Conservation Loans
Conservation is a ubiquitous principle in the modern world. Disputes over how best to conserve resources often play out in Court, in the areas of municipal law, environmental law, and, in this case, lien and Real Estate law. This post relates to conservation loans (loan used for energy conservation improvements) provided to private individuals, where the lender is a public utility, and the loan is secured by the individual's residence.[1] The exact method through which the utility was to be paid back, whether the utility or the bank should be paid first after foreclosure of the property, was the issue in dispute in Seattle Mortgage.
In that case, the Seattle Mortgage Company held a standard first-position mortgage on a borrower's home. The Tacoma PUD provided a zero interest loan, funded by ratepayers, to that same borrower, who was low-income, for the purpose of energy conservation improvements to the home. The customer passed away shortly after the conservation loan was provided. In addition to trying to get paid first, the PUD made a claim that it would refuse to provide power to the person who bought the home at the foreclosure sale.
The Washington Constitution contains express support and authorization for public utilities to lend money for conservation improvements: utilities may "use public moneys or credit derived from operating revenues from the sale of water, energy, or stormwater or sewer services to assist the owners of structures or equipment in financing the acquisition and installation of materials and equipment for the conservation or more efficient use of water, energy, or stormwater or sewer services in such structures or equipment."[2] The PUD referenced this provision in their Court documents when arguing that the conservation loan was akin to an outstanding bill for utilities.
"Washington's recording system was enacted to ensure that a deed recorded first in time was superior to any other conveyance and 'generally, liens take precedence in order of time, the first in time being the first in right.'"[3] But, some liens can jump in and become "super-priority liens" where even though the utility or tax liens arose later in time, they are considered to be in first position (that is, they would get paid before the bank would get paid) in the eyes of the law.
The utility company in this case characterized the conservation loan similarly to an outstanding bill for utilities that have already been consumed. The appellate Court did not agree with this characterization and, rather, do the conservation loan as nearly identical to a customary mortgage that is provided from a bank to a borrower. I think that the appellate court chose correctly in this case, but, the behind-the-scenes impact of this legal rationale is that fewer conservation loans will be provided to borrowers. Based on this decision and the subsequent decisions upholding it, there is less legal traction available to the utility district when it is trying to collect, or "execute" on the borrower's home. In this case, the PUD received no repayment at all for its loan, causing the utility to ramp up restrictions or be more cautious about lending.
1 Seattle Mortg. Co., Inc. v. Unknown Heirs of Gray, 133 Wn.App. 479 (Wash.App. Div. 2 2006) quoting Bank of Am. v. Wells Fargo Bank, 126 Wash.App. 710, 714, (2005)
[2] WASH CONST. Art. VIII, § 10.
3 Seattle Mortg. Co., Inc. v. Unknown Heirs of Gray, page 495.
