Foreclosure buyers thinking they got deals at the auction might want to bank a little of the savings to pay their eviction lawyers.  Last October, the Washington Supreme Court decided the case of Fannie Mae v. Steinmann:  a buyer at foreclosure cannot obtain reimbursement of his attorney’s fees from a homeowner who had to be evicted after foreclosure.  That’s because:

• the Deed of Trust Act provision for collecting such fees does not apply because the deed of trust expired upon the foreclosure sale;
• the eviction statute provides for attorney’s fees reimbursement only if the evicted party took possession under a lease (and homeowners take possession as owners); and
• there is no lease, which would (should) have an attorneys’ fee reimbursement provision.

This is not the only legal trend making nonjudicial foreclosure – the generally expected remedy for loan defaults – more expensive and time-consuming.  In 2009, Washington’s deed of trust act was amended to provide for mediation between lenders and homeowners in default – a process that can add 30-60 days to the foreclosure timeline.

Nonjudicial foreclosure was intended to be a fair and expedient remedy for a loan default.  In exchange for that expedience, the lender waives its right to a deficiency if the lender receives less at foreclosure than what it is owed.  Thus the borrower can walk away free of the debt following foreclosure.  If nonjudicial foreclosure becomes too expensive and lengthy a process, lenders might give more consideration to other remedies, such as suing on the promissory note and going after the borrower’s other assets.  Hopefully, the legal loophole pointed out by the Steinmann will prompt a statutory fix.