Washington State Supreme Court Rules Foreclosure Clock Isn’t Started by Bankruptcy

On July 20, 2023, the Washington State Supreme Court ruled in two separate cases on when the statute of limitations begins to run in a foreclosure under a deed of trust in Washington.    

In the first case, a couple who had taken out five HELOCs from a bank, secured by four properties, stopped making installment payments prior to and after the filing a Chapter 7 Bankruptcy in 2012, and their discharge in 2013.  Throughout this period the bank did not accelerate the loans.  In 2020, seeking to remove the bank’s liens, the couple brough quiet actions asserting the bankruptcy discharge triggered running of the 6-year statute of limitations for such loans under Washington law.  The trial court found for the bank, the couple appealed, and the appellate court affirmed the trial court decision in an unpublished decision.  The couple then brought an appeal to the Washington State Supreme Court.

Similarly, in the second case, a couple stopped making payments on their home loan and moved out of their house in 2008.  They stopped paying their HOA assessments in 2010.  The couple became legally separated in 2008 and divorced in 2011.  Each homeowner separately petitioned for Chapter 7 Bankruptcy, and each obtained a discharge on or prior to 2011.  Their lender made no attempt to foreclose and in 2018, the HOA recorded a lien for unpaid HOA assessments.  In 2019, the HOA filed a complaint to foreclose on the property and thereafter the lender initiated non-judicial foreclosure proceedings.  Ultimately, the trial court quieted title in the HOA, finding the lender could bring a foreclosure action within 6 years from the date of the couple’s bankruptcy discharge orders, but failed to do so.  In a published opinion the Court of Appeals reversed the trial court’s order quieting title in the HOA and the case was appealed to the Washington Supreme Court.

The Washington Supreme Court rejected the argument that the six-year statute of limitations on a deed of trust begins to run when the borrower is personally discharged from certain installment obligations by a Bankruptcy Court.  The court ruled that a new foreclosure action on the deed of trust accrues with each missed installment payment, even after the borrower’s personal liability is discharged with respect to one or more installment payment.