Non-Judicial Foreclosures in Washington

Insuring title after WA Non-Judicial Foreclosure (AKA Trustee Sale) Confirm the following:

1. DT was properly executed, properly notarized*, and legal description is correct
1a. beneficiary must be a holder in due course and note must be negotiable. See Vargas Bulletin and explanation infra

2. All liens in existence at time of sale and their respective priority to each other

a. NOTE junior liens are wiped out upon completion of trustee sale b. Watch for priority agreements, subordinations, statutory priority

3. Foreclosing Trustee was appointed pursuant to recorded Substitution of Trustee; if MERS is executing documents, MERS rider attached to DT

4. Recording number of DT in trustee sale documents is correct

5. Notice of Sale (NOS) is recorded at least 120 days prior to Trustee Sale date if Residential 1-4 family; 90 days if commercial or seller financed

6. Publication of Notice of Sale in appropriate newspaper 28 to 35 days prior to sale and again 7 to 14 days prior to sale

7. If Notice of Federal Tax Lien is of record at least 30 days prior to sale date, that notice was sent to IRS office** at least 25 days prior to sale (obtain proof from trustee); a. Be sure to run date down and make sure addressing plant date time lag

8. Sale date is at least 190 days after declared date of default

9. Sale date is on a Friday between 9:00 am and 4:00 p, unless Friday was legal holiday and then Monday

10. Trustee Deed recorded 15 days after sale

11. Postponements, if any, do not exceed 120 days from original date of sale and new NOS must be issued and published once at least 7 days before the new sale date

If any of the above are not adhered to, do not issue Commitment without UW approval. Additionally, do not issue Commitment without UW approval if:

a) Lien being foreclosed was HOA/Condo assessment/lien

b) Lien being foreclosed may not have first lien priority, see item 2 above

c) Borrower(s) deceased at time of default

d) Notary was a remote online notary licensed in Virginia

e) Borrower filed Bankruptcy case and case was pending before and/or during the trustee sale process

f) Foreclosure occurred during CARES Act moratorium (3/18/2020 – 7/31/2021)

12 - Vargas issue

Underwriting Guidelines When Title to Property in Washington is Vested Pursuant to a Non-Judicial Foreclosure Sale. (August 6, 2026)

In a recent decision, the Washington Supreme Court held that a HELOC cannot be non-judicially foreclosed. Because the Court’s reasoning in the case applies equally to a variety of other types of loans, the decision has broad implications for WFG’s underwriting of transactions in which title is vested pursuant to a non-judicial foreclosure.

A. The Decision.

In its April 30, 2026, ruling in Gabriel Marquez Vargas v. RRA CP Opportunity Trust, et. al., 589 P.3d 281 (2026) (“Vargas”), the Washington Supreme Court held that, under Washington’s Deed of Trust Act (“DTA”), only the holder of a negotiable instrument can conduct a non-judicial foreclosure of residential property of up to four units (“Residential Property”), so that the holder of nonnegotiable instrument, such as a HELOC, is limited to filing a judicial foreclosure action.

More specifically, in Vargas, a federal district court certified two questions to the Washington Supreme Court regarding the interpretation of RCW §§ 61.24.005(2), 61.24.020, and 61.24.030(7)(a), one of which pertained to the definition of the word “beneficiary” as used in the DTA.

• RCW § 61.24.005(2) defines a “beneficiary” as “the holder of the instrument or document evidencing the obligations secured by the deed of trust, excluding persons holding the same as security for a different obligation.” (Emphasis added.)

• RCW § 61.24.020 provides that only a deed of trust securing the grantor’s performance of an obligation “to the beneficiary” may be non-judicially foreclosed.

• RCW § 61.24.030(7)(a) sets forth the following prerequisite for conducting a trustee’s sale of Residential Property:

That, for residential real property of up to four units, before the notice of trustee’s sale is recorded, transmitted, or served, the trustee shall have proof that the beneficiary is the holder of any promissory note or other obligation secured by the deed of trust. (Emphasis added.) Answering the questions posed by the federal district court, the Washington Supreme Court ruled as follows:

(a) the word “holder” as used in the DTA means the “holder” of a “negotiable instrument,” as those terms are defined in Titles 62A.1, 62A.3 and 62A.9A of Washington’s Uniform Commercial Code (the “UCC”);

(b) thus, the word “beneficiary,” as defined in RCW § 61.24.005(2), means the “[the holder of a negotiable instrument] evidencing the obligations secured by the deed of trust. . . “;

(c) pursuant to RCW § 61.24.020, then, a deed of trust can only be foreclosed by trustee’s sale if it secures performance of an obligation to the holder of a negotiable instrument;

(d) a HELOC is not a negotiable instrument as defined in RCW § 62A.3-104; and

(e) because a HELOC is not a negotiable instrument, the holder of a HELOC cannot conduct a non-judicial foreclosure of Residential Property.

The Court’s decision in Vargas focused heavily on the UCC’s definition of the term “negotiable instrument,” i.e., (a) an unconditional promise to pay a fixed amount, with or without interest; (b) payable to a specific party or to the party holding the instrument; (c) payable on demand or at a definite time; (d) which does not state any other undertaking by the borrower other than as specified in the RCW § 62A.3-104(a)(3); and (e) which does not require reference to another document to discern its terms. RCW § 62A.3-104.

Applying this definition, the Court ruled that a typical HELOC is not a negotiable instrument because (a) it does not contain an unconditional promise to pay a fixed amount given that the borrower is not required to draw funds from the loan, and (b) as a result, a party would need to look to an extraneous document, such as an Acknowledgment of Advance form, to determine the amount actually drawn and the balance owing on the HELOC.

Although the Court’s decision in Vargas involved a HELOC, its reasoning would equally apply to any type of loan or obligation that does not satisfy the technical requirements of a negotiable instrument, such as reverse mortgages, construction loans, notes that incorporate other documents by reference, and guarantees. Moreover, because the Court’s ruling as to meaning of the words “holder” and “beneficiary” applies to the DTA as a whole, the decision could affect the validity of trustee’s sales of commercial properties as well.

Thus, in transactions in which the seller’s title to property is vested pursuant to a trustee’s sale, application of the Court’s decision could potentially cause a complete failure of title.

B. The Bulletin.

To address the foregoing concerns, WFG has issued Bulletin No.2026-06 (Revised) regarding the Court’s decision (the “Bulletin”). The Bulletin requires that the following exception (the “Exception”) be included in all title commitments as to which the last deed of record for the property is a Trustee’s Deed recorded less than 10 years ago, or where there is no insured deed following the Trustee’s Deed:

Right, title and interest of the [Trustee Deed Grantee]. Proof satisfactory to the Company must be provided that the nonjudicial foreclosure of the Deed of Trust recorded [date] under Recording No. __________ was conducted in compliance with Chapter 61.24 RCW, including confirmation that the secured obligation was a negotiable instrument and that the beneficiary was the holder of the instrument at the time the sale was noticed and completed.

The Exception may not be removed without WFG underwriting approval.

C. Underwriting Guidelines Upon Request to Remove the Exception.

Following are the sequential underwriting requirements when a request is made to remove the Exception:

1. The underwriter must be provided with complete copies of the following: (a) the promissory note or other obligation secured by the Deed of Trust and all exhibits, schedules, amendments and modifications thereto; (b) the Deed of Trust and all exhibits, schedules, amendments and/or modifications thereto; (c) all assignments of beneficial interest under the Deed of Trust and notices of substitution of trustee; (d) any trustee’s sale guarantee reports; (e) any beneficiary’s declaration under penalty of perjury stating that the beneficiary is “the holder of any promissory note or other obligation secured by the deed of trust” as permitted by RCW § 61.24.030(7)(a); (f) all notices, including without limitation all notices of default and notices of trustee’s sale, and all other recorded documents, if any, pertaining to the nonjudicial foreclosure of the property; (g) all title policies issued in connection with prior conveyances of the property following the issuance of the Trustee Deed; and (h) any notices of lis pendens recorded against the property.

2. The underwriter must investigate whether a lawsuit regarding the trustee’s sale, the property and/or the borrower is pending and whether an injunction regarding the trustee’s sale has been entered in any such action.

3. If (a) the underwriter does not receive the documents delineated in paragraph 1 or (b) the underwriter learns that a lawsuit pertaining to the trustee’s sale, the property, or the borrower is pending and/or that an injunction has been entered in any such action, the underwriter cannot approve the removal of the Exception.

4. If the provisions of paragraph 3 above do not apply, the underwriter must review the documents delineated in paragraph 1 to determine whether the promissory note or other obligation secured by the Deed of Trust is a negotiable instrument. If, after reviewing the documents delineated in paragraph 1, the underwriter concludes that the promissory note or other obligation secured by the Deed of Trust is not a negotiable instrument, the underwriter cannot approve the removal of the Exception.

5. If, after reviewing the documents delineated in paragraph 1, the underwriter concludes that the promissory note or other obligation secured by the Deed of Trust is a negotiable instrument, the underwriter must determine whether the current beneficiary of the deed of trust identified in the notice of trustee’s sale (the “Current Beneficiary”) had possession of the negotiable instrument secured by the Deed of Trust at the time the trustee’s sale was noticed.

6. If, after reviewing the documents delineated in paragraph 1, the underwriter determines that the Current Beneficiary had possession of the negotiable instrument secured by the Deed of Trust at the time the trustee’s sale was noticed, the underwriter may, but is not required to, approve the removal of the Exception.

7. If, pursuant to the foregoing paragraphs, the underwriter determines that the underwriting requirements for removing the Exception have not been met or the underwriter elects not to approve the removal of the Exception, WFG will require (a) a Quit Claim Deed from the grantor under the Deed of Trust to the seller, or (b) the filing of a lawsuit by the seller in a court of competent jurisdiction naming as defendants all parties with an interest in the property or otherwise required to be named in the lawsuit, as set forth in a Trustee’s Sale Guaranty Report issued by WFG, and the entry in such action of a final, non-appealable judgment declaring that the defendants in such action have no right, title or interest in the property, quieting title to the property in the seller’s name alone, and forever barring defendants from asserting any claims adverse to seller’s title to and/or ownership of the property.

Dated: August 6, 2026