years.

After reviewing the borrower’s loan documents, communications from the second mortgage holder; and the borrower’s payment history, our office filed a lawsuit in King County Superior Court for Quiet Title seeking a Court Order removing the second mortgage deed of trust from the property and cancelling the second mortgage debt based on an elapsed six (6) year statute of limitations period.

After being served with the Quiet Title Complaint and reviewing the loan history, the second mortgage holder conceded that enforcement of the second mortgage note and deed of trust were barred by the statute of limitations and consequently removed the second deed of trust from the property and cancelled the second mortgage debt.

By taking the time to fully review and analyze all legal issues and possible defenses before commencing the lawsuit, our office would be able to achieve our client’s goal in a cost-effective matter. Below, is a brief description of the various legal issues involved in that case:

First, what is the applicable statute of limitations period? In legal proceedings, the statute of limitations timeline depends on the nature of the claim. In Washington, there is a six (6) year statute of limitations on written agreements including promissory notes and deeds of trust. RCW 4.16.040(1).

Second, when does the statute of limitations period begin to run? In general, the statute of limitations period starts to run when the claim “accrues” or when the claimant has the right to apply to the Court for relief.

For promissory notes and deeds of trust, the statute of limitations period begins to run when the promissory note becomes due. Typically, this occurs at the note’s maturity date. Most mortgage promissory notes are installment notes for a term: the borrower will make a payment once a month for a period until the note is paid in full by a certain date (the maturity date).

However, in the above case, the second mortgage holder elected to “accelerate” the amount owed which changes the typical statute of limitations analysis. Whether “acceleration” occurs is a legal issue which requires fact specific analysis. However, there are Washington State and Federal Court decision which provide guidance. See 4518 S. 256^th, LLC v. Karen L. Gibbon, P.S., 195 Wn. App. 423, 434-35, 382 P.3d 1 (2016); Fujita v. Quality Loan Servs. Corp. of Wash., 2016 WL 4430464 (August 22, 2016). In the above case, by accelerating the debt, the second mortgage holder caused the statute of limitations to begin to run in 2009 rather than the note’s maturity date.

Finally, are there any defenses to the statute of limitations claim? The most common defense is “tolling” which occurs when the claimant takes some affirmative action which results in the statute of limitations period to pause for a period. In the above case, there was no “tolling” occurred, however, a mortgage holder can toll the statute of limitations period by issuing a notice of trustee’s sale. See Bingham v. Lechner, 111 Wn. App. 118, 45 P.3d 562 (2002).

Every case requires detailed fact specific analysis before venturing into Court. Our office offers one hour consultations at $150 in which you, or your client, can meet with one of our experienced attorneys to review your specific situation and develop the best legal strategy to obtain your goals. To schedule a consultation please call (253) 471-1200.