WaMu sued after ignoring homeowners’ bankruptcy stay
George and Barbara Dawson purchased their home “subject to” a first mortgage with Great Western Bank, a predecessor of Washington Mutual Bank (WaMu), one of the nation’s largest home loan lenders. The loan fell into default for nonpayment. WaMu held its foreclosure sale on Feb. 8 by submitting a “credit bid” for the mortgage balance. No bidders showed up so WaMu took title to the home.
But, unknown to WaMu, borrower George Dawson filed Chapter 7 bankruptcy on Feb. 6. WaMu was therefore in violation of the bankruptcy “automatic stay” prohibiting further foreclosure proceedings.
On Feb. 20, WaMu served a “Notice to Quit” on the Dawsons, claiming ownership of the house. On March 1, WaMu was notified that George Dawson had filed Chapter 7 bankruptcy on Feb. 6. On March 14, WaMu dismissed its unlawful-detainer eviction proceedings against the Dawsons.
However, WaMu did not rescind the foreclosure sale until Aug. 8. On June 2, the Dawsons brought a lawsuit against WaMu seeking damages for willful violation of the bankruptcy automatic stay by holding the foreclosure sale.
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