Search form

December 7, 2011
Applicability of the Homestead Exemption to Commercial Guarantors
Practice Areas: 

Applicability of the Homestead Exemption to Commercial Guarantors

         In Washington a guarantor of a commercial obligation is potentially liable for any deficiency balance remaining due on that obligation following the non-judicial foreclosure of a deed of trust securing the obligation.  However, that liability is limited where the subject real property was granted specifically to secure the guarantor’s obligations under the guaranty, either directly or through a cross-collateralization provision in the loan documents. 

        If the property is the guarantor’s principal residence, the guarantor is also entitled to receive payment of the homestead exemption (up to $125,000) from the sale proceeds, prior to application of the proceeds to the obligation secured.  This raises particular difficulties where there is limited equity in the property or the beneficiary purchases the property with a credit bid in lieu of cash.  If the beneficiary credit bids, then the beneficiary will still be require to pay the guarantor the homestead amount upon sale.

        Although the definition of a homestead generally can include unimproved or unoccupied land, the deficiency statute, RCW 61.24.040, limits the homestead exemption in this context to the guarantor’s principal residence.  However, it does not address whether or how the homestead can be abandoned, which is typically determined by RCW 6.13.050.  Although the reasonable interpretation is that the homestead can be abandoned, the uncertainty frequently discourages beneficiaries from foreclosing for fear of a post-sale determination that the homestead remains.

        That concern was somewhat eased this year following the decision of Division 3 of the Court of Appeals of Washington in In re Trustee’s Sale of Real Property of Brown, 161 Wash.App. 412 (2011).  In Brown the beneficiary asserted that the guarantors abandoned the homestead by (i) vacating the property for more than six months prior to the sale, (ii) terminating utility services to the property, (iii) leasing and occupying another property, (iv) obtaining drivers’ licenses in another state, (v) registering their vehicles in another state, and (vi) claiming domicile in another state.  The guarantors argued they were simply on an extended vacation.  Although the guarantors occupied the property as their principal residence at the time they executed the subject deed of trust, the Court ruled that the guarantors had abandoned the property as provided for under RCW 6.13.050, and were no longer entitled to payment of their homestead exemption under RCW 61.24.100. 

        The Brown ruling establishes clear guidance for a beneficiary to assert that the homestead has been abandoned, to include relevant factors.  However, the determination of a homestead is fluid, and can be reclaimed by a guarantor.  If you are considering foreclosure of a deed of trust involving property that was previously the principal residence of a guarantor, we can discuss strategies for establishing abandonment prior to the non-judicial foreclosure of a deed of trust.


This advisory is a publication of Eisenhower Carlson PLLC. Our purpose in publishing this advisory is to inform our clients and friends of recent legal developments. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.

Eisenhower Carlson PLLC © 2011  ||  Credits & Disclaimers

This website is for informational purposes only and is not legal advice.

No portion of this page or any content herein may be redistributed or republished without written permission from Eisenhower Carlson PLLC.The information you'll find here is our way of introducing you to Eisenhower Carlson PLLC. It contains no official legal opinions. No responsibility is assumed for the accuracy or timeliness of any information on this website. The information on this website is not intended as a substitute for legal counsel, and is not intended to create, and receipt of it does not constitute, a lawyer-client relationship.

We invite you to contact us by phone, fax or e-mail for a session with one of our lawyers.

For your own protection, we strongly suggest that you do not transmit confidential documents to us or anyone else via unsecured email.

If you have any questions or comments concerning this site, please send an email to Do not send confidential information via email.

Concept & Design: CAVLRY
Photography: CAVLRY
Drupal CMS Development: Praece Strategic Technolog Consulting