IN RE: Nazario HERNANDEZ (2020)

MEMORANDUM ***

Appellants Franklin Credit Management Corp. and Deutsche Bank National Co. appeal the district court's order reversing the bankruptcy court's dismissal of an adversary proceeding brought against them by Debtor Nazario Hernandez in a chapter 13 bankruptcy proceeding. We have jurisdiction under 28 U.S.C. § 158(d)(1) as the district court's order “finally dispose[d] of a discrete dispute within the larger case.” In re Gugliuzza, 852 F.3d 884, 897 (9th Cir. 2017) (quoting Bullard v. Blue Hills Bank, 575 U.S. 496, 135 S. Ct. 1686, 1692, 191 L.Ed.2d 621 (2015)) (alterations omitted). We review the bankruptcy court's decision directly, its factual findings for clear error and conclusions of law de novo.¹ In re Lee, 889 F.3d 639, 644 (9th Cir. 2018).

The bankruptcy court erred in concluding the statute of limitations on Appellants’ deed of trust was not triggered by Debtor's chapter 7 discharge. Under Washington law, the statute of limitations on a written installment contract, including the deed of trust here, is six years. Wash. Rev. Code. § 4.16.040. With an installment contract, as here, “the statute of limitations runs against each installment from the time it becomes due,” which can occur until the last installment due before there is no longer personal liability due under the note. 4518 S. 256th, LLC v. Karen L. Gibbon, P.S., 195 Wash.App. 423, 382 P.3d 1, 6 (2018); Edmundson v. Bank of Am., 194 Wash.App. 920, 378 P.3d 272, 278 (2016).

Here, Debtor received a chapter 7 discharge in 2012 and thereafter neither reaffirmed nor made any further payment on the note. Despite this, Appellants took no action to collect payment, did not seek to accelerate the debt, and did not initiate foreclosure proceedings. In these circumstances, the statute of limitations for Appellants to foreclose on the deed of trust ran from the last installment due before Debtor's discharge and expired before Debtor sought a chapter 13 discharge and brought the adversary proceeding. The bankruptcy court therefore erred in granting Appellants’ motion to dismiss the adversary proceeding, which the district court correctly recognized in reversing the bankruptcy court's decision. We note the bankruptcy court's concern that finding the statute of limitations triggered by the discharge date poses issues should a debtor continue paying or seek to affirm the note following discharge. However, those circumstances were not present here and a straightforward application of Washington law that the bankruptcy court was not free to ignore renders this result. See Edmundson, 378 P.3d at 278.

AFFIRMED.

FOOTNOTES

1.   We grant Debtor's motion for judicial notice. (Dkt. Entry No. 24).