Foreclosing a Deed of Trust

A deed of trust is a type of mortgage. Typically, it is used along with a promissory note signed by the owner of real estate. The owner of the real estate is called "the grantor" of the deed of trust. By signing the deed of trust, the grantor gives an independent party, who is called "the trustee," a power of sale over the real estate. If the grantor does not make payments or perform other obligations due to the lender, who is called "the beneficiary," the beneficiary can direct the trustee to foreclose the deed of trust.

A deed of trust can be foreclosed using the power of sale. This is called "nonjudicial foreclosure." A deed of trust can also be foreclosed by bringing a lawsuit against the grantor and other parties with interests in and claims to the real estate. This is called "judicial foreclosure."

Most Washington deeds of trust are foreclosed non-judicially. If the deed of trust is foreclosed non-judicially, all of the grantor's rights in the property are terminated, and all of the beneficiary's claims against the grantor are satisfied.

If the property is worth less than the amount owed to the beneficiary, the beneficiary may want to bring a judicial foreclosure. Judicial foreclosure allows the beneficiary to recover a judgment against the grantor for the difference between what the beneficiary is owed and the value of the property. This is called a "deficiency judgment." The drawback to judicial foreclosure in Washington is that there is up to a one-year redemption period in which the grantor can undo the foreclosure by paying the full amount due the beneficiary. During this redemption period, the beneficiary does not have title to the property, and the grantor may be entitled to live in the property rent-free.

Nonjudicial foreclosure is started by giving a Notice of Default to the grantor and other persons who have an interest in the property. A specific form of the Notice of Default is required by statute and the statutes have detailed rules about how the Notice must be given.

If the grantor does not pay what is owing, including the beneficiary's attorney's fees within 30 days after the Notice of Default is issued, the trustee can issue a Notice of Trustee's Sale and Notice of Foreclosure. The forms of these notices and how they must be given are also specified by statute. The Notice of Trustee's Sale will set a date, at least 90 days after the Notice of Foreclosure is given, at which the property will be sold at a public Trustee's Sale if the grantor does not pay what is owing.

The property can be sold to the highest bidder at the Trustee's Sale if the grantor does not pay what is owing. The beneficiary's bid will usually be the amount owed to them; the beneficiary does not pay any cash for such a bid. In most cases, the beneficiary will be the high (and only) bidder.

Recording the Trustee's Deed completes the foreclosure. The grantor has the right to remain in the property for no more than 20 days after the Trustee's Sale and very limited rights to set aside the foreclosure.