Monday, September 10, 2012

Washington Appeals Court: Homeowner's Failure To Stop Foreclosure Sale Not Neccssarily Waiver Of Right To Pursue State Consumer Protection Act Claims

In Seattle, Washington, Seattle Weekly reports:

  • As we all know, the real estate industry has been rife with shady loans over the past decade. If you were a borrower, and you lost your house to foreclosure, too bad. The way courts have often ruled, there's been little you could do about it. [Recently], however, the state Court of Appeals ruling set a new precedent.

    The case concerns a Pierce County woman named Tamara Frizzell, who owned her house free and clear, according to her attorney Dan Young. In 2008, needing some money to pay bills, she contacted a couple who advertised their lending business in a local paper. Frizzell initially wanted $20,000, but Barbara and Gregory Murray talked her into a $100,000 loan instead, the court ruling relates.

    The deal made no sense. Frizzell, who inherited her house from her husband, had essentially no income, according to Young. Yet, the agreement called for her to make $1,000-a month payments, which would only cover interest on the loan. At the end of the three years, she was to pay back the entire $100,000.

    Why would she agree to a deal like that? Young has argued in legal papers that Frizzell isn't fully competent. She has a learning disability and possibly "incipient dementia," according to a psychologist giving his opinion to the court. A friend of Frizzell said that offering a loan to her "was like giving the money to a small child who had no conception of how to spend the money, what would be required to pay it back, and what would happen if it were not paid back."

    Indeed, Frizzell subsequently squandered $60,000 of the loan on eTrade-purchased stocks that tanked. Since she had virtually no income, she only made a few of the $1,000 payments. The Murrays moved to foreclose.

    Frizzell's sister found Young, who took the case on pro bono and filed a court motion for an injunction. The court agreed, but only on condition that Frizzell come up with a $15,000 payment and $10,000 bond by the very next morning. Of course, Frizzell had no way to do so, and the house went up for sale. Barbara Murray bought it and evicted Frizell.

    Frizzell, with Young's help, filed suit in Pierce County Superior Court, charging deceptive practices that constitute a violation of the [Washington State] Consumer Protection Act(1).

    Young's theory is that the Murrays were out to acquire Frizzell's house all along, and for less than half of what it was worth. The couple's attorney, Darren Krattli, denies the claim, but declines to comment further.

    A Superior Court judge dismissed Frizzell's claims, saying she had waived her right to redress by failing to stop the foreclosure sale. And if her lawsuit's only goal was to invalidate the sale, she might well have. State law discourages such after-the-fact lawsuits, because they could destabilize foreclosure sales; people couldn't be sure that the home they bought at an auction was really theirs.

    But the appeals court noted that Frizell's claims were broader. She sought damages under the Consumer Protection Act. And Frizzell hadn't compromised that by failing to keep her home off the market. Her case will now proceed in Superior Court.

    She certainly could use any money she gets from the case. Young says his client was rendered homeless by the foreclosure. The last he knew, she was living in an inoperable van she had found on Craigslist and parked at somebody's house.
Source: Even After Foreclosure Sale, Borrowers Can Sue Over Allegedly Deceptive Loans, Court Rules.

For the court ruling, see Frizzell v. Murray, No. 42265-4-II (Wn. App. Div. 2, August 28, 2012).

(1) The Consumer Protection Act is Washington State's version of the state laws that prohibit unfair and deceptive acts and practices in trade and commerce (generically referred to as state UDAP statutes). For more on UDAP statutes across the U.S., see Consumer Protection In The States: A 50-State Report on Unfair and Deceptive Acts and Practices Statutes.

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