By Thomas G. Wolfe, J.D.
Recently, the Supreme Court of the State of Washington was called to address an interesting legal issue involving a Washington deed-holder’s challenge to OneWest Bank’s attempted mortgage foreclosure of Washington real property, based on the bank's interest in the property via a reverse mortgage that was ordered by an Idaho state court. The deed-holder contended that her interest in the property took priority over the bank’s interest and that the Idaho court lacked any authority to affect the Washington property. Washington’s high court disagreed.
To provide some background for the court’s decision in OneWest Bank, FSB v. Erickson, in June 2007, Bill McKee, the Washington property owner, transferred his interest in his Washington home to his daughter, Maureen Erickson, through a quitclaim deed. However, Erickson did not record the deed until December 2011—over four years later. Meanwhile, in October 2007, as part of conservatorship proceedings in Idaho for McKee and his financial difficulties, an Idaho court directed the conservator to “facilitate a reverse mortgage” on the Washington property.
Through a series of assignments, OneWest Bank obtained a secured interest in the reverse mortgage. After McKee died and Erickson failed to make any payments under a repayment arrangement, OneWest Bank instituted foreclosure proceedings regarding the Washington property. Challenging the bank’s foreclosure, Erickson claimed that the reverse mortgage was void because she was the actual owner of the property and the Idaho court lacked jurisdiction to affect the Washington property.
Rejecting Erickson’s argument, the Supreme Court of Washington ruled that the Idaho court-ordered reverse mortgage, which encumbered the Washington property, was due “full faith and credit” under the U.S. Constitution. In determining that the Idaho court validly exercised personal and subject matter jurisdiction by directing the conservator to set up the reverse mortgage on the Washington property, the court reasoned that: (i) there was enough evidence to show that McKee had sufficient contacts with Idaho; (ii) Erickson had the opportunity to challenge that determination in Idaho; and (iii) the Idaho court did not directly transfer any title to the Washington property, but only indirectly determined “personal interests in the Washington property.”
Next, the court decided that, under Washington law governing the recording and priority of real property interests, Erickson took title to the Washington property “subject to” OneWest Bank’s interest in the reverse mortgage. Even though Erickson obtained her interest in the property before OneWest Bank’s predecessor did, the bank’s predecessor recorded its interest first, the court emphasized. Further, the court determined that Erickson failed to show that the bank’s predecessor had actual or constructive notice of her interest in the Washington property.
Concluding that OneWest Bank was a “bona fide mortgagee” whose interest took priority over Erickson’s interest, the court ruled that the bank was entitled to foreclose on the Washington property.
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