SNOHOMISH COUNTY v. << (2004)

PART PUBLISHED OPINION

Yasmin Hawkins appeals a superior court judgment in favor of William Harnecker and Household Finance Corporation.   She asserts the trial court erred when it ruled that Harnecker and Household Finance had valid encumbrances on her property.   Because Yasmin validly quitclaimed all of her property rights and her signature was not required to encumber the property, we affirm.

FACTS

In 1993, Rocky Hawkins (Rocky) purchased residential real property from William Harnecker by executing a deed of trust and promissory note in the amount of $98,470.80 (1993 Harnecker deed and note).   The promissory note was due and payable in full in April 1998.   Rocky purchased the home for himself and his wife, Yasmin Hawkins (Yasmin).

In August 1997, Yasmin signed a quitclaim deed to release her interest in the property.   Yasmin's signature was acknowledged by a public notary, Rocky signed the deed as  the grantee, and the stated consideration was “release of beneficiary.”   The deed initially described the property only by the street address.   But when the deed was recorded in April 1998, it contained an abbreviated legal description on the first page and a full legal description on an attached page.   There was no reference on the first page of the deed to the attachment.

In April 1998, Rocky refinanced the 1993 Harnecker note with a loan from Fieldstone Mortgage (Fieldstone).   On April 9, 1998, Rocky executed a note and deed of trust, securing a $124,950 obligation to Fieldstone (Fieldstone deed and note).   Yasmin did not sign these documents.   On April 20, 1998, Fieldstone assigned the deed to Household Finance Corporation (Household).   Between April 1998 and June 2000, Yasmin made and delivered several payments to Household in accordance with the Fieldstone note.

Rocky used a portion of the Fieldstone loan to pay Harnecker, but he did not fully satisfy the 1993 Harnecker note.   Therefore, on April 13, 1998, Rocky executed a second deed of trust and promissory note to Harnecker in the amount of $17,063.92 (1998 Harnecker deed and note).   Yasmin did not sign these documents.

In late 1998, Yasmin filed for divorce.   In November 1998, Yasmin filed a Notice of Lis Pendens and a Notice of Spouses Claim in Community Realty.   During the dissolution proceedings, Yasmin argued for the first time that the recorded quitclaim deed was null and void.   In 1999, Yasmin and Rocky divorced and the divorce decree awarded the property to Yasmin.   Yasmin ceased making payments to Harnecker and Household in May and June 2000, respectively.   In October 2000, Household gave notice that the Fieldstone note was in default.   That same month, Yasmin executed a cancellation and rescission of the Fieldstone deed and note.

In November 2000, Snohomish County began an action to condemn Yasmin's property for public use, and in December 2000, Household sought to initiate a trustee sale.   That same month, Harnecker sued for judicial foreclosure of the  1998 Harnecker deed and breach of contract on the 1998 Harnecker note.   Yasmin counterclaimed to quiet title.   In March 2001, Snohomish County agreed to pay $180,000 for the property and deposited that amount with the trial court.   At the same time, Yasmin sued to restrain the foreclosure sale and to quiet title against the Fieldstone deed and note.   Rocky failed to appear in any of these actions, and the court granted a default judgment against him.

The trial court stayed Household's trustee sale, consolidated the cases, and conducted a two day bench trial.   Mary Anne Carlin, a paralegal who assisted in preparing the 1998 Harnecker deed and note, testified that in April 1998 Yasmin said that she was not Rocky's wife and that she had nothing to do with the property because she had quitclaimed it to Rocky.   Carlin requested a copy of the quitclaim deed, and Rocky delivered it the next day.   It did not have the complete legal description.

Yasmin testified at trial that she had never spoken to Carlin and had only signed the quitclaim deed because she was very ill and Rocky agreed to use it only if she died.   Yasmin further testified that she was in very poor health in April 1998 when she was supposed to have talked with Carlin and was taking several pain medications.   But, during trial, Household introduced a declaration signed by Yasmin in her divorce proceedings in July 1999 stating that she signed the quitclaim deed so that Rocky could refinance the 1993 Harnecker note.

The court ruled in favor of Household and Harnecker, finding that Yasmin's quitclaim deed, the 1998 Harnecker deed and note, and the Fieldstone deed and note were valid.   The court therefore concluded that Household and Harnecker had bona fide encumbrances on the property.   The court awarded judgment against Rocky and to Household for approximately $157,000 and to Harnecker for approximately $35,000.   The judgments were to be paid in part from the condemnation proceeds.

 DISCUSSION

 Yasmin disputes portions of the trial court's Findings of Fact, Conclusions of Law, and Judgment and Order.   On review, we must determine whether the trial court's findings of fact are supported by substantial evidence.¹  There is substantial evidence “if the record contains evidence of sufficient quantity to persuade a fair-minded, rational person of the truth of the declared premise.” ²  Where evidence conflicts, we need only decide whether the evidence most favorable to the respondent supports the findings.³  Any unchallenged findings of fact are verities on appeal.⁴  We must also determine whether the findings of fact support the conclusions of law and judgment, and we review conclusions of law de novo.⁵

I. Valid Encumbrances

 Yasmin disputes the validity of the quitclaim deed, Fieldstone deed and note, and 1998 Harnecker deed and note.   One who challenges a deed bears the burden of proving its invalidity.⁶

A. Quitclaim Deed

 The trial court concluded that Yasmin ratified the recorded quitclaim deed and is estopped from claiming that Rocky lacked the authority to refinance the property.   A  party ratifies an otherwise voidable contract if, after discovering facts that warrant rescission, she remains silent or continues to accept the contract's benefits.⁷  A ratifying party must have acted voluntarily and with full knowledge of the facts.⁸

Here, the trial court found that Yasmin intended to convey, release, and quitclaim all of her rights in the property, she executed the deed freely and voluntarily, she personally made and delivered several payments to Household without objection, and she told Carlin the property was not hers and she had quitclaimed it to Rocky.   Yasmin did not assign error to these findings, and they are verities on appeal.⁹  This is substantial evidence demonstrating that Yasmin knew the quitclaim deed would terminate her property interest and that Rocky had refinanced.   The trial court did not err in finding that Yasmin ratified the deed, the quitclaim deed is valid, and Yasmin's claims are barred.¹⁰

B. Homestead Laws

 Yasmin argues that, even if the quitclaim deed is valid, the Fieldstone and 1998 Harnecker deeds are invalid because she did not sign them.   Washington law requires both spouses' signatures on any instrument that conveys or encumbers the homestead.¹¹  A “homestead” consists of real or personal property used as a residence and may be both community and separate property.¹²  Yasmin therefore argues that, even if the home was Rocky's separate property,  it was still her “homestead” and her signature was required to encumber it.   But in Security Savings and Loan Ass'n v. Busch,¹³ the Washington Supreme Court held that a quitclaim deed extinguishes all of the grantor's legal and equitable rights in the property.¹⁴  Yasmin's quitclaim deed therefore released all her property interests, including her homestead rights.   Rocky was entitled to convey or encumber the property without Yasmin's signature.¹⁵

Yasmin argues that Busch does not apply because it involved a statute that has been repealed.   But that statute governed only the creation of homestead rights;  it said nothing about releasing these rights.¹⁶  Yasmin also argues that Busch is inapplicable because it involved a deed that was signed by both spouses.   But that is a factual distinction without a difference.   Homestead laws are meant to protect one's home from creditors; ¹⁷  they do not protect a spouse who has conveyed her rights to another.   Accordingly, the Fieldstone and 1998 Harnecker deeds are also valid.

The remainder of this opinion has no precedential value.   Therefore, it will not be published but has been filed for public record.

C. Usury

Next, Yasmin argues that the 1998 Harnecker note is invalid because it is usurious.   Usury is an affirmative defense, and the party asserting it has the burden of proving:  (1) a loan or forbearance involving money or its equivalent, (2) an agreement that the principal must be repaid, (3) an interest rate that exceeds that allowed by law, and (4) intent to enter into a transaction that carries an unlawful interest rate.18

Yasmin argues that the note is usurious because its interest rate for late payments exceeded the statutory maximum.   But this does not violate the usury statute as long as the parties acted in good faith and without the intent to evade those laws.19  This is so because “the debtor has it within his power to avoid the additional interest charge by prompt payment of his obligation[.]” 20  Yasmin has not provided any evidence that Rocky or Harnecker acted in bad faith or with ill intent.

Yasmin also argues that the note is usurious because the principal balance was $2,000 more than the principal due on the 1993 Harnecker note.   Since usury laws are quasi-penal, a contract is not usurious if any other hypothesis explains it.21  Here, Harnecker argued that the extra $2,000 was consideration for taking a lower priority interest in the property than he had under the 1993 deed and note,22 and the trial court agreed.   Yasmin presents no evidence suggesting otherwise.   We affirm the trial court's conclusion that the 1998 Harnecker note was valid.

II. Truth In Lending Act

Yasmin next argues that, if the Fieldstone transaction is valid, it was nevertheless rescinded under the federal Truth in Lending Act (TILA).   Under TILA, an obligor has the right to rescind within three days of any consumer credit transaction in which a creditor retains a security interest in the obligor's home.23  The creditor must inform the obligor of this right, 24 and if it fails to do so, the obligor has three years to rescind the transaction.25  Here, Yasmin claims that Fieldstone provided her with no notice of her rescission rights and thus she should have been able to rescind the transaction when she attempted to do so in October 2000.

But the trial court concluded that Yasmin was not an “obligor” for TILA purposes.   Under the federal regulations, an obligor is a “consumer whose ownership interest is or will be subject to the security interest [.]” 26  Yasmin released her ownership interests before Rocky entered into the Fieldstone transaction.   She therefore had no ownership interest that could be subject to a security interest, and she was not an “obligor” to whom Fieldstone had to extend rescission rights.

In addition, TILA's purpose is to “assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.” 27  Only Rocky entered into the Fieldstone transaction, and the transaction involved Rocky's separate property.   Fieldstone owed no duty to Yasmin.   Allowing Yasmin to rescind the transaction now would not further TILA's purpose.   We affirm the trial court's conclusion that Yasmin had no right to rescind the Fieldstone transaction.

III. Judgments Against Rocky

The trial court awarded judgment against Rocky, not Yasmin, and a substantial portion of the judgments were to be paid from the condemnation proceeds.   Yasmin now argues that, but for the judgments against Rocky, she would have been entitled to the condemnation proceeds.   She asks the court to reverse the judgments against Rocky on the ground that the trial court awarded relief beyond what was prayed for in the default motion.   But a litigant must have standing to assert legal rights.28  Because Yasmin quitclaimed her rights to Rocky, she has no standing to assert his rights.   And, even if Yasmin could successfully attack the judgments against Rocky, the condemnation proceeds would not therefore belong to Yasmin, as Household and Harnecker are still entitled to payment.

Affirmed.

FOOTNOTES

1.   Bering v. SHARE, 106 Wash.2d 212, 220, 721 P.2d 918 (1986) (citing Thorndike v. Hesperian Orchards, Inc., 54 Wash.2d 570, 575, 343 P.2d 183 (1959)), cert. dismissed, 479 U.S. 1050, 107 S.Ct. 940, 93 L.Ed.2d 990 (1987).

2.   Id. (citing In re Snyder's Welfare, 85 Wash.2d 182, 185-86, 532 P.2d 278 (1975)).

3.   Miller v. Badgley, 51 Wash.App. 285, 290, 753 P.2d 530 (citing Thomas v. Ruddell Lease-Sales, Inc., 43 Wash.App. 208, 212, 716 P.2d 911 (1986)), review denied, 111 Wash.2d 1007 (1988).

4.   Cowiche Canyon Conservancy v. Bosley, 118 Wash.2d 801, 808, 828 P.2d 549 (1992) (citing Nearing v. Golden State Foods Corp., 114 Wash.2d 817, 818, 792 P.2d 500 (1990)).

5.   Miller, 51 Wash.App. at 290, 753 P.2d 530 (citing Holland v. Boeing Co., 90 Wash.2d 384, 390, 583 P.2d 621 (1978));  Bingham v. Lechner, 111 Wash.App. 118, 127, 45 P.3d 562 (2002) (citing City of Seattle v. Megrey, 93 Wash.App. 391, 393, 968 P.2d 900 (1998)), review denied, 149 Wash.2d 1018, 72 P.3d 761 (2003).

6.   Town of Twisp, Wash. v. Methow Valley Irrigation Dist., 32 Wash.App. 132, 135, 646 P.2d 149 (1982) (citing Truitt v. Truitt, 100 Wash. 608, 612, 171 P. 532 (1918)).

7.   Ward v. Richards & Rossano, Inc., P.S., 51 Wash.App. 423, 433, 754 P.2d 120 (citing Wilson v. Pearce, 57 Wash.2d 44, 53, 355 P.2d 154 (1960);  Power v. Esarey, 37 Wash.2d 407, 417, 224 P.2d 323 (1950);  17 Am.Jur.2d Contracts § 489 (1964)), review denied, 111 Wash.2d 1019 (1988).

8.   Id. (citing 17 Am.Jur.2d Contracts § 7 (1964);  Thiel v. Miller, 122 Wash. 52, 58-59, 209 P. 1081 (1922)).

9.   Cowiche Canyon Conservancy, 118 Wash.2d at 808, 828 P.2d 549.

10.   See Power, 37 Wash.2d at 417, 224 P.2d 323 (a party who ratifies an otherwise voidable contract is barred from relief).

11.   RCW 6.13.060.

12.   RCW 6.13.010(1), .020.

13.   84 Wash.2d 52, 523 P.2d 1188 (1974).

14.   Id. at 55-56, 523 P.2d 1188 (citing RCW 64.04.050 (1973);  McCoy v. Lowrie, 44 Wash.2d 483, 268 P.2d 1003 (1954)).

15.   RCW 26.16.010 (a husband's separate property may be conveyed or encumbered without his wife's consent).

16.   RCW 6.12.060 (1979) (filing a homestead declaration creates homestead rights).   The law currently provides that homestead rights are created automatically.  RCW 6.13.040.

17.   Pinebrook Homeowners Ass'n v. Owen, 48 Wash.App. 424, 427, 739 P.2d 110 (citing City of Algona v. Sharp, 30 Wash.App. 837, 841, 638 P.2d 627 (1982)), review denied, 109 Wash.2d 1009 (1987).

18.   Metro Hauling, Inc. v. Daffern, 44 Wash.App. 719, 721, 723 P.2d 32 (1986) (citing Tacoma Commercial Bank v. Elmore, 18 Wash.App. 775, 778, 573 P.2d 798 (1977);  Liebergesell v. Evans, 93 Wash.2d 881, 887, 613 P.2d 1170 (1980)).

19.   Id. at 722, 613 P.2d 1170 (citing Union Bank v. Kruger, 1 Wash.App. 622, 626, 463 P.2d 273 (1969)).

20.   Id. (citing Union Bank, 1 Wash.App. at 626, 463 P.2d 273; 45 Am.Jur.2d Interest & Usury § 182 (1969)).

21.   Simpson v. C.P. Cox Corp., 167 Wash. 34, 37, 8 P.2d 424 (1932).

22.   It is undisputed that Harnecker accepted a lesser interest in the property when Rocky refinanced.

23.   15 U.S.C.A. § 1635(a).

24.   Id.

25.   Id. at (f).

26.   12 C.F.R. § 226.23(a)(1), .15(a)(1)(i).

27.   15 U.S.C.A. § 1601(a).

28.   Haberman v. Washington Public Power Supply Sys., 109 Wash.2d 107, 138, 744 P.2d 1032 (1987), opinion amended, 109 Wash.2d 107, 750 P.2d 254 (1988), appeal dismissed, 488 U.S. 805, 109 S.Ct. 35, 102 L.Ed.2d 15 (1988) (citing Allen v. Wright, 468 U.S. 737, 750-51, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984)).

AGID, J.