Washington State SOL Pitfall: Edmundson Overturned

In the Winter 2021, I wrote an article warning about the statute of limitations in Washington where it had been erroneously determined that the statute of limitations begins to run with the discharge in bankruptcy upholding Edmundson v. Bank of America, 378 P.3d 272, 278 (Wash. Ct. App. 2016). In March 2022, I followed it with a case law update which was the beginning of the end of Edmundson. In Copper Creek Homeowners’ Association v. Wilmington, No. 82083-4-I, slip op. (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. On Thursday, July 20, 2023, The Supreme Court of Washington put the final nail in the coffin of Edmundson with its opinion in Merritt v. USAA Fed. Sav. Bank, 2023 Wash. LEXIS 376 where the running of the statute of limitations was returned to its correct origination point of the date of default.

The Merritts had several properties with Home Equity Lines of Credit (“HELOC”). After not making payments and receiving a discharge in the Bankruptcy Court, the Merritts initiated quiet title actions in the state court. Of course, the argument was that under Edmundson the discharge in the Bankruptcy Court caused the statute of limitations to begin to run. USAA filed a motion for summary judgment arguing the opposition. The trial courts granted summary judgment agreeing with USAA, and the Merritts appealed. The Court of Appeals also agreed with USAA citing Copper Creek Homeowners’ Association. In turn, the Merritts sought review of the Supreme Court of Washington.

In the analysis the Court referenced the case law which has become all too familiar. The findings that the statute runs for each payment, the deed of trust follows the note, the statute does not begin until there is a breach…. And the list goes on. More specifically in relation to the Merritts’ loans, they were installment contracts where the statute of limitations began to run upon the date of each missed payment. The Court noted that the final statute of limitations had not yet run because the loans had not reached maturity.

Then, the Court began its analysis of the effect of a bankruptcy discharge. It specifically noted that a Chapter 7 discharge eliminates the in personam liability on a loan. Most importantly, the Court stated that the underlying debt is not extinguished and advised that more than a century of precedent states that a creditor’s right to foreclose survives a bankruptcy discharge. Further, the Court notes that the discharge does not alter the terms of the loan. In applying all of these concepts to the case at hand, the Court determined that the Merritts are not entitled to quiet title because the statue of limitations “…has not even begun to run.”

After a ruling that is music to all lenders ears, the Court attacked Edmundson. It explained and disavowed the dicta in Edmundson that a bankruptcy discharge triggers the statute of limitations. In its review, the Court advised that Edmundson was correct up to the point that it implied the statute of limitations stops accruing following a bankruptcy discharge. For that concept, the Court highlights the fact that no cases are cited in support thereof. In addition, the Court points out that this concept is contrary to contract and bankruptcy law. As the Court disavows this dicta, it reiterates the fact that a lien survives bankruptcy and only personal liability is eliminated by a bankruptcy discharge; thus, the statute of limitations does not begin to run until a payment is missed. This leaves the in rem remedies available to a lender. In a footnote, the Court lists all of the cases where courts have incorrectly relied upon Edmundson.1

While Copper Creek Homeowners’ Association gave the default industry some relief from this pitfall, that ruling was from the Court of Appeals. The ruling in Merritt was the final end to the nightmare because it came from the Washington Supreme Court.
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1. On a personal note, the laundry list of cases gave me vindication. The case where I fought the good fight and lost was included in the list. Also, the Court’s reasoning here was much like reading my briefing.

​This post was prepared by Kristin A. Zilberstein, Esq.