Distressed Property Law
Scam Artists Beware!The "Mortgage Meltdown", "Housing Slump", and "Credit Crunch" have led to many a new program. Risk, as we know it is mitigated by the good intentions of legislators through the introduction of bills to relieve the pain consumers experience from market forces and protect us from----ourselves.
Owning a home was once an endeavor that served to provide shelter from the elements, a place to raise your family and fill photo albums with memories but lately, over the past couple decades many people, with the help of numerous home improvement T.V. shows have lost track of the primary function of home ownership and have turned the traditional buying and selling process into an industry of profit and loss.
Flippers, people buying homes for the sole purpose of reselling them for a profit forced changes in FHA guidelines to help protect buyers buying homes that are "flipped". States and local governments across the country have passed laws to protect or mitigate the potential damage caused by flipping homes. A new law in King County Washington require flippers (under certain circumstances) to be licensed and bonded contractors in an attempt to mitigate the potential damage caused by those who may not be skilled at home improvement and or try to avoid building code compliance.
As of March 2008 the Washington State Legislature passed HB2791 into law. This new law called the "Distressed Property Law" identifies certain homeowners as "Distressed Owners" if they fall into any of these categories.
1) The homeowner is at risk of losing the home due to nonpayment of taxes;
2) The homeowner is at least 30 days late on a mortgage payment;
3) The homeowner is in default of any mortgage term such that the lender could accelerate the balance owing; or
4) The homeowner believes they are likely to default on the mortgage within 4 months and tells this to, among others, a real estate agent.
This new law carries with it a new legal classification of "Distressed Home Consultants" for Brokers and Agents who provide distressed property services to distressed owners and under the new law have fiduciary responsibilities that extend beyond the statutory requirements of current Washington State "Agency Law".
This new law was intended to prevent fraud in situations where a homeowner with equity in their home who happens to be facing foreclosure, enters into an agreement with a buyer/scam artist to purchase their home to avoid foreclosure and rent it back and maybe someday in the future buy the home back form the new owner. Unfortunately however, many times the distressed homeowner is unable to qualify for financing and eventually is evicted from their own home losing all their equity.
The Washington REALTORS® closely monitored the legislation as it was proposed by the Attorney General as the legislation progressed through the House and the Senate. Both the Washington REALTORS® and the AG were satisfied that the Bill, as proposed and intended by the AG, did not include the adverse language now causing the problems. However, after the Bill was passed in one form by the House and in a slightly different form by the Senate, it moved into a process that occurs outside the arena where public comment or influence are allowed. It was at that stage that the adverse language was added and the Bill was immediately voted out of the Legislature without any opportunity for the AG or the Washington REALTORS® to testify about the problems.
Law makers have a tendency to pass laws without consideration to the unintended consequences. They pass them then let the courts sort it out through trial and error. No pun intended. The new law, well intended as it may be and in typical fashion causes problems within the real estate industry in it's practical application.
Owning a home was once an endeavor that served to provide shelter from the elements, a place to raise your family and fill photo albums with memories but lately, over the past couple decades many people, with the help of numerous home improvement T.V. shows have lost track of the primary function of home ownership and have turned the traditional buying and selling process into an industry of profit and loss.
Flippers, people buying homes for the sole purpose of reselling them for a profit forced changes in FHA guidelines to help protect buyers buying homes that are "flipped". States and local governments across the country have passed laws to protect or mitigate the potential damage caused by flipping homes. A new law in King County Washington require flippers (under certain circumstances) to be licensed and bonded contractors in an attempt to mitigate the potential damage caused by those who may not be skilled at home improvement and or try to avoid building code compliance.
As of March 2008 the Washington State Legislature passed HB2791 into law. This new law called the "Distressed Property Law" identifies certain homeowners as "Distressed Owners" if they fall into any of these categories.
1) The homeowner is at risk of losing the home due to nonpayment of taxes;
2) The homeowner is at least 30 days late on a mortgage payment;
3) The homeowner is in default of any mortgage term such that the lender could accelerate the balance owing; or
4) The homeowner believes they are likely to default on the mortgage within 4 months and tells this to, among others, a real estate agent.
This new law carries with it a new legal classification of "Distressed Home Consultants" for Brokers and Agents who provide distressed property services to distressed owners and under the new law have fiduciary responsibilities that extend beyond the statutory requirements of current Washington State "Agency Law".
This new law was intended to prevent fraud in situations where a homeowner with equity in their home who happens to be facing foreclosure, enters into an agreement with a buyer/scam artist to purchase their home to avoid foreclosure and rent it back and maybe someday in the future buy the home back form the new owner. Unfortunately however, many times the distressed homeowner is unable to qualify for financing and eventually is evicted from their own home losing all their equity.
The Washington REALTORS® closely monitored the legislation as it was proposed by the Attorney General as the legislation progressed through the House and the Senate. Both the Washington REALTORS® and the AG were satisfied that the Bill, as proposed and intended by the AG, did not include the adverse language now causing the problems. However, after the Bill was passed in one form by the House and in a slightly different form by the Senate, it moved into a process that occurs outside the arena where public comment or influence are allowed. It was at that stage that the adverse language was added and the Bill was immediately voted out of the Legislature without any opportunity for the AG or the Washington REALTORS® to testify about the problems.
Law makers have a tendency to pass laws without consideration to the unintended consequences. They pass them then let the courts sort it out through trial and error. No pun intended. The new law, well intended as it may be and in typical fashion causes problems within the real estate industry in it's practical application.
Some issues arising from this new law are; Language within the current listing agreements is insufficient to address the concerns of the new classification of homeowners and consultants. The standard purchase and sale forms used throughout the industry are insufficient to address the new language and none have been produced thus far. Agents must identify themselves as "Distressed Property Consultants" in cases where the sale or purchase of a home is "distressed" and potentially when listing a home, sellers may not disclose or even be aware they are distressed, especially with long term listings. To comply with this new law, listing agreements must be written in the sellers "First Language".
Other problematic issues are being looked at by Washington Realtors who are working diligently in conjunction with the AG to produce acceptable literature to provide to folks thinking about selling or buying distressed properties. Neither entity have committed to publishing anything yet and local MLS's and it's members are working to facilitate a smooth transition for buyers and sellers affected by this new law.
The new law takes affect June 12th, 2008.
posted by Gene Quinney Owner/Broker at 8:43 AM
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