Washington Supreme Court holds a deed of trust can only secure a UCC promissory note.

In the recent decision of Vargas v. RRA CP Opportunity Tr. 1, No. 103735-0, 2026 WL 1174062 (2026), Washington’s Supreme Court effectively held that only UCC negotiable instruments, promissory notes, can be secured by a Washington deed of trust.  The case involved a non-negotiable loan agreement, which the Court held could not be foreclosed non-judicially because the lender was not a UCC “holder” of a negotiable instrument.  According to the Court, under the language of the Deed of Trust Act, only UCC holders can qualify as “beneficiaries” entitled to enforce the deed trust non-judicially by trustee sale. The Court added that limiting enforcement to UCC holders ensured that borrowers / grantors would be able identify and negotiate with the proper party in interest.  

The decision may be the most impactful Deed of Trust Act decision, to date.  For decades, trust deeds in Washington have been used to secure and enforce all sorts of payment obligations, not just UCC notes.  Vargas seems poised to end that practice, immediately.  Furthermore, what is the effect of trustee deeds where the payment obligation that was breached, triggering the power of sale, was not a UCC promissory note?  There is a potential argument the trustee in these situations was without authority to transfer and convey the grantor’s title and the foreclosure is per se invalid. See Schroeder v. Excelsior Mgmt. Grp., LLC, 177 Wash. 2d 94, 297 P.3d 677 (2013) (where the trustee was without authority to foreclose, the sale is invalid). 

The Court’s decision seems destined to prompt another Deed of Trust Act amendment specifically allowing other payment obligations to be secured and enforced.  Until then, it seems that trust deeds securing non-UCC notes will have to be enforced judicially as mortgages.  Inevitably, there will be judicial challenges to trustee sales where the obligation breached did not arise under a UCC note.  The buyers of previously foreclosed properties, or their title companies, may be the ones suffering the collateral damage, as a trustee sale is “as is” and the trustee deed gives no warranties.