|
On April 30, 2026, the Washington Supreme Court issued a decision holding that home equity lines of credit (HELOCs) are ineligible for non-judicial foreclosures (foreclosure by trustee’s sale) under the Washington Deed of Trust Act (DTA). The case, Marquez Vargas v. RRA CP Opportunity Trust 1, will immediately impact lenders seeking to foreclose trust deeds on Washington residential properties securing HELOCs and other obligations that are not embodied in a promissory note or “instrument.”
Washington Non-Judicial Foreclosure Requirements
In order to foreclose non-judicially on a residential property of up to 4 units, RCW 61.24.030 requires the beneficiary (the person enforcing the obligation) to provide the trustee with a declaration that the beneficiary is the “holder of any promissory note or other obligation secured by the deed of trust.” RCW 61.24.005 defines “beneficiary” as the “holder of the instrument or document” evidencing the obligations secured by the trust deed.
HELOC Agreements Are Not “Instruments”
The Court relied on the definitions of “holder” and “instrument” under Uniform Commercial Code (UCC) Article 3. Under UCC Article 3, a negotiable instrument must include an unconditional promise to pay a fixed amount of money and must be payable to order or to bearer. The Court determined that HELOC agreements do not satisfy this requirement because they function as revolving credit facilities: they establish a credit limit, but the actual amount owed depends on future borrower draws and cannot be determined solely from the face of the agreement.
Similarly, the Court held that the Deed of Trust Act’s requirement that a foreclosing party demonstrate that it is the “holder” of the obligation incorporates the UCC concept of a holder—meaning the holder of a negotiable instrument.
Because HELOCs are not negotiable instruments, the Court held, a foreclosing party cannot establish that it is the “holder” in the manner required to satisfy RCW 61.24.030(7)(a). As a result, the statutory prerequisite for nonjudicial foreclosure cannot be met through the usual beneficiary declaration in these cases, effectively foreclosing the use of the streamlined nonjudicial foreclosure process for affected obligations.
Possible Challenge to the Court’s Ruling
Because this was a decision by the Washington Supreme Court on an issue of Washington state law, there is no possibility of an appeal to a higher court. The U.S. Supreme Court only reviews state court decisions if there is an issue under the U.S. Constitution or other federal law. However, it is possible that the lender could file a motion for reconsideration with the Washington Supreme Court.
There are certainly good reasons for the court to reconsider and potentially reverse its decision. First, nothing in the Deed of Trust Act requires or even points to incorporation of the UCC’s definitions of “instrument” or “holder.” Second, the decision ignores the language in the Deed of Trust Act referring to an instrument or other “document” and other “obligation.” A motion for reconsideration must be filed within 20 days after issuance of the decision. In this case, that deadline is May 20. The Court is not obligated to reconsider the case. If it does not do so, the decision will become final and the only way to alter it would be through the legislature.
Impact: No Non-judicial Foreclosure of HELOCs and other Obligations Not Represented by Instrument
The decision will have a meaningful operational impact. Credit unions that seek to foreclose Washington deeds of trust securing HELOCs or other non-instrument obligations will need to foreclose judicially.
If our firm is currently handling any foreclosures that may be affected by this decision, we will contact you directly to discuss next steps and available options in light of this ruling. If you have questions in the meantime about how this case may impact your operations or specific loans, please contact us.
| 
