Washington Supreme Court hears arguments on whether HELOCs can be foreclosed under Deeds of Trust Act

The Washington State Supreme Court heard arguments in Gabriel Marquez Vargas v. RRACP Opportunity Trust on whether a home equity line of credit can be foreclosed nonjudicially under the Deeds of Trust Act (DTA).

Plaintiff counsel Vicente Omar Baraza, representing Gabriel Marquez Vargas, told the court the HELOC in question "is not a contract that can be foreclosed under the Deeds of Trust Act" because it cannot "constitute a negotiable instrument," and therefore lacks a holder entitled to use the DTA's extra‑judicial remedies. Baraza said the DTA must be "strictly construed in favor of homeowners" because the statute is in derogation of the common law and that judicial foreclosure would better protect the borrower given the HELOC’s drawn‑line structure and missing records.

Respondent counsel Tyler Melairn, representing RRACP Opportunity Trust and Real Time Resolutions, argued the DTA permits a beneficiary to establish holder status by filing a sworn declaration and that a HELOC can be a negotiable instrument. Melairn told the court that in some HELOCs "you can look at the 4 corners of the document, and you can determine that the nature of the obligation is a fixed amount," pointing to a draw period that later becomes a fixed repayment obligation and citing Bucci‑line precedent and a recently identified Maryland decision, Randolph v. Rosenberg, that found HELOC notes could be negotiable.

Much of the argument focused on two core legal points certified by the federal court: (1) whether the party seeking beneficiary status under the DTA must be the "holder of any promissory note or other obligation" and, if so, whether that language imports the UCC definition of a "holder"; and (2) whether a HELOC that includes a closed‑draw period and subsequent fixed repayment term can qualify as a negotiable instrument. Justices pressed both sides on whether negotiability must be determinable from the instrument’s four corners at issuance and on the practical effects of transfer before the draw period closes.

Baraza emphasized factual consequences for his client: the homeowner has lived in the Takuila property for nearly 20 years and, although default is undisputed, records about when the draw period closed and payment history are incomplete. He said that if the court accepts his argument the remedy would be judicial foreclosure — a process that allows the homeowner to litigate defenses and how much is owed.

Melairn countered that the DTA’s text uses broad terms—"obligation," "promissory note," and "instrument"—and does not expressly require negotiability language, and that marketplace practice and doctrines under UCC Articles 3 and 9 (including the role of possession in establishing enforcement rights) provide commercial certainty for purchasers and beneficiaries.

Both sides cited precedent and statutory history. Baraza pointed to the DTA’s 1998 definitional changes and argued those reflect legislative reliance on UCC terms. Melairn relied on a line of authority (including Bucci) holding that negotiability can be satisfied where the instrument shows obligations that will become fixed, even if the precise principal is ascertainable only later from auxiliary records.

The court asked how the parties’ competing readings would affect borrower protections and certainty for purchasers; justices repeatedly returned to whether the DTA’s borrower‑favoring interpretive rule should control. After rebuttal from Baraza reiterating the need for judicial oversight in HELOC cases with complex records, the court submitted the case and adjourned.

The court did not issue a decision at argument. The Supreme Court took no vote in the courtroom; the case was submitted for decision following oral argument.