Scared of losing lien priority in Washington? Read this first

Feeling overwhelmed by sudden changes in your mortgage agreement in Washington? You’re not alone. Many face similar challenges, and understanding state laws is crucial for effective resolution. This article will guide you through a key court decision to help you navigate these issues.

Situation

Case Overview

In Washington State, a legal battle unfolded over the priority of mortgage liens on a property in Auburn. The conflict was between Epic Solutions Inc., a senior mortgage holder, and Commencement Bank, a junior mortgage holder. Both parties claimed priority over the money from selling the property. This disagreement was about a “future advances clause,” which links future loans to the first mortgage. Epic Solutions Inc. argued that their future loans should have priority over Commencement Bank’s junior mortgage. However, Commencement Bank disagreed, leading to a legal fight to decide who should get the remaining sale proceeds first.

No. 100066-9 Specific Circumstances

The plaintiff, Commencement Bank, argued that their mortgage should have priority over the additional loans from Epic Solutions Inc. because these loans were optional, not mandatory. They believed the law RCW 60.04.226, which Epic Solutions Inc. referred to, only applies to construction liens and not in this case. Therefore, they argued that the common law rule, which separates optional and obligatory loans, should apply, giving them priority.

Judgment Outcome

The court ruled in favor of Commencement Bank. The court decided that RCW 60.04.226 does not apply outside of construction cases. The common law rule, which distinguishes between optional and obligatory loans, was applied. As a result, Epic Solutions Inc.’s optional advances did not keep priority over Commencement Bank’s junior mortgage. The court reversed the previous decision and sent the case back to the trial court to determine the correct order of claims based on common law principles (Case No. 100066-9).

Resolution Methods

Immediate Actions

If you find yourself in a similar situation, the first step is to gather all relevant documents, such as the mortgage agreement and any communications from your lender. Understanding the specific terms of your mortgage, especially clauses related to future advances, is crucial. Consulting with a real estate attorney can provide clarity on your rights and obligations under the law. They can help determine whether your mortgage includes optional or obligatory advances and how these may affect lien priority.

Filing a Legal Complaint

When considering legal action, it’s important to file your complaint correctly. You will need to prepare a complaint document outlining your case, including why you believe your lien should have priority. This document should be filed with the appropriate court. An attorney can assist in drafting and submitting this complaint, ensuring that all legal requirements are met. They can also help gather evidence to support your claim, such as communications with the lender or documentation of the loan terms.

Negotiation and Settlement Strategies

Before pursuing litigation, it may be beneficial to explore negotiation or mediation. Engaging in settlement discussions with the other party can lead to a resolution without the need for a court decision. In these discussions, you may propose terms that protect your financial interests and address any concerns about lien priority. Mediation, with the help of a neutral third party, can also be a useful tool to reach an agreement. This approach can save time and resources, providing a solution that satisfies both parties.

FAQ

What is a lien?

A lien is a legal claim or right against a property, typically used to ensure that a debt is paid. If the debtor does not pay, the creditor can use the lien to recover the owed amount by claiming the property.

Define future advance.

A future advance is a clause in a mortgage that allows the lender to give additional funds to the borrower after the initial loan. These funds are secured by the same mortgage, which means they are tied to the original loan terms.

What is RCW 60.04?

RCW 60.04 is a section of the Revised Code of Washington that deals with liens related to construction projects. It outlines rules for mechanics’ and materialmen’s liens, which are claims against property for unpaid labor or materials.

What does Restatement mean?

A Restatement is a collection of legal principles used to guide courts in interpreting the law in specific areas. It is published by the American Law Institute to provide clarity and uniformity in legal decisions.

Define common law.

Common law is a system of law based on court decisions and precedents rather than written statutes. It guides judicial decisions in individual cases, ensuring consistency and fairness in legal interpretations.

What is the priority of claims?

Priority of claims refers to the order in which creditors are paid when a debtor cannot meet all their obligations. Higher-priority claims are paid first, while lower-priority claims are addressed only after the higher ones are satisfied.

What is the role of courts?

Courts interpret and apply the law, resolve disputes, and determine the rights and obligations of parties involved in legal proceedings. They ensure that justice is served and legal principles are upheld.

What is subrogation?

Subrogation is a legal concept where one party can assume the legal rights of another to recover a debt or claim. It is often used by insurers to pursue third parties responsible for losses covered by insurance.

What does equitable mean?

Equitable refers to fairness or justice in how people are treated. In legal contexts, it ensures that outcomes are fair and just, adhering to principles of equality and fairness.

Define mortgage clause.

A mortgage clause is a provision in a mortgage agreement that outlines specific conditions, rights, and obligations of the parties involved. It may include terms related to future advances or modifications to the mortgage.