DS News

74 trying to make good on their loan obligations post-discharge. In light of this illogical interpretation, this discussion in Edmundson was seen only as dicta. is is evidenced by the lack of cases after Edmundson arising from lenders refusing payments post discharge and initiating foreclosure based upon the borrower's discharge. To further illustrate why Edmundson's unreasoned interpretation of Herzog should not have been relied upon, in the same opinion, the court stated, "to the extent the trial court ruled that some event during the bankruptcy proceeding triggered (the acceleration) provision, the court is wrong. Under the plain terms of the deed of trust, this is an option to be exercised by the lender, not something triggered by events in bankruptcy proceedings." Unfortunately, this confirmation of well settled law is ignored or circumvented as the bankruptcy discharge argument moved forward, gaining momentum in Washington and, eventually, elsewhere in the country. EDMUNDSON'S BANKRUPTCY DICTA BECOMES GOSPEL IN THE NINTH CIRCUIT Citing Edmundson, borrowers increasingly argued that, because they were no longer personally liable for payments after being discharged, the last payment that "became due" was the payment that immediately preceded the discharge. In other words, the six-year statute of limitations on foreclosing for nonpayment started to run upon discharge, regardless of the language in the loan agreements stating otherwise. e Western District of Washington, and subsequently the Ninth Circuit, sided with the borrowers. In a ruling by the Western District of Washington in Jarvis v. Fannie Mae, the Edmundson dicta took flight. e court in Jarvis stated that "(b)ecause the Edmundsons owed no future payments after the discharge of their liability, the date of their last-owed payment kickstarted the deed of trust's final limitations period. (…) e holder of the deed of trust had six years from that date to foreclose on the Edmundsons' home." In the same ruling, the court in Jarvis stated that the opinion in Edmundson "do(es) not demand that acceleration automatically accompany discharge because acceleration occurs at the creditor's option when certain conditions are met." e Ninth Circuit affirmed Jarvis in June of 2018 relying entirely on Edmundson. In essence, the courts in Edmundson and then Jarvis deemed the bankruptcy discharge an accelerating event, without calling it an accelerating event, while continuing to say that only lenders have the right to accelerate the debt. is became a divisive issue with Washington bankruptcy courts. Relying on Edmundson, in November of 2018, debtor Nazario Hernandez commenced a bankruptcy adversary action to deem his loan time barred. e bankruptcy court dismissed the proceeding stating it was not required to follow Edmundson because it was dicta, that the statute of limitations is only triggered by maturity or acceleration, there was no law supporting the argument that the discharge of the note was the equivalent of maturity or acceleration, and the reliance on this position "would lead to potentially absurd results." On appeal, the Western District of Washington, citing to their ruling in Jarvis, overturned the bankruptcy court's ruling. e Western District did not see Edmundson's arguments as dicta, citing back to Herzog for support. is reversal was upheld by the Ninth Circuit—"a straightforward application of Washington law that the bankruptcy court was not free to ignore renders this result" while citing only to Edmundson. In December of 2020, in Brown v. Deutsch Bank N.A. (in re Plastino), another bankruptcy court declined to follow Edmundson and Jarvis. is was the first time a judge calls a spade a spade—highlighting that following the Edmundson dicta is effectively accelerating the loan. is time, the court dug deeper into Edmundson to try to find out where this reasoning, which was not based upon any law, other than a reference to Herzog, could have originated. e court found a reference to a Western District Court case with no precedential value, Silvers v. U.S. Bank, N.A., cited in lender counsel's brief in Edmundson. e court in Silvers, with only a previous reference to Herzog regarding installment payments, deemed the bankruptcy discharge an event starting the running of the clock. As this language was not supported by any law that included the effects of a bankruptcy discharge, the In re Plastino court dug deeper into Silvers, finding similar language in the lender's brief, without legal authority, stating that the statute began running at the earliest, the month before discharge. e court in Silvers took legal argument from counsel, removed qualifying language, and deemed that to be their interpretation of the law. Based upon this, the In re Plastino court determined that the prior bankruptcy "did not cause acceleration of future installments on the note." Unfortunately, In re Plastino settled mid-appeal in July of 2021 so there was no substantive review of the effect of Silvers on Edmundson by the Ninth Circuit. WASHINGTON REVISITS EDMUNDSON IN LUV V. WEST COAST SERVICING INC. In August of 2021, Division I of the Washington State Court of Appeals had the opportunity to revisit their decision in Edmundson and the effect of the primarily federal cases that followed. In an August 2021 unpublished opinion, the court decided to uphold the erroneous interpretation of their findings in Edmundson. In Luv v. West Coast Servicing, Inc., the borrower obtained a discharge in March of 2009, made no payments after discharge, and commenced an action to quiet title free of the deed of trust in April of 2019. Relying on Edmundson, Division 1 ruled that "Edmundson cannot be read to stand for the proposition that bankruptcy discharge eliminates or accelerates the debt; rather, discharge triggers the statutory Feature By: Laura N. Coughlin and Robert Finlay To limit future issues that could arise from aged loans, lenders should enforce defaults as soon as possible where practical. If there is an issue preventing the loan from being placed into the standard foreclosure process, escalate!

• Cover