National Bank Cannot Conduct Nonjudicial Foreclosures in Washington
Recon Trust, and other national banks, cannot serve as foreclosing trustees in Washington unless they comply with state law.
Bank of America’s foreclosure trustee company, ReconTrust, is no longer conducting foreclosures in the state of Washington after settling a lawsuit with the state Attorney General's office. Read on to find out more about the trustee’s role in a nonjudicial foreclosure, how Washington law controls who may conduct foreclosures in that state, and learn what happened to ReconTrust after it failed to comply with the state's laws governing foreclosure trustees.
(To learn the ins and outs of the foreclosure process, visit our Foreclosure Center.)
Residential mortgage transactions in Washington typically involve deeds of trust. Deeds of trust, like mortgages, pledge real property to secure a loan. Deeds of trust involve three parties:
- the trustor (the borrower)
- the beneficiary (the lender), and
- the trustee.
The deed of trust gives the trustee the authority to foreclose and sell the home to pay off the loan balance at the request of the lender if the borrower defaults (fails to make payments).
In Washington, most foreclosures are nonjudicial. This means the lender can foreclose without going to court so long as the deed of trust contains a power of sale clause. (For more information about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)
(Learn more about the nonjudicial foreclosure process in our article about How Nonjudicial Foreclosure Work.)
State law sets out the procedural requirements for nonjudicial foreclosures, including the requirements pertaining to foreclosure trustees.
(To learn specific information about the foreclosure process in Washington, read our Summary of Washington’s Foreclosure Laws.)
Washington AG Files Suit Against ReconTrust
In 2012, the Washington Attorney General (AG) sued ReconTrust (a wholly-owned subsidiary of Bank of America) for conducting illegal foreclosures since it was not in compliance with state law.
In Washington, foreclosure trustees are responsible for conducting nonjudicial foreclosures in accordance with the state’s Deed of Trust Act (Wash. Rev. Code § 61.24). Under the Act, foreclosure trustees must, among other things:
- maintain an office in the state of Washington with telephone service at such address
- identify the actual owner of the promissory note in the foreclosure documents
- provide information regarding how the borrowers defaulted and how they can cure that default
- use documents that are properly executed, sworn to, or notarized
- conduct foreclosure sales in a public place, and
- conduct foreclosures as a neutral third-party with a duty of good faith towards the borrower and lender.
In its suit, the AG alleged that ReconTrust had violated state law by failing to do these things.
For example, a key requirement of Washington’s Deed of Trust statute is that a trustee must have a physical presence in the state. However, ReconTrust did not maintain an office in Washington, which according to the AG unfairly prevented homeowners from:
- having face-to-face contact with the trustee
- getting timely responses to sensitive foreclosure issues
- making in-person payments to stop a foreclosure, and
- presenting mortgage-related documents in person.
Additionally, under Washington law, the trustee is required to provide the homeowners with information about who owns their loan. ReconTrust often incorrectly named the loan servicer or Mortgage Electronic Registration Systems, Inc. (MERS) in the foreclosure documents as the owner of the loan. (Loan servicers collect and process payments from homeowners, but do not own the loan, and MERS merely acts as a nominee for the actual owner of the loan. Learn more about MERS).
The AG further claimed that the company had improperly handled thousands of foreclosures by using robo-signed documents and conducting foreclosure sales at improper locations, such as the garage of a private office building and a hotel ballroom. And, while the trustee is supposed to act as a neutral third-party, ReconTrust had agreements with beneficiaries that it would only cancel or postpone a foreclosure sale with the permission of the lender or servicer.
According to the AG’s lawsuit, these actions put the homeowner at a severe disadvantage in trying to negotiate a loan modification, cure the default, and postpone or stop a foreclosure sale.
ReconTrust No Longer a Trustee in Washington
In response to the suit, ReconTrust claimed that federal law preempted state law and, as a national bank, it did not have to comply with Washington state law. However, rather than fight the suit, ReconTrust voluntarily settled the case without admitting wrongdoing.
Under the settlement, ReconTrust stopped operating as a foreclosure trustee in the state of Washington and paid almost $1.1 million to the state. (The state credited the $1.1 million against what Bank of America owes as part of the $25 billion national mortgage settlement.)
The company may resume conducting foreclosures in Washington only if it complies with the state’s Deed of Trust Act, including ceasing to act as both trustee and beneficiary in a foreclosure. This means that since ReconTrust is a subsidiary of Bank of America, it may not serve as a trustee foreclosing Bank of America loans even if it complies with all other requirements.
For More Information
States that permit nonjudicial foreclosures often have specific laws governing who can act as a foreclosure trustee. To learn more about the laws that govern foreclosure trustees, see our article State Law Determines Who Can Conduct Nonjudicial Foreclosure.