In Peyton Building LLC v. Niko’s Gourmet, Inc., 2014 WL 1632243 (Wn.App. Div. 3, April 2014), a building was originally owned by a Corporation. In 2002 the Corporation entered into a 10 year lease with a Restaurant. The Restaurant’s Owner guaranteed the lease. A LLC later acquired the Corporation but, as part of that acquisition, did not obtain an assignment of the lease or the guarantee. In 2011 the Restaurant defaulted and vacated the rental premises. The LLC sued the Restaurant and its Owner to collect the unpaid rent. The trial court ruled in the LLC’s favor against both the Restaurant and its Owner, awarding the LLC a judgment for roughly $100,000. On appeal, the court considered whether the LLC could enforce the lease against the Restaurant and the guarantee against the Restaurant’s Owner considering the LLC did not obtain an assignment of either contract. The court of appeals upheld the judgment against the Restaurant because the lease “touched and concerned” the land (e.g., payments under the lease were sufficiently connected to the use of the premises), but overturned the judgment against the Restaurant Owner because the guarantee was not sufficiently related to the use of the rented space. So what’s the take-away? Always get an assignment of the lease and guarantee.
In CalPortland Co. v. LevelOne Concrete LLC, 321 P.3d 1261 (Wn. App. Div. 2, March 2014), a concrete supplier to a commercial building project was not paid for concrete it delivered to a subcontractor on the job. When this happens, Washington law gives the unpaid contractor (1) 90 days from the date it last provided services or materials for the project to record its “claim of lien,” (2) 8 months from the date the claim of lien is recorded to file a lawsuit to foreclose that lien, and (3) 90 days from the date that lawsuit is filed to serve the summons and complaint on the “owner of the subject property.” RCW 60.04.091, .141. In CalPortland, after the concrete supplier recorded its claim of lien but before it filed its lawsuit the general contractor recorded a “bond in lieu of claim.” By recording the bond, the general contractor effectively replaced the land identified in the claim of lien with the bond as the property subject to the concrete supplier’s lien. The concrete supplier filed its lawsuit within the eight month window, then served the general contractor–not the landowner–with the summons and complaint. Ninety days passed from the date the lawsuit was filed and the concrete supplier still had not served the landowner. The general contractor argued the concrete supplier’s claims should be dismissed because the concrete supplier did not serve the landowner within the 90 day service window. The trial court agreed and dismissed the concrete supplier’s claims. But the court of appeals reversed the trial court. By posting the bond and naming itself as principal under the bond, the general contractor became the “owner of the subject property” that was subject to the lien and it was appropriate for the concrete supplier to serve the general contractor. The takeaway: If you’re an unpaid contractor and a bond in lieu of claim is recorded before you file your lawsuit, to be safe you should name both the landowner and the principal/surety under the bond as defendants and serve both. At the very least, sue and serve the principal and surety under the bond.
In February 2014, the U.S. District Court for the Western District of Washington listed the following factors as relevant when courts consider whether to invalidate a foreclosure sale after the sale occurs:
- whether a violation of the Deeds of Trust Act divested the trustee (who handles the foreclosure) of its authority to conduct the foreclose sale;
- whether the borrower had an adequate opportunity to prevent the foreclosure;
- whether the lender or the trustee caused unfairness or surprise;
- whether the purchaser at the foreclosure sale was on inquiry notice of the procedural irregularities or was truly innocent and would be unfairly harmed if the foreclose sale were voided;
- whether the sale price is grossly inadequate compared to the fair market value; and
- whether the borrower promptly asserted his or her objections after the sale.
Mulachy v. Federal Home Loan Mortgage Corp., 2014 WL 504836, *4 (W.D. Wash. Feb. 2014).