After the subprime crisis, some courts became quite strict in their requirements for foreclosures, both nonjudicial and judicial, while other courts were far more lenient in forgiving banks who did not strictly comply with statutory requirements to prove a right to foreclose.
A recent case by the Supreme Court of Washington held that the beneficiary of a deed of trust (similar to a mortgage arrangement) could not engage in a private, nonjudicial foreclosure because state law defined the beneficiary entitled to private foreclosure as one who was the “holder” of the promissory note which was the basis of the lien on the property. The Court interpreted the word “holder” in the state foreclosure statute to mean the holder of a negotiable instrument as defined by the Uniform Commercial Code. Since the note in this case was not a negotiable instrument, nonjudicial foreclosure was not available.
Certification from the U.S. District. Ct. for the W. Dist. of Wash. in Vargas v. RRA CP App. Trust 1, Real Time Resolutions, Inc., 2026 WL 1174062 (Wash. 2026).
The dissenting judges argued that if the state legislature had intended the word “holder” in the foreclosure statute to mean “holder of a negotiable instrument,” it would have said so. The majority disagreed, finding the word “holder” to be a term defined by the UCC and to refer to the “person entitled to enforce the note” under UCC art. 3. It concluded, cryptically, that lenders have “other, judicial remedies” which appear to refer to a claim for judicial foreclosure.
Again, the dissenting judges thought that this severely complicates the foreclosure process, raises its costs, and contravenes they viewed as the intent of the legislature when it made nonjudicial foreclosure available.
This whole area is one where law reform (such as a federal mortgage registry agency) would be welcome. But the takeaway from this case is that banks and other lenders have been too cavalier in complying with the statutory requirements for mortgage foreclosure. Whatever technical requirements each state has in this regard must be satisfied even if they seem overly technical or even unjustified.