Foreclosure Trustee’s Duty to Continue The Foreclosure Sale

Trustees handling nonjudicial foreclosure sales must handle them fairly and not just follow the dictates of the lender. Klem v. Washington Mut. Bank, 176 Wn.2d 771 (Feb. 2013). The Washington Supreme Court reached this conclusion after a trustee refused to continue the foreclosure sale even though (1) the borrower was under contract to sell the home for more money than what the lender was owed, (2) the lender had an appraisal showing the home was worth four times what lender was owed, (3) borrower had dementia, and (4) postponing the sale would not have harmed the lender. In Klem, the trustee refused to continue the sale because it had a contract with lender that forbid a continuance without lender’s approval. The home sold for $84,000 at the foreclosure sale. Shortly thereafter, the purchaser resold the home for $235,000 ($151,000 profit). The Court held the trustee owed the borrower and the lender a duty of impartiality. By blindly following the lender’s dictates without exercising trustee’s independent discretion, the Court held (1) trustee breached its duty of good faith and duty of impartiality to borrower, and (2) trustee’s conduct was unfair and deceptive under Washington’s Consumer Protection Act (“CPA”). Trustee’s false notarization of a foreclosure notice to expedite the foreclosure sale was held to be unfair and deceptive, satisfying the first three elements of a CPA claim. The Court remanded the case to the trial court to determine the amount of borrower’s monetary damages.

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