Jose Diaz, Appellant V. Eric Hsueh, Et Al, Respondents

OCR transcription for search; preserved printed pages are authoritative

FILED
4/22/2019
Court of Appeals
Division |
State of Washington

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

JOSE DIAZ ,
No. 77771-8-I
Appellant,
DIVISION ONE
Vv.
UNPUBLISHED OPINION
ERIC HSUEH, EASTSIDE FUNDING,
LLC & PACIFIC CENTER
CONDOMINIUM OWNERS FILED: April 22, 2019
ASSOCIATION; and all other persons or
parties unknown claiming any right, title,
estate, lien or interest in the real estate
described in the complaint herein,

Respondents.

Dwyer, J. — Jose Diaz appeals the dismissal of his lawsuit seeking to
quiet title to property he purchased at a sheriff's sale after a condominium
association foreclosed on a lien. However, the property Diaz purchased was
subject to the mortgage holder’s superior lien and his interest was eliminated
when the mortgage holder foreclosed on that lien. Because no genuine issues of
material facts exist as to whether the mortgage holder protected its senior lien
position, the trial court properly granted summary judgment. The court also
acted within its discretion in imposing sanctions under CR 11. We affirm.

|

On April 2, 2015, the Pacific Center Condominium Owners Association

(the Association) commenced a foreclosure action against condominium owner

John Post, seeking to foreclose on a lien for delinquent assessments. The

No. 77771-8-I/2

Association also named First Horizon Home Loan Corporation as a defendant
because First Horizon held a beneficial interest in two deeds of trust on the
property.

Approximately three months later, on June 22, 2015, the trial court entered
an order dismissing First Horizon from the Association’s lawsuit and confirming
the superior lien position of its deeds of trust. The “Stipulated Order Dismissing
Defendant First Horizon” provides, in relevant part:

3. The sum of $1,842.89 has been paid to Plaintiff by or on behalf

of First Horizon. This amount equals six months of assessments as

contemplated by RCW 64.34.364(3).

4. [The Association] agrees that said payment and conditions

above satisfy [the Association's] lien priority with respect to the

deeds of trust, and that the deeds of trust are fully superior to [the

Association’s] lien unless the unit is sold at a sheriff's sale and the

unit is subsequently redeemed.

5. The terms and conditions stipulated to herein shall continue to

bind and inure to the stipulating parties and to their successors and
assigns.

The Association proceeded to judicially foreclose on its lien for the debt
remaining after the payment of eight months’ of assessments by First Horizon. In
October 2015, the court entered an order of default and decree of foreclosure as
to the two remaining defendants—the condominium owner and an unrelated
junior lien holder. Approximately six months later, on January 11, 2016, a
sheriff's sale took place. Jose Diaz placed the highest bid at $12,181.84 and
obtained a sheriff's deed to real property. That deed conveyed to Diaz the “right,

title and interest” in the property of the defendants. The court entered an order

No. 77771-8-1/3

confirming the sheriff's sale and disbursing the proceeds to satisfy the
Association's lien. The Association filed a full satisfaction of the judgment.

Meanwhile, while the Association’s lien foreclosure action was pending,
First Horizon initiated proceedings to foreclose on a deed of trust recorded in
2007. On October 27, 2015, approximately three months before Diaz purchased
the property at the sheriff's sale, Quality Loan Service Corp., acting on behalf of
First Horizon, recorded a notice of a trustee’s sale. The trustee’s sale was
scheduled for February 26, 2016.

The trustee’s sale eventually took place on March 25, 2016, approximately
two months after the sheriffs sale. Eric Hsueh was the successful purchaser
with a bid of $217,000. A trustee’s deed was recorded shortly thereafter, on April
7, 2016. Ten months after Hsueh purchased the property at the trustee’s sale,
Diaz recorded a sheriff's deed to real property on January 26, 2017.

In March 2017, Diaz filed the lawsuit at issue in this appeal against Hsueh,
the purchaser at the trustee’s sale, Eastside Funding, LLC, an entity that
provided funding to Hsueh, and the Association. Diaz sought to quiet title to the
property. Diaz's complaint alleged that a portion of the proceeds from the
sheriff's sale was applied to assessments that accrued during the six-month
period preceding the sheriff's sale and that “unpaid condominium assessments
for the six months preceding the Sheriff's sale are afforded super-priority over
any and all mortgage liens including the first and second mortgages on the
subject property.” Diaz contended that all preexisting liens were subordinate to

the Association’s lien and were extinguished by the judicial foreclosure.

No. 77771-8-/4

Hsueh and Eastside Funding answered the complaint. Eastside Funding
claimed to have no interest in the property because Hsueh repaid the bridge loan
shortly after the sale and Eastside released its security interest. Both defendants
asserted that First Horizon’s deed of trust was superior to the Association’s lien
and was, therefore, unaffected by the foreclosure and sheriff's sale, and that
Diaz’s interest in the property was eliminated by the foreclosure of the deed of
trust. The defendants also asserted that Diaz’s lawsuit was frivolous in view of
the court orders entered in the Association’s lawsuit and recorded real estate
documents.

The parties filed cross motions for summary judgment.' Following a
hearing, the court granted the defendants’ motion, denied Diaz's motion, and
dismissed the complaint. The court also awarded $5,000 in attorney fees as a
sanction against Diaz and his attorney.

lI

This court reviews summary judgment orders de novo. King v. Rice, 146
Wh. App. 662, 668, 191 P.3d 946 (2008). Summary judgment is appropriate only
if, viewing the facts in the light most favorable to the nonmoving party, there are
no genuine issues of material fact and the moving party is entitled to judgment as

a matter of law. CR 56(c); Scrivener v. Clark Coll., 181 Wn.2d 439, 444, 334 P.3d

541 (2014). “By filing cross motions for summary judgment, the parties concede

1 It does not appear that the Association filed an answer or moved for summary
judgment, but the Association appeared in the case and filed a response in opposition to Diaz’s
motion for summary judgment.

? The defendants sought an award of more than $11,000 in fees.

No. 77771-8-1/5

there were no material issues of fact.” Pleasant v. Regence BlueShield, 181 Wn.

App. 252, 261, 325 P.3d 237 (2014).
The Condominium Act, chapter 64.34 RCW, creates a scheme of lien
priority that departs from the generally applicable “first in time” rule. See

Homann v. Huber, 38 Wn.2d 190, 198, 228 P.2d 466 (1951). The statute carves

out an exception to the usual lien priority rule by giving a condominium
association's lien for common assessments a limited priority over any preexisting

recorded mortgage. RCW 64.34.364; Summerhill Vill. Homeowners Ass'n v.

Roughley, 166 Wn. App. 625, 628-29, 270 P.3d 639, 289 P.3d 645 (2012). This
exception, often referred to as a “super priority” lien, is limited to six months of
common assessments based on the association’s periodic budget. Summerhill,
166 Wn. App. at 629. A valid foreclosure of a senior lien or mortgage
extinguishes the junior interests of holders named as defendants. U.S. Bank of

Wash. v. Hursey, 116 Wn.2d 522, 526, 806 P.2d 245 (1991): Worden v. Smith,

178 Wn. App. 309, 319-20, 314 P.3d 1125 (2013). This being the case, the
official comments to the Condominium Act recognized that, in most cases,
mortgage lenders would pay the assessments required to satisfy the “super

us

priority” lien, “rather than having the association foreclose on the unit and
eliminate the lender’s mortgage lien.”” Summerhill, 166 Wn. App. at 632
(emphasis omitted) (quoting 2 SENATE JOURNAL, 51st Leg., Reg. Sess., App. A at
2080 (Wash. 1990)).

RCW 64.34.364 governs liens for assessments and provides, in relevant

part:

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(1) The association has a lien on a unit for any unpaid assessments
levied against a unit from the time the assessment is due.

(2) A lien under this section shall be prior to all other liens
and encumbrances on a unit except: (a) Liens and encumbrances
recorded before the recording of the declaration; (b) a mortgage on
the unit recorded before the date on which the assessment sought
to be enforced became delinquent; and (c) liens for real property
taxes and other governmental assessments or charges against the

unit. A lien under this section is not subject to the provisions of
chapter 6.13 RCW.

(3) Except as provided in subsections (4) and (5) of this

section, the lien shall also be prior to the mortgages described in

subsection (2)(b) of this section to the extent of assessments for

common expenses, ... which would have become due during the

six months immediately preceding the date of a sheriff's sale in an

action for judicial foreclosure by either the association or a

mortgagee....
(Emphasis added.)

Diaz contends that because First Horizon paid the super priority lien
amount on or before June 22, 2015, and the sheriff's sale did not take place until
January 2016, First Horizon’s payment could not satisfy the requirements of
RCW 64.34.364(3). He argues that according to statute, the amount of the six
months’ of assessments could not be calculated, much less paid, until the date
the sheriff's sale was set because the statute requires the mortgage holder to
pay the assessments that were due during the six months that immediately
preceded the sheriff's sale. Diaz contends that the statute does not allow the
mortgage holder to pay the priority lien amount in advance, as First Horizon did
in this case.

Regardless of the merits of his interpretation of the statute, Diaz cannot

avoid the legal effect of the court’s orders entered in the Association’s lawsuit.

No. 77771-8-I/7

Those orders established that (1) First Horizon paid six months’ of assessments
as contemplated by RCW 64.34.364, (2) the payment satisfied the Association’s
super priority lien and protected First Horizon’s superior lien position, and (3)
First Horizon was entitled to dismissal and was unaffected by the decree of
foreclosure of the Association’s lien. Diaz argues that the Association and First
Horizon entered into an agreement that violated the terms of the statute. He
argues extensively that the court is not bound by the parties’ stipulations as to
matters of law. But the trial court's orders in the condominium lawsuit have the
same binding and preclusive effect, whether or not they are based upon
stipulations. And this appeal is not an appropriate vehicle to challenge an order
entered in the Association’s lawsuit.

The property interest that Diaz purchased at the sheriff's sale was the
interest of the defendants—the condominium owner and a junior lienholder. And
court records established that those interests were encumbered by First
Horizon’s deeds of trust, and the deeds of trust were not extinguished by the
foreclosure of the Associations’ lien for unpaid assessments.

Neither Summerhill nor BAC Loan Servicing, LP v. Fulbright, 180 Wn.2d

754, 328 P.3d 895 (2014), advances Diaz’s argument. In those cases, the
mortgage holders did not appear in the condominium association's foreclosure
lawsuit or take steps to protect their lien priority position. The issue was whether

the mortgage holders had a statutory right of redemption.

No. 77771-8-1/8

HI

Diaz contends that even assuming First Horizon’s advance payment
could satisfy the requirements of RCW 34.64.364(3), he was entitled to notice of
the foreclosure of First Horizon’s deed of trust. Diaz claims he was not notified of
the foreclosure even though he owned the property “during the non-judicial
foreclosure sale process.” Diaz cites RCW 61.24.040, which provides, among
other things, that a notice of a trustee’s sale must be mailed to the grantor and
others who are known to have an interest in the property. It is undisputed that
Diaz had no interest in the property when the notice of the trustee’s sale was
issued.

In a similar vein, Diaz argues that the Association and First Horizon were
required to record their stipulation because it was a “conveyance of real property”
under RCW 65.08.070. Even if the stipulation had been recorded, he contends it
would have had no legal effect because it omitted a legal description as required
by RCW 65.04.030(1). Diaz provides no authority that supports the position that
the parties’ agreement with regard to the payment of assessments and
satisfaction of the “super priority” portion of the Association’s lien was a
“conveyance” within the meaning of RCW 65.08.070.

IV

Diaz argues that the court’s decision to impose sanctions is unsupported
by the record and the law.

We review sanctions under an abuse of discretion standard. Wash. State

Physicians Ins. Exch. & Ass’n v. Fisons Corp., 122 Wn.2d 299, 338, 858 P.2d

No. 77771-8-1/9

1054 (1993). “A trial court abuses its discretion when its order is manifestly
unreasonable or based on untenable grounds.” Fisons Corp., 122 Wn.2d at 339.
The rules providing for sanctions are “‘designed to confer wide latitude and

discretion upon the trial judge to determine what sanctions are proper in a given

case.”” Finsons Corp., 122 Wn.2d at 339 (quoting Cooper v. Viking, 53 Wn. App.

739, 742-43, 770 P.2d 659 (1989)).
CR 11 is intended to “deter baseless filings and to curb abuses of the

judicial system.” Bryant v. Joseph Tree, Inc., 119 Wn.2d 210, 219, 829 P.2d

1099 (1992). To warrant CR 11 sanctions, a court filing must “lack a factual or
legal basis.” Bryant, 119 Wn.2d at 220. In addition, a court cannot impose CR
11 sanctions “unless it also finds that the attorney who signed [the filing] failed to
conduct a reasonable inquiry into the factual and legal basis of the claim.”
Bryant, 119 Wn.2d at 220. Courts should “avoid using the wisdom of hindsight
and should test the signer’s conduct by inquiring what was reasonable to believe
at the time the [filing] was submitted.” Bryant, 119 Wn.2d at 220.

The primary basis for Diaz’s lawsuit and motion for summary judgment is
the claim that First Horizon’s payment of delinquent assessments did not satisfy

the Association’s super priority lien under the statute and, therefore, First

3CR 11(a) provides, in relevant part:

The signature of a party or of an attorney [on a filing] constitutes a certificate by
the party or attorney that... to the best of the party’s or attorney's knowledge,
information, and belief, formed after an inquiry reasonable under the
circumstances: (1) it is well grounded in fact; (2) it is warranted by existing law or
a good faith argument for the extension, modification, or reversal of existing law
or the establishment of new law; .... If a pleading, motion, or legal
memorandum is signed in violation of this rule, the court... may impose... an
appropriate sanction . . . including a reasonable attorney fee.

No. 77771-8-1/10

Horizon’s deed of trust was subordinate to the Association’s lien. Both of these
issues were fully resolved by valid and final orders entered in the Association’s
lawsuit. As such, the court concluded that his complaint and motion for summary
judgment were not “well grounded in fact and were not warranted by law.”

The court determined that it would not have imposed sanctions based
solely on the filing of the complaint. However, the court also found that after
neglecting to conduct a reasonable inquiry into prior court orders and documents
prior to filing the lawsuit, counsel then failed to voluntarily dismiss the case after
being informally counseled by defense counsel and provided with the controlling
orders and documents. Instead, counsel “proceeded to seek summary judgment,
racking up fees for defendant and wasting [the] court’s time.” The court’s
findings support the award and its decision to impose sanctions was based on
tenable grounds.

Hsueh and Eastside Funding request attorney fees on appeal. The
respondents devote a single sentence to the request, citing “the same reasons”
and the “same authority” under which fees were awarded below. RAP 18.1

“requires more than a bald request for attorney fees on appeal.” Wilson Court

Ltd. P’ship v. Tony Maroni’s, Inc., 134 Wn.2d 692, 710 n.4, 952 P.2d 590 (1998).

We decline to award fees on appeal.

Affirmed.

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