Company Violated Consumer Protection Law When Foreclosing on Woman With Dementia - Klem v. Washington Mutual Bank

March 20, 2013

Vincent Howard and our Corona foreclosure defense attorneys were interested to see a recent case from Washington state about a foreclosure with more than a hint of possible misconduct. In Klem v. Washington Mutual Bank, the Washington Supreme Court ruled that Quality Loan Services, the trustee for Dorothy Halstein's deed of trust, violated the state Consumer Protection Act when it foreclosed on her home, resulting in a sale for substantially less than the price offered by another buyer. Halstein suffered from dementia, requiring medical care that made it impossible for her court-appointed guardian to make the mortgage payments. The guardian found a buyer willing to pay $235,000 for the home, valued between that price and $320,000, but the sale couldn't close until after a foreclosure auction, and Quality instead sold the home at auction for $83,087.67.

Halstein took out a home equity loan from Washington Mutual in 2004. By 2006, she was diagnosed with dementia, and Puget Sound Guardians were appointed her guardian by the court. They placed Halstein in a nursing home that cost more than Halstein could pay, with no money left over for the mortgage; the guardians wished to sell Halstein's home, but her adult children slowed the process. Quality, as agent for Washington Mutual, set a foreclosure sale date using a false notarization. Evidence suggested that Quality did this commonly and intentionally. If correctly dated, the sale would have taken place later.

The guardians incorrectly understood that they could stop the foreclosure sale if they found a buyer. In fact, Quality had agreed in writing that it would not stop any sales without Washington Mutual's permission, an agreement that the high court suggested was unethical. The guardian found a buyer for $235,000, but the sale would close nearly a month after the scheduled foreclosure sale date. At Quality's instruction, the guardians got in touch with Washington Mutual, which never decided whether to allow the sale despite numerous phone calls and paperwork sent to multiple offices. The home was sold at foreclosure sale on Feb. 29 for one dollar more than the 83,086.67 Halstein owed; the extra dollar was never given to Halstein. The buyers immediately sold it for $235,000. Puget Sound Guardians sued Quality and won a partial victory on claims of negligence, breach of contract and violations of the state Consumer Protection Act. The Court of Appeals reversed the CPA and breach of contract decisions.

The Washington Supreme Court reversed again on the Consumer Protection Act claims. It found that both the false notarization and the practice of letting Washington Mutual decide whether to postpone sales were deceptive and unfair trade practices. To address apparent confusion over what constitutes such a practice, it held that a claim can be based on a per se violation or on a deceptive act "in violation of public interest," as well as on an act that is just unfair. It found Quality's failure to exercise independent discretion on postponing the sale unfair and deceptive, noting that it acted more as an agent for Washington Mutual than as the independent trustee it was supposed to be. Similarly, the court found the false notarization violated the CPA; false notarization is a crime, and in this case could have prevented Puget Sound Guardians from making the sale. Finally, the court granted an injunction requiring Quality to follow Washington law on notarization, saying Quality has not shown adequate respect for the law.

Vincent Howard and our Garden Grove foreclosure defense lawyers are pleased to see that the Washington high court is willing to stop the false notarizations. As the court noted, false notarizations are a form of "robo-signing," the name the press gave to the practice of processing foreclosure documents with false signatures and/or not attempting to ascertain whether they were true. The banks defending themselves by claiming that the false signatures did no harm, and indeed, Quality made the same argument in court--but the record shows that's not true. In fact, pushing the sale through quickly in this case cost Halstein's estate more than $100,000, and banks have been known to make mistakes in other cases about basics like the ownership of the mortgage. At Howard Law, P.C., our Claremont foreclosure defense attorneys tell clients not to trust lenders, because they are looking out for themselves, not for borrowers.

If you believe you were deceived when you took out the loan or during the foreclosure or loan modification process, you should call Vincent Howard and the team at Howard Law to discuss your legal options. You can reach us through our website or call 1-800-872-5925.

Similar articles:

Georgia Supreme Court Rules Mortgages Must Have Witness Signatures to Be Enforced - Wells Fargo v. Gordon

Maine Supreme Court Rules Note Holder Can Foreclose Without Owning Note - Bank of American v. Cloutier

Florida High Court Permits Banks to Avoid Liability for Wrongful Foreclosures by Dismissing Them - Pino v. Bank of New York Mellon

 
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