Case Law Update with Kris Zilberstein: Washington State Statute of Limitations

Since the ruling in In re Nazario Hernandez, et al v. Franklin Credit Mgmt. Corp., et al, 19-35719 (9th Cir. 2020), there have been several attempts to unwind the devastation that the interpretation by the Federal Courts of Edmundson v. Bank of America, 378 P.3d 272, 278 (Wash. Ct. App. 2016) created. This was nearly achieved in Brown v. Deutsch Bank N.A. (In re Plastino), Nos. 17-11760-MLB, 20-01012-MLB, 20-01013-MLB, 20 Bankr. LEXIS 3597, at *6-7 (Bankr. W.D. Wash. Dec. 29, 2020). However, the matter settled prior to a ruling on the appeal.

All is not lost. On January 18, 2022, the Court of Appeals for the State of Washington Division I gave the servicing industry an end to the misunderstanding created by the various interpretations of Edmundson in Copper Creek Homeowners’ Association v. Wilmington, No. 82083-4-I, slip op. (January 18, 2022). The Court corrected the misinterpretation of Edmundson by the federal cases. It noted specifically that Edmundson does not stand for the proposition that the statute of limitations runs from the last payment due prior to a bankruptcy discharge. To the contrary, the Court stated that this NOT the rule in Edmundson. In addition, it noted that any unpublished state court cases which also repeated the federal interpretation were wrong.

Further, the Court clarified that Edmundson applied Herzog v. Herzog, 23 Wash.2d 382, 387-88 (1945); United States v. Dos Cabezas Corp., 995 F.2d 1486, 1490 (9th Cir. 1993). In furtherance of its discussion, the Court advised that a rule wherein the statute of limitations begins to run with a bankruptcy discharge extends the meaning of a discharge to impacting more than personal liability. Moreover, the Court observes that the federal decisions do not rely on any provision in the Bankruptcy Code to support their findings.

Applying this reasoning to the facts of the case, the Court found that the statute of limitations began to run when the protection of the SCRA which had previously tolled the statute of limitations, was extinguished. The borrower in Copper Creek had been protected by the SCRA until he filed a
bankruptcy case and obtained a discharge. Because the personal liability ended with the discharge, the SCRA no longer prevented the servicer from proceeding with foreclosure. The Court held that the statute of limitations ran on payments due six years prior but had not run on payments not yet due or due within six years.

In Merritt v. USAA Fed. Sav. Bank, No. 82162-8-I, 2022 WL 355243 (Wash. Ct. App. Feb. 7, 2022), the Court of Appeals for the State of Washington Division I followed the Court in Copper Creek. Unfortunately, it is not a published opinion providing precedent on the issue. However, it does lend support for the conclusion that the statute of limitations does not run from the date of the entry of a discharge in a bankruptcy case.
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With these cases, we need no longer fear the statute of limitations and the bankruptcy discharge in the State of Washington. Questions? Contact us at [email protected] to reach the author, Kris Zilberstein, Esq. To read her original article first published in the ALFN ANGLE (page 50), click here.