In Washington State the statute of limitations on actions to enforce a note or deed of trust can be a brutally effective sword for borrowers. The limitations period is six years, and a borrower may sue for quiet title where “an action to foreclose . . . would be barred by the [statute of limitations].” RCW 7.28.300. If successful, the borrower is entitled to “judgment quieting title” against the security instrument. Two commonly litigated issues arising in this context are tolling and acceleration. The Court of Appeals of Washington recently published two noteworthy opinions as they relate to installment loans that should dampen quiet title claims based on the statute of limitations.

Tolling

Quiet title litigation based on RCW 7.28.300 often involves a loan in which foreclosure is delayed one or more times because of loss mitigation or bankruptcy filed by the borrower—easily extending the foreclosure well beyond six years of the default or acceleration. The potentially harsh effects of events beyond a lender’s control, such as bankruptcy, is ameliorated by RCW 4.16.230, which provides that a limitations period is tolled when “an action is stayed by . . . statutory prohibition.” The automatic stay under 11 U.S.C. § 362 is one such statutory prohibition. Nonetheless, borrowers have argued that § 362 is not a statutory prohibition for purposes of the tolling statute because a creditor may seek relief from the stay.

The high stakes of such claims are illustrated by Merceri v. Deutsche Bank AG (“Merceri I”), in which the borrower, who defaulted in 2008, sought to quiet title against a $2.8 million deed of trust based on Washington’s six-year limitations period. 408 P.3d 1140 (Wash. Ct. App. 2018), review denied sub nom. Merceri v. Deutsche Bank Nat’l Tr. Co., 190 Wn.2d 1027 (2018). The lender asserted tolling by the borrower’s bankruptcy lasting over two years. The borrower countered that bankruptcy is not a statutory prohibition because creditors may obtain relief from the automatic stay.

Agreeing with Merceri, the trial court granted her motion for partial summary judgment. The Court of Appeals reversed, holding that the ability to seek relief shows that § 362 is a statutory prohibition because “[i]f a creditor must move for relief in order to bring an action, the creditor is otherwise prohibited from bringing the action.” Merceri I, 408 P.3d at 1145. The court further explained that the bankruptcy code stays all acts to exercise control over property of the bankruptcy estate, including foreclosure.

Merceri I should remove any doubt that Washington’s six-year limitations period is tolled when an automatic stay arises from the borrower’s bankruptcy. Of course, where a borrower’s bankruptcy does not give rise to the stay, no tolling occurs.

Acceleration

Acceleration is a key issue in quiet title claims because the six-year limitations period on the final installment of the loan commences upon acceleration. Washington law has long provided that to accelerate a debt, “the acceleration must be clearly and unequivocally expressed to the debtor.” Washington Fed. v. Azure Chelan LLC, 195 Wash. App. 644, 663 (2016) (citing Weinberg v. Naher, 51 Wash. 591, 594 (1909) and Glassmaker v. Ricard, 23 Wash.  App. 35, 38 (1979)). A trend emerged where borrowers asserted that notices of intent to accelerate constituted such a clear and unequivocal notice of acceleration.

Lending support to this acceleration theory, federal courts found in two cases that notices of intent to accelerate caused an acceleration under Washington law where the notices contained a statement such as “If the default is not cured on or before [X], the mortgage payments will be accelerated . . . .” Given the ubiquity of such language, a spate of quiet title claims ensued, often relying on notices issued many years earlier.

The harsh results of these theories were illustrated in Merceri v. Bank of New York Mellon ex rel. Holders of the Alternative Loan Tr. 2006-OA19 (“Merceri II”), No. 76706-2-I, ___ P.3d ___, 2018 WL 3830033 (Wash. Ct. App. Aug. 13, 2018), when the trial court granted judgment for quiet title on a $468,000 mortgage in favor of the borrower. The trial court found that the above-referenced language caused acceleration. The Court of Appeals reversed and remanded, explaining that to show acceleration based on a notice of intent, the borrower would have to show that the lender subsequently took “an affirmative action in a clear and unequivocal manner indicating that the payments on the loan had been accelerated.” Merceri II, 2018 WL 3830033, at *3 (emphasis added).