March 01, 2018

You Can’t Lock the Doors! Are Lenders Powerless to Stop Zombie Properties in Lien Theory States? Part 2

Timothy M. Harris

Reprinted with permission from Real Property, Trust and Estate Law Journal, Fall 2017 (52:2) at 203–211. ©2017 by the American Bar Association. Reprinted with permission. All rights reserved. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.

This is the second of several excerpts from this article that will appear in GPSolo eReport.

IV. The Jordan v. Nationstar Court’s Analysis

The majority opinion in Jordan v. Nationstar Mortgage, LLC 53 answered the first certified question from the federal court in the negative.54 According to the court, the language in the deed of trust allowing a lender to enter a property after default conflicts with Washington’s lien theory of mortgages, as reflected in RCW section 7.28.230(1).55 That section states in pertinent part that “[a] mortgage of any interest in real property shall not be deemed a conveyance so as to enable the owner of the mortgage to recover possession of the real property, without a foreclosure and sale according to law.”56

The court held the entry provision in the deed of trust was unenforceable because it conflicted with RCW section 7.28.230—even though the parties had expressly entered into a contract in the deed of trust that allowed the lender to take certain self-help steps upon default.57 The court determined that contract “provisions are unenforceable where they are prohibited by statute.”58 Generally, individuals are free to contract, and agreements will be enforced as written unless “prohibited by statute, condemned by judicial decision, or contrary to public morals.”59

A. The Lien Theory Statute

Washington is one of a majority of states following lien theory—as opposed to title theory—of mortgages.60 Under title theory, a mortgage vests title to the property with the lender, and a lender may recover possession of the premises after default and before foreclosure.61 The borrower only retains equitable title.62 Under traditional title theory jurisdictions, the lender has the legal right to possess the land, and the lender can recover possession after default.63

Under lien theory, title remains with the borrower despite the granting of the mortgage or deed of trust.64 In lien theory states, like Washington, “the [lender] has only a security interest and the [borrower] holds title with the right to possession, although some states provide the [lender] the right to possession upon default or broken condition of the mortgage.”65 A lender may obtain possession only after completing the foreclosure process.66 “Since territorial days, decisions of the [Washington] supreme court have held that a mortgage does not convey title in the sense of the old English mortgage, but gives the mortgagee only a lien on the mortgaged land.”67

As the Jordan court observes, it is well settled in Washington that lenders cannot take “possession of borrowers’ property before foreclosure.”68 The borrower retains the right to possession even after he or she abandons the property.69 The lender can deprive the borrower of possession of the property and obtain actual ownership of the property and rent only through the act of foreclosure.70

According to the Jordan majority opinion, Washington’s lien theory is “essentially codified” in RCW section 7.28.230(1).71 Additionally, RCW section 7.28.230(1) is explicitly cited in question one that was certified to the supreme court by the federal district court.72 Therefore, the question before the court was simply whether the contractual—deed of trust—language conflicted with the statute.73 The court stated that “a contract which is contrary to the terms and policy of an express legislative enactment is illegal and unenforceable.”74

B. Definition of Possession

RCW section 7.28.230(1) impacts the deed of trust language allowing a lender entry to maintain a property in default: “A mortgage of any interest in real property shall not be deemed a conveyance so as to enable the owner of the mortgage to recover possession of the real property, without a foreclosure and sale according to law. . . .”75 The Jordan court found the conflict between the entry language and the code invalidated the contract terms in Ms. Jordan’s deed of trust-and every similar deed of trust.76

The court reached its conclusion by entering into a ponderous analysis of what it means to possess property.77 The court cited to real property law, tort law, and landlord-tenant law to define possession.78 The Washington Supreme Court is not the first to struggle with this seemingly simple concept.79

First, the court cited to property law and the Restatement of Property definition of possession: “[A] physical relation to the land of a kind which gives a certain degree of physical control over the land, and an intent so to exercise such control as to exclude other members of society in general from any present occupation of the land.”80 Next, the court looked at tort law for the proposition that “a ‘possessor of land’ is defined as ‘a person who occupies the land and controls it.’”81 The Jordan court noted with approval that the Court of Appeals had previously applied the tort definition when considering whether a lender was in possession for the purposes of premises liability82 in Coleman v. Hoffman.83 However, the dissent would have held that the Coleman decision had little bearing on whether Nationstar possessed Ms. Jordan’s property when it changed the locks and left a note and instructions to open a lock box.84

Coleman was a negligence case in which the plaintiff sought to hold a lender liable for injuries sustained due to a broken balcony.85 In Coleman, a lender argued RCW section 7.28.230 shielded it from premises liability because the statute prevented it from occupying the property.86 The Coleman court disagreed: “This argument would preclude premises liability for any mortgagee unless and until the mortgagee purchases the premises at a foreclosure sale and then takes possession.”87 The Coleman court further stated: “Although RCW 7.28.230 effectively precludes a mortgagee from obtaining possession of property to the mortgagor’s exclusion, the statute does not bear on the question of whether a mortgagee actually possesses the property. Actual possession, not a right to possession, is the critical inquiry in premises liability cases.”88

The Jordan court found that Nationstar, like the lender in Coleman, did not have a right to possess the subject property under RCW section 7.28.230(1).89 The relevant inquiry does not bear on whether there was a right to actual possession.90 In Coleman, the appellate court focused on actual possession rather than the right to possession to determine liability.91 In Jordan, the issue was whether the lender actually took possession at all.92

According to the Jordan court, the Coleman court looked at the tort definition of possession to determine if there was liability on behalf of the lender in a premises liability case.93 The facts in Coleman showed that the lender repaired the property and paid utility bills.94 Additionally, the lender in Coleman sent a letter admitting that it had “taken over control”95 of the premises, an important fact that was not considered by the Jordan court.

The Coleman decision is inapposite and has no bearing on the facts at issue in Jordan. As the dissent in Jordan explained, the Coleman case should be used to

merely clarif[y] the differences between the right to possession (applicable to foreclosure actions) and actual possession (applicable to premises liability matters); . . . “[T]he statute does not bear on the question of whether a mortgagee actually possess the property. Actual possession, not a right to possession, is the critical inquiry to premises liability cases.” But unlike the landlords in . . . Coleman, Nationstar never possessed the property to Jordan’s exclusion.96

Thus, Coleman and Jordan cannot be paralleled because each fact pattern involved a non-similar context.

Next, the Jordan court approvingly cited a landlord-tenant case for its treatment of possession, Aldrich v. Olson,97 in which “the Court of Appeals found that when the landlord changed the locks of her tenant’s home, it was an unlawful eviction.”98 Aldrich answered the question of whether a rental property had been abandoned and the underlying lease breached.99 The court in Aldrich found that “any unlawful act of a landlord which permanently ousts a tenant from physical possession of the property constitutes an actual eviction.”100 The court found that a landlord’s changing locks to exclude a tenant constituted a reassumption of physical possession and an eviction.101 The Jordan case is also an entirely different context—the court does not discuss RCW section 7.28.230, entry provisions in deeds of trust or Washington’s lien theory of mortgages. Aldrich did not involve a contractual right to enter the property like the entry provision in Jordan’s deed of trust, and there was no means for the tenant to enter the property in Aldrich without breaking a lock. Aldrich involved a landlord, a tenant, a lease, and an eviction. Therefore Jordan and Aldrich are inapposite.

Finally, the Jordan court cited to other lien theory states, observing that some states “codified statutes that specifically invalidate such agreements,” and those statutes prevent the lender from taking possession of property.102 But each of those states has the same issue with possession as Washington.103 Rather than prove the court’s point, the other statutes point to how wide of a problem the standard entry provision in the deed of trust can create. The Jordan case might be recreated under any of the other lien theory statutes.

For example, the Idaho Code states: “A mortgage of real property shall not be deemed a conveyance, whatever its terms, so as to enable the owner of the mortgage to recover possession of the real property without a foreclosure sale.”104 Colorado law states:

Mortgages, trust deeds, or other instruments intended to secure the payment of an obligation affecting title to or an interest in real property shall not be deemed a conveyance, regardless of its terms, so as to enable the owner of the obligation secured to recover possession of real property without foreclosure and sale, but the same shall be deemed a lien.105

Further, Nevada law states: “A mortgage of real property shall not be deemed a conveyance, whatever its terms, so as to enable the owner of the mortgage to take possession of the real property without a foreclosure and sale.”106 Similarly, an Oklahoma statute states: “Notwithstanding an agreement to the contrary, a lien or a contract for a lien transfers no title to the property subject to the lien.”107 Lastly, the Utah Code states: “A mortgage of real property may not be considered a conveyance which would enable the owner of the mortgage to recover possession of the real property without a foreclosure and sale.”108

The Jordan court states that each of those statutes constitutes an invalidation of agreements that allow the lender to take possession of property.109 However, the language of each statute is merely a reflection of the state’s status as a lien theory state. Washington has not specifically invalidated entry provisions in a deed of trust, but neither have any of the other states to which the court cited.110 Lenders in each of the cited states—and many other lien theory states—are therefore vulnerable to a Jordan-like challenge.


Another section of this article will be excerpted in the next issue of GPSolo eReport.



53. 374 P.3d 1195 (Wash. 2016).

54. See id. at 1204.

55. See id. at 1199.

56. WASH. REV. CODE § 7.28.230.

57. See Jordan, 374 P.3d at 1202.

58. Id. at 1199 (citing State Farm Gen. Ins. Co. v. Emerson, 687 P.2d 1139, 1142 (Wash. 1984)).

59. Mendoza v. Rivera-Chavez, 999 P.2d 29, 30 (Wash. 2000) (quoting Emerson, 687 P.2d at 1142).

60. See John Rapisardi, The Mortgagee’s Right to Rents After Default: An Unsettled Controversy, 6 J. BANKR. L. & PRAC. 331, 335 (1997) (“[I]n the United States, mortgage law developed along the lines of two theories; that is, the ‘lien’ or ‘title’ theory, which theories had been developed under early English law. . . . [A] majority of states adhere to the ‘lien theory’ of mortgage law.”). There is also a hybrid theory of mortgage law followed by a distinct minority of states. See BAXTER DUNAWAY, 1 THE LAW OF DISTRESSED REAL ESTATE § 11.25 (West. 2009) (“The so-called intermediate or hybrid theory states have attempted to take a position between that of title theory states and that of lien theory states. Hybrid theory states include: Georgia, Maryland, Mississippi, New Jersey, North Carolina, and Vermont.”).

61. See RESTATEMENT (THIRD) OF PROP.: MORTGS. § 4.1 cmt. a (AM. LAW INST.1997).

62. See Lister v. Bank of Am., 790 F.3d 20, 25 (1st Cir 2015) (“[T]he title theory of mortgage law ‘splits the title [to a property] in two parts: the legal title, which becomes the mortgagee’s and secures the underlying debt, and the equitable title, which the mortgagor retains.’”); Maglione v. BancBoston Mortg. Corp., 557 N.E.2d 756, 757 (Mass. App. Ct. 1990) (“Literally, in Massachusetts, the granting of a mortgage vests title in the mortgagee to the land placed as security for the underlying debt. The mortgage splits the title in two parts: the legal title, which becomes the mortgagee’s, and the equitable title, which the mortgagor retains.”).

63. See Maglione, 557 N.E.2d at 758. Some modern loan documents allow the lender to remain in possession until foreclosure, even in title theory states. See generally 1 WILLIAM H. BROWN, THE LAW OF DEBTOR AND CREDITORS: BANKRUPTCY, SECURITY, COLLECTION § 8.7 (West. 2017).

64. See RESTATEMENT (THIRD) OF PROP.: MORTGS. § 4.1 cmt. (a)(2).

65. BROWN, supra note 63, § 8.7 (discussing the preforeclosure mortgagor-mortgagee relationship).

66. See RESTATEMENT (THIRD) OF PROP.: MORTGS. § 4.1 cmt. (a)(2) & (3).

67. 18 WILLIAM B. STOEBUCK & JOHN H. WEAVER, WASHINGTON PRACTICE SERIES, REAL ESTATE TREATISES § 17.2 (2d ed. 2004). United States courts have predominately applied two different theories when determining the rights of a lender:

Rooted in English law, title theory gives legal title of the property to a lender until the mortgage is satisfied, at which point, title would be conveyed to a borrower. With the development of a borrower’s equity of redemption, modern courts have interpreted title theory to give lenders theoretical title to mortgaged property while borrowers remain in possession and, for practical purposes, are considered the true owners of such property....

Under lien theory, followed by the majority of U.S. jurisdictions, a lender acquires only a lien on the mortgaged real estate and the borrower retains both legal and equitable title and the right to possession until foreclosure.

Andera Clark, Comment, Amidst the Walking Dead: Judicial and Nonjudicial Approaches for Eradicating Zombie Mortgages, 65 EMORY L. J. 795, 806-07 (2016) (footnotes omitted).

68. Jordan, 374 P.3d at 1199.

69. See Howard v. Edgren, 385 P.2d 41, 42 (Wash. 1963). But see RESTATEMENT (THIRD) OF PROP.: MORTGS. § 4.1 cmt. c (“A mortgagee may also become a lawful mortgagee in possession as the result of a peaceful entry in good faith after purchasing the premises at a void or voidable foreclosure sale. So too should a mortgagee’s security interest be sufficient to give the mortgagee the right to take and retain possession of the mortgaged real estate after abandonment by the mortgagor. In the latter situation, public policy clearly supports mortgagee possession. Not only is it important to protect the real estate against the elements and vandalism, but society is benefited by its productive use.”).

70. See Howard, 385 P.2d at 42; see also Bloomer v. Sw. Wash. Prod. Credit Ass’n, 220 P.2d 324, 327 (Wash. 1950) (“It hardly needs citation of authority to establish that in this state, as in Pennsylvania, the real property covered by a mortgage is not the property of the [lender].”).

71. See Jordan, 374 P.3d at 1200.

72. See id. at 1198.

73. See id.

74. Id. at 1199 (citing State v. Nw. Magnesite Co., 182 P.2d 643, 656 (Wash. 1947)); see also State Farm Gen. Ins. Co. v. Emerson, 687 P.2d 1134, 1142 (Wash. 1984) (stating that a contract that is not prohibited by statute does not violate public policy); 25 DAVID K. DEWOLF ET AL., WASHINGTON PRACTICE SERIES: CONTRACT LAW AND PRACTICE § 7:1 (3d ed. 2014) (“It is the rule in Washington that parties to a contract may incorporate into that contract any provision that is not illegal or against public policy. In turn, courts will uphold whatever lawful agreement the parties make with each other.”).

75. WASH. REV. CODE § 7.28.230(1) (emphasis added).

76. See Jordan, 374 P.3d at 1202.

77. See generally id. at 1200-02 (discussing what it means to possess property).

78. See id. at 1201 (discussing the court’s interpretation of the various definitions of possession).

79. See, e.g., State v. Strutt, 236 A.2d 357, 360 (Conn. App. Ct. 1967) (“The word ‘possession’ has several radically different meanings.”).

80. Jordan, 374 P.3d at 1201 (citing RESTATEMENT (FIRST) OF PROP.: DEFINITION OF CERTAIN GEN. TERMS § 7(a) (AM. LAW. INST. 1936)).

81. Id. (citing RESTATEMENT (THIRD) OF TORTS: LIAB. FOR PHYSICAL AND EMOTIONAL HARM § 49 (AM. LAW INST. 2012)). However, the Supreme Court of Washington has also used the Restatement (Second) of Torts to define possessor of land. See, e.g., Ingersoll v. DeBartolo, Inc., 869 P.2d 1014, 1017 (Wash. 1994) (“A possessor of land is (a) a person who is in occupation of the land with intent to control it or (b) a person who has been in occupation of land with intent to control it, if no other person has subsequently occupied it with intent to control it, or (c) a person who is entitled to immediate occupation of the land, if no other person is in possession under Clauses (a) and (b).” (quoting RESTATEMENT (SECOND) OF TORTS § 328E (AM. LAW INST. 1965))).

82. See Jordan, 374 P.3d at 1201 (citing Coleman v. Hoffman, 64 P.3d 65, 65 (Wash. Ct. App. 2003)).

83. 64 P.3d 65 (Wash. Ct. App. 2003).

84. See Jordan, 374 P.3d at 1205 (Stephens, J., dissenting).

85. See Coleman, 64 P.3d at 66-67 (Wash. Ct. App. 2003).

86. See id. at 70; infra Part V.

87. Coleman, 64 P.3d at 70.

88. Id. The Coleman court’s determination that the critical inquiry in premises liability is actual possession is shared with the Michigan Supreme Court:

The [mortgagee] asserts that because it was not entitled to immediate occupation of the land under our mortgage law, it could not have been a “possessor” of the property in question for purposes of premises liability. Although we agree that the [mortgagee] had no legal right of possession before May 3, 1990, possession for purposes of premises liability does not turn on a theoretical or impending right of possession, but instead depends on the actual exercise of dominion and control over the property.

Kubczak v. Chem. Bank & Tr. Co., 575 N.W.2d 745, 748 (Mich. 1988).

89. See Jordan, 374 P.3d at 1201-04.

90. The irrelevance of the right to actual possession is reflected in the concept of adverse possession; that one is in possession without a right to possess the property. See, e.g., ITT Rayonier, Inc. v. Bell, 774 P.2d 6, 9 (Wash. 1989) (“[P]ossession . . . is established only if it is of such a character as a true owner would make considering the nature and location of the land in question.”).

91. See Coleman, 64 P.3d at 68 (“[T]he determinative issue is not whether each respondent is properly titled a ‘mortgagee in possession,’ but whether each respondent actually possessed the premises.”).

92. See Jordan, 374 P.3d at 1200-02.

93. See id.

94. See Coleman, 64 P.3d at 69.

95. Id. at 68. The Coleman Court found a triable issue of fact had been raised, relying in part on a letter from the lender’s attorney stating that the lender had “for all practical purposes taken over control of [the property]” because it could not locate the borrower. Id. (emphasis removed).

96. Jordan, 374 P.3d at 1205 (Stephens, J., dissenting) (quoting Coleman, 64 P.3d at 863-64).

97. 531 P.2d 825 (Wash. Ct. App. 1975).

98. Jordan, 374 P.3d at 1201 (citing Aldrich, 531 P.2d at 830).

99. See Aldrich, 531 P.2d at 827-28.

100. Id. at 827.

101. See id.

102. Jordan, 374 P.3d at 1200.

103. See infra Part IV.B.

104. IDAHO CODE § 6-104 (emphasis added).

105. COLO. REV. STAT. ANN. § 38-35-117 (emphasis added).

106. NEV. REV. STAT. § 40.050 (emphasis added).

107. OKLA. STAT. tit. 42, § 10.

108. UTAH CODE ANN. § 78B-6-1310 (emphasis added).

109. See Jordan v. Nationstar Mortg., LLC, 374 P.3d 1195, 1199 (Wash. 2016) (en banc).

110. See id.



Timothy M. Harris

Timothy M. Harris is adjunct professor of law, Seattle University School of Law; assistant city attorney, Seattle City Attorney’s Office. B.A., M.A., University of California, Davis; J.D., University of the Pacific, McGeorge School of Law. The views expressed in this article are those of the author, not necessarily those of the Seattle City Attorneys’ Office.