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Kim v. Lee9/20/2001
Oral Argument Date: 05/22/2001
Concurring: Charles Z. Smith, Charles W. Johnson, Bobbe J. Bridge, Susan J. Owens, Tom Chambers, Gerry L. Alexander, Dissenting: Richard B. Sanders, Barbara A. Madsen.
En Banc
This is a discretionary review of a Court of Appeals' decision which granted Yakima Title & Escrow Company first lienholder position, through the doctrine of equitable subrogation, over a prior perfected judgment creditor. We hold under the facts of this case that the title insurer should not avoid liability through the doctrine of equitable subrogation because the title insurer had actual knowledge of a prior judgment lien and failed to disclose such a lien to its insured before issuance of the title policy. The Court of Appeals' decision is reversed, and the trial court's judgment is reinstated.
FACTS
Background
The pertinent facts in this case are not in dispute. On December 5, 1995, Kenneth and Yun Ok Chang bought a home in Yakima for their daughter and son-in-law, Sharon and Stanley Lee. Of the $165,000 purchase price, $130,000 was financed by a promissory note from Sterling Trust Company (Sterling) in the Changs' name at an interest rate of 10.5 percent per annum, maturing in six years. The promissory note was secured by a deed of trust dated December 5, 1995, and was recorded on December 11, 1995 in Yakima County Auditor's file number 3118149. Yakima Title & Escrow (Yakima Title) recorded the statutory warranty deed in favor of the Changs and the deed of trust was executed at the direction of Sterling Escrow Company. The Lees moved into the home and made payments owed by the Changs on the Sterling loan as each became due.
Meanwhile, on April 28, 1997, Hu Hyun Kim obtained a default judgment against the Lees in King County Superior Court for failure to comply with discovery orders. Judgment was entered for a total of $83,565.37. The judgment was recorded in Yakima County on May 16, 1997, under auditor's file number 7010775.
On December 22, 1997, two years after purchasing the home, the Changs quitclaimed an undivided one-half interest in the property to the Lees. The Changs and the Lees filed an excise tax affidavit claiming the one-half interest as a gift to claim the gift exemption. The home was still subject to the loan from Sterling's deed of trust. Subsequently, the Lees sought their own financing in order to take advantage of lower interest rates.
In March 1998, the Lees procured financing through Pioneer National Bank (Pioneer Bank) to pay off the underlying deed of trust granted by the Changs to Sterling. As part of the deal, the Changs agreed to quitclaim their remaining undivided one-half interest to the Lees in consideration of love and affection. The quitclaim deed was signed on April 10, 1998 and recorded on April 28, 1998. Yakima Title's employee, Rae Dawn Hawley, signed a real estate tax affidavit in which the Changs and Lees were not subject to pay excise tax by claiming that "grantor gifts property which has no underlying debt." Clerk's Papers (CP) at 156.
On April 20, 1998, the Lees executed their own promissory note and deed of trust to Pioneer Bank with an interest rate of 6.75 percent per annum, maturing in 30 years. All of the Lees' loan proceeds were used to pay off Sterling's deed of trust, plus settlement charges.
On April 28, 1998, a year after Kim had recorded the King County judgment in Yakima County, Pioneer Bank recorded its deed of trust and the second quitclaim deed.
Yakima Title issued a commitment for title insurance insuring Pioneer Bank's first lien position effective March 16, 1998, and updated it
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