When a mortgage is foreclosed, the proceeds of the sale go to satisfy the debt on the first position lien. If there are excess funds from the sale, subsequent or junior lien holders may petition the court for disbursement of that surplus in order to satisfy their debts as well. The Deed of Trust Act (DTA) provides for distribution of surplus funds from a nonjudicial foreclosure sale. Under the DTA, “interests in, or liens or claims against the property eliminated by sale under this section shall attach to the surplus in the order of priority that it had attached to the property, as determined by the court.”
The DTA requires a party seeking disbursement of the surplus to file a motion with the superior court. The party must show the court (1) that it has the right to assert the debt and (2) what amount is owed on the debt. The DTA does not, however, provide guidance on what is necessary in the motion to establish a claim to the funds.
Recently, the Court of Appeals held that because the “order of priority” is “determined by the court,” the party claiming surplus funds must demonstrate the right to assert the debt and the amount owed by a preponderance of evidence. What does this mean exactly? The court reasoned that every case has a burden of production, and that burden is met when the plaintiff produces evidence sufficient to support a finding on each element of the cause of action. Therefore, a claim for disbursement of surplus funds, like any ordinary civil case, must be shown by a preponderance of the evidence and the evidence must also be admissible under the Rules of Evidence.
In Matter of Anderson, Daniel Anderson obtained two loans from GreenPoint Mortgage in 2004 and both loans were secured by his real property. In late 2010, Umpqua Bank secured a judgment against Mr. Anderson and this judgment was recorded in 2011. In 2017, a nonjudicial foreclosure sale was conducted for the first position lien. The sale of the property satisfied GreenPoint’s first position lien and resulted in a surplus of funds.
Umpqua Bank subsequently filed a motion to disburse the entire surplus toward its judgment lien. Global Proceeds (who claimed the right to act in place of GreenPoint) objected to Umpqua’s request and asserted priority to the surplus due to a balance owed on the second promissory note and deed of trust dating back to 2004. In support of its motion for disbursement of the surplus, Global Proceeds submitted a “conclusory declaration, . . . a copy of [an] Assignment of the Deed of Trust, . . . [and] a letter [] listing a payoff amount.”
In contrast, Umpqua submitted a certified copy of the Superior Court judgment entered on its behalf against Anderson and a copy of the official record of the judgment. The commissioner granted Umpqua’s motion and allowed disbursal of the entire surplus toward its judgment lien. Global Proceeds appealed to Division One of the Washington Court of Appeals.
The Court of Appeals affirmed the lower court’s decision and held that Global Proceeds did not meet its burden of production, stating it produced only “minimal evidence.” The court noted that Global Proceeds failed to produce a promissory note or deed of trust signed by Anderson, and any evidence of payment history, or a calculation of the balance owed. Therefore, while Global Proceeds may have had a higher priority lien, it did not meet its burden of showing that priority right and Umpqua prevailed.
Not only does this case provide guidance on motion practice for surplus disbursements, the underlying reasoning may be applicable to other civil motions where the statute is silent on what supporting documentation is needed to prevail on a motion.
By: Nicole R. Luth, Legal Intern
