In re Gen. Receivership of EM Prop. Holdings, LLC (Majority)Annotate this Case
The issues this case presented for the Washington Supreme Court involved the priority of mortgage liens, the scope of RCW 60.04.226, and whether to adopt certain sections of the Restatement (Third) of Property: Mortgages (Am. Law Inst. 1997). Principal among them: whether a senior mortgage holder’s future advances clause maintained priority over an intervening junior mortgage on the same property. The parties and the Court of Appeals referred to future advances and modification of mortgages interchangeably throughout this case. Though similar, these were different mortgages provisions, carried different legal consequences, and were governed by different provisions of the Restatement. The parties and the appeals court applied Restatement § 7.3 to the future advances clause in the instant mortgage documents. Restatement § 2.3 was the provision that governed future advances while Restatement § 7.3 governed mortgage modifications. Applying both Restatement § 7.3 and RCW 60.04.226 to a future advances clause creates a conflict because the statute does not provide a “stop-notice” protection while the Restatement does. The Washington Supreme Court read RCW 60.04.226 as applying only in the construction context. The Court thus reversed the Court of Appeals and remanded to the trial court to determine the correct priority of claims by applying the common law rules outlined in our cases for both future advances and modifications.