Bank liable for attorney’s fees for “pre-litigation bad faith”, says Washington Court of Appeals | Miller Nash LLP

In a recent decision, the Washington Court of Appeals established a new equitable exception to the US attorney’s fee rule, which generally denies an award of fees and costs to a prevailing party in the absence of on a contractual or statutory basis. In Dalton M, LLC v. North Cascade Trustee Services, the Court of Appeals held a lender liable for a homeowner’s attorney fees when the lender refused to release its lien in a timely manner, despite the owner’s repeated requests. Notably, the Court of Appeal held the lender liable even though there was no contractual provision on attorney’s fees between the lender and the owner or a statute providing for the award. The case represents a significant shift in Washington law and presents a cautionary tale for lenders and their attorneys both in understanding their security and in responding quickly to legitimate requests to remove liens on property.

In 2006, the defendant lender made a loan secured by two adjacent plots, plot 0402 and plot 9008. After taking out the loan, the borrowers did not pay taxes on plot 0402, while continuing to pay taxes. taxes on parcel 9008. As a result, the county seized its tax lien and arranged a tax foreclosure sale on parcel 0402, foreclosing the lender’s interest and selling the property to the plaintiff.

Following the tax sale of parcel 0402, the borrowers, who originally owned the property, defaulted on their loan and the lender proceeded to foreclose its trust deed. However, when the lender began its foreclosure, it mistakenly included parcel 0402, which now belonged to the plaintiff. Although the plaintiff’s property appears in several title reports obtained by the lender and its attorney, the lender did not name the plaintiff in its foreclosure lawsuit.

After learning of the lender’s foreclosure sale, the plaintiff contacted the lender to rectify the problem. Although the lender assured the plaintiff that it was trying to resolve the problem, the lender never took the necessary steps to release its lien. After more than a year of unsuccessful attempts, including numerous phone calls and emails to the lender’s representatives and attorneys, the plaintiff filed suit. Ruling in favor of the plaintiff, the trial court entered an order of appeasement of title and a judgment for defamation of title, awarding attorneys’ fees for both claims.

The Court of Appeals reversed the trial court judgment for defamation of title and determined that the trial court improperly awarded attorneys’ fees for the silent title judgment. However, the Court of Appeal did not let the plaintiff go home empty-handed. Establishing an equitable exception to the U.S. rule, the Court of Appeals determined that the plaintiff was entitled to recover litigation costs resulting from the lender’s “pre-litigation bad faith” even though the plaintiff did not raise the claim. in his complaint. Clearly, the Court of Appeal was troubled by the lender’s conduct, noting that the lender “dragged and dragged” and “took no steps, let alone reasonable steps, to clear title.” That sentiment was echoed in a concurring opinion, which described the lender, and other similar institutions, as “too big to care”.

The decision is important because it clarifies an unsettled legal area regarding a plaintiff’s ability to recover legal costs. But the ruling is particularly important for large financial institutions, as it takes aim at the hurdles customers face when navigating a lender’s bureaucracy to resolve a problem, such as when a lender’s representatives lack authority or knowledge of the appropriate procedures to resolve the customer’s complaint.

It remains to be seen whether the lender will appeal the decision. But barring a reversal by the Washington Supreme Court, there may now be a legal basis for Washington to recover the costs of lawsuits brought to enforce indisputable rights that were previously ignored.

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About Charles D. Goolsby

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