A King County judge on Friday ordered one of the West Coast's major players in the foreclosure industry to pay more than $230,000 to the estate of a disabled senior citizen whose Whidbey Island home was wrongfully auctioned off after she fell behind on payments.

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A King County judge on Friday ordered one of the West Coast’s major players in the foreclosure industry to pay more than $230,000 to the estate of a disabled senior citizen whose Whidbey Island home was wrongfully auctioned off after she fell behind on payments.

Legal experts say it appears to be one of the first home-foreclosure cases to reach a jury verdict in Washington.

At a foreclosure auction on Feb. 29, 2008, Quality Loan Service Corp. of Washington sold Dorothy Halstien’s home for about $83,000 — even though her court-appointed guardian notified the company 11 days earlier of a signed contract to sell the house for $235,000 by mid-March.

The auction meant Halstien lost more than $150,000 of her home equity.

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In court, Quality said it didn’t have the discretion to postpone the auction and that only the lender, Washington Mutual, could grant a delay.

At the auction, an investor bought Halstien’s house for $1 over Quality’s opening bid and flipped the property six months later for $235,000, getting the equity that Halstien, a retired factory worker, had built up over decades.

Superior Court Judge Barbara Mack’s order finalizes a jury verdict in late January that found Quality and its San Diego-based parent company, Quality Loan Service Corp., violated the state Consumer Protection Act and breached its contract with Halstien.

The judge denied a motion to prevent Quality from conducting business in the state until it changes its practices.

“The court assumes QLS will follow the law… and that it will in the future fulfill its duty of good faith to borrowers, lest it face endless litigation,” Mack wrote.

Puget Sound Guardians, which was appointed Halstien’s guardian in January 2007, filed the suit weeks after the foreclosure sale. Halstien died in November 2008 at age 76, and the agency’s executive director, Dianne Klem, was appointed administrator of Halstien’s estate.

With this verdict, “we feel like this trustee and any other trustees in the state of Washington will make sure they protect the homeowner, as well as the bank or mortgage company,” Klem said.

The judgment will be used to pay Halstien’s medical bills and other creditors, Klem said. Any remaining money will be awarded to Halstien’s son and daughter.

In Washington state, most home foreclosures are handled outside of court. Instead, a trustee — in Halstien’s case, Quality — is appointed and paid by the bank to foreclose on the home.

But under state law, the trustee must be impartial in deciding whether or not to postpone the date of the auction.

It became apparent Quality wasn’t doing that, based on a confidential Washington Mutual document produced in court: The bank told Quality that it’s “not authorized to postpone a foreclosure without the consent” of WaMu, records show.

While Quality had the discretion under state law to postpone the foreclosure, it blindly followed WaMu’s instructions, said Frederick Corbit, senior attorney at nonprofit Northwest Justice Project, which represented Klem.

“The trustee is not a repo agent,” Corbit said. “Any reasonable trustee would have postponed the sale for three weeks.”

Kevin McCarthy, a spokesman for Quality, said he wouldn’t comment on the case or whether the company would appeal.

The suit originally included Washington Mutual as a defendant, but it became moot once the bank became insolvent in late 2008.

Purchased home

In 1996, Halstien paid $147,500 for the three-bedroom home in Greenbank, a quiet community on Whidbey Island about 11 miles south of Coupeville. For years, she was able to cover the mortgage with her Social Security and Teamsters pension.

In 2004, she signed for a $73,000 adjustable-rate loan from Washington Mutual, records show.

By January 2007, Klem’s agency was appointed Halstien’s guardian because of concerns her daughter was neglecting her. Halstien had developed dementia, suffered a broken hip and been admitted to a nursing home. Her medical bills quickly outstripped her monthly income, court records show.

Any income Halstien received went to cover the state’s cost of caring for her needs — which meant there wasn’t any money left to pay the mortgage. In October 2007, Quality had a notice of default posted on Halstien’s home.

After a drawn-out eviction of Halstien’s daughter from the home and approval from a judge to list the property for sale, Klem and her team — including asset manager David Greenfield — hoped they could sell the property and pay back Halstien’s creditors.

Greenfield testified that he asked Quality on Jan. 10, 2008, to delay the Feb. 29 auction and was told it would be postponed if Washington Mutual received the signed purchase contract by Feb. 19.

By Feb. 18, after some offers fell through, Greenfield had a buyer who was preapproved by a lender and had signed a contract for Halstien’s home.

The next day, he called Quality again to postpone the auction and notify it of the pending sale.

Quality then told Greenfield that only WaMu could approve a delay.

Over the next 10 days, Greenfield made a flurry of calls to WaMu offices across the country to head off the foreclosure auction.

He called and faxed paperwork on Feb. 19 and 21.

No response.

Greenfield called WaMu again Feb. 22 and spoke to a representative who led him to believe the bank was close to making a decision, he testified.

Three days later, after no response, Greenfield called WaMu and was told to fax documents to a department in Florida, which he did.

By Feb. 27 — two days before the auction — Greenfield still hadn’t heard anything back. He called again. He was told to fax the paperwork to two different numbers, which he did.

With no decision and no response to his efforts, Greenfield called WaMu the next day and was told to fax the paperwork again with a note at the top, “Rush Sale Date, 2/29/08.”

On Feb. 29, the day of the auction, Greenfield left one more message for WaMu, but it was too late — Halstien’s home was sold.

Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com

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