The Washington Court of Appeals Strengthens the Ability of Lenders to Obtain Summary Judgment Against Commercial Guarantors on Post-Foreclosure Deficiency Claims
Post-foreclosure deficiency lawsuits against guarantors of commercial loans can be expensive and time consuming — particularly when measured against the sometimes uncertain collectability of the deficiency judgment. Under Washington state law, if a guarantor claims that the non-judicially foreclosed real property was sold for less than its “fair value,” the guarantor may ask the court to reduce his or her deficiency judgment by that “fair value.” RCW 61.24.100(5). Guarantors have historically attempted to take advantage of the factual nature of this “fair value” defense, and the lack of precedent on the meaning of “fair value,” to delay deficiency lawsuits and force lenders into unfavorable settlements in lieu of expensive trials. However, a recent decision by the Washington Court of Appeals in Washington Federal v. Mark A. McNaughton, et al. — P.3d —-, 2014 WL 2053980 (Wash. App. May 19, 2014), may make it difficult for guarantors to employ such a strategy in the future — at least absent some tangible and objective evidence to support a legitimate dispute over the market value of the property as of the date of the trustee’s sale.
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