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May 5, 2017

Washington Supreme Court Affirms Washington Federal v. Gentry and Confirms Lenders’ Right to Obtain Deficiency Judgments Against Guarantors Following Nonjudicial Foreclosure


Washington Supreme Court Affirms Washington Federal v. Gentry and Confirms Lenders’ Right to Obtain Deficiency Judgments Against Guarantors Following Nonjudicial Foreclosure

The Washington Supreme Court issued an opinion today affirming the right of a lender to obtain a deficiency judgment against a commercial guarantor following a nonjudicial foreclosure. Divisions One and Two of the Washington State Court of Appeals had reached contrary holdings on whether a lender could seek a deficiency judgment against a guarantor of a commercial loan following the nonjudicial foreclosure of a widely used form of deed of trust. In Washington Federal v. Gentry, 179 Wn. App. 470, 319 P.3d 823 (2014), Division One held that a lender’s right to a deficiency judgment action against a guarantor exists even where the foreclosed deed of trust secures both the borrower’s loan and the guarantor’s guaranty. In First Citizens Bank & Trust Co. v. Cornerstone Homes & Development, LLC, 178 Wn. App. 207, 314 P.3d 420 (2013), Division Two held the opposite.

The Washington Supreme Court, in a consolidated case argued by Lane Powell, unanimously held that “guarantors of commercial loans whose own property has not been foreclosed” are not “protected from deficiency judgments under the [Deed of Trust Act] after the borrower’s property has been foreclosed,” even if the foreclosed deed of trust also secured the guarantors’ guarantees. Washington Federal v. Harvey / Washington Federal v. Gentry, No. 90078-7 (consol. w/ No. 90085-0), Slip. Op. at 6-7 (Wash. Sup. Ct. January 8, 2015). The Court noted the inapplicability of RCW 61.24.100(10) and relied on RCW 61.24.100(3)(c) and (6), which establish a clear rule regarding a guarantor’s post-foreclosure deficiency liability — i.e., a lender may obtain a deficiency judgment against a guarantor of a commercial loan, unless the guarantor granted the foreclosed deed of trust on his or her own property to secure the guaranty.

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