New Washington law targets foreclosure scams
Agents, investors brace for new duties
By Glenn Roberts Jr., Friday, May 23, 2008.Bookmarking Sites
Real estate agents and investors in Washington state are preparing for law changes next month that will place additional responsibilities on those who work with distressed property sales.
The legislation, House Bill 2791, is intended to protect consumers from foreclosure rescue scams in which sellers are tricked into transferring ownership of their homes by those offering to save them from the prospect of foreclosure.
On June 12, when the new law takes effect, investors who work to purchase pre-foreclosure properties from homeowners will face new fiduciary responsibilities to sellers, "which is something that is sort of an anomaly," said Doug N. Owens, a lawyer who has studied the legislation.
Owens is also a member of the Real Estate Association of Puget Sound, a group supporting real estate investors.
"It's going to put significant new burdens on investors to participant in that market if they want to continue the way they have in the past. If they want to try to avoid becoming a fiduciary, they need to change the ay they do business," he said.
Those investors who seek to buy properties at public foreclosure auctions or purchase bank-owned foreclosure properties are unaffected by the legislation, he said, which focuses on pre-foreclosure properties.
The Washington Association of Realtors trade group has organized dozens of training sessions and produced a video to help prepare its members for the law change.
Also, Realtors will receive new listing agreement forms to use in transactions and must re-list all currently listed properties to make sure they are in compliance with the new law, said Phil Harlan, past chairman of a legislative division for the Realtor group.
The revised listing-agreement forms will be available to members on June 5, he said.
"We're going to have to sit down with our sellers and explain the new law and go over the new listing agreement and explain to them the information that we need to determine if the law affects them or not," Harlan said.
"Every (real estate) office is going to handle it differently. Our role as ... is to educate, educate, educate."
The association is supportive of consumer protections, Harlan said, and the association will continue to work with the state's attorney general and other shareholder groups to ensure that the legislation doesn't have "unintended effects on a normal real estate transaction."
One of those unintended consequences, as detailed at the Washington Association of Realtors Web site, is that there is the "potential for dramatically increasing the duties owed by a real estate agent to a distressed homeowner."
The law defines a "distressed home consultant" as anyone who seeks to offer services to a distressed homeowner by working to sell the home prior to foreclosure, for example. And the Realtor group points out that based on the language in the legislation, the listing agent, buyer's agent and the buyer could all be considered distressed home consultants under certain circumstances.
"The new law increases the duties owed by agent to seller by creating a fiduciary obligation from home consultant to the seller," according to the Web site. The Realtor group also advises that "at no point should a real estate agent be in the position of trying to explain the law to a client," and that agents should instead provide literature prepared by the Attorney General's Office.
The New York Times has reported that several states have also passed laws designed to stamp out foreclosure rescue scams.
Jillayne Schlicke, a Washington real estate and mortgage educator who founded The National Association of Mortgage Fiduciaries, said the new law, passed in March, was born out of a task force formed by state Gov. Chris Gregoire.
"For as long as I can remember in this industry, we always complain about how our government is not proactive," Schlicke said. In this case, the government acted quickly to get a law in place to address a real estate-related scam.
"Surely there are many critics out there saying the law is poorly drafted," she said, though "there have been foreclosure rescue scams that have happened here. It does happen here."
For now, the new law is a reality and it can't be amended until the Legislature reconvenes next year, she noted. Real estate agents "can live with this law -- they're going to have to fill out some extra forms. They are going to be OK -- they are just going to have to follow what the law says to do. I don't think it will increase costs for agents."
"This law is proactive. And yes, there are some flaws but I believe we can live with it. I believe the positives -- the good consequences -- outweigh the bad."
Those investors who specialize in pre-foreclosures will face new liabilities as a result of the legislation but can still participate in purchases during other phases of the foreclosure process without being subject to the new requirements posed by the law, she said.
Paul Galasso, a real estate investor in Washington who is a licensed agent and a member of the Puget Sound association for investors, said he believes the fiduciary duties are overly stringent in the new law, and there is a need to amend the law because he anticipates that there will be lawsuits.
"The one group that benefits from this law is the trial lawyers," he said, because of the new liabilities associated with the law.
Some investors will choose not to pursue sales of pre-foreclosure properties, he said, which could have a chilling effect on the market and will lead more properties to be repurchased by banks following a foreclosure process.
"It will absolutely impact the number of houses that go back to the bank. It will impact the ability of banks to lend in the future. It will impact the real estate industry in general," Galasso said, as REO sales can bring down overall market prices.
"If they were to just change the law by saying that if I bought the property and I leased it back to the original homeowner then I had a fiduciary responsibility -- then I could live with that," Galasso said.
Though he said he now fears that investors will largely retreat "because they do not want to have the appearance of impropriety as well as the fiduciary responsibility for the seller. I know of many real estate investors who are just not going to buy and sell houses anymore."
Existing state law, he said, already makes the practice of "equity skimming" illegal.
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Submitted by Richard Dale-Mesaros on May 23, 2008 - 6:45pm.
.....and so the poor tattered real estate market gets yet another blow, this time from the Feds, in the form of a Federal Foreclosure Rescue Law.
Yes, there are scam artists out there, but isn't that the case in any industry? There will always be scumbags who take advantage of people in a distressed situation and I applaud the lawmakers for attempting to protect homeowners from unscrupulous investors on the prowl. 'Nuff said.
SOMEHOW though, I get the sense that these lawmakers haven't been enlightened to the other side of this coin. What about the ETHICAL investors who truly CARE about the folks they are helping and can offer a great, win-win solution to their dilemma?
I'm talking about the homeowner, who for whatever reason (divorce, job loss, illness), (and NO, this is NOT necessarily someone who borrowed money irresponsibly at all), has gotten behind on their payments and is facing foreclosure. They've not been able to refinance, have tried selling the house themselves, then with a Realtor, who may even have tried a short sale, but gave up, lost a buyer or couldn't negotiate a discount with the bank and now foreclosure seems imminent. The homeowner has no money to get caught up or file bankruptcy (doesn't WANT to do that either), but does want to save their credit and IS HAPPY to move on to a cheaper living situation. The house is worth as much as or less than the amount owed to the bank and most folks don't want to buy the house anyway because it needs a ton of work. What to do?
This is where an ethical investor, with a track record of assisting numerous people in the same situation, can formulate a scenario which enables the homeowner to move on and save their credit. For anyone out there who's been in foreclosure, with no solution in sight, you will agree that you'd be delighted to have someone take away your headache and let you move on, at the same time preserving your credit rating.
As investors, we have various strategies at our disposal to turn this situation around (and are willing to risk our money and resources to see it through), but if these new laws prevent us from helping people, then EVEN MORE homes are going to auction, thus putting even more negative pressure on the market. I don't want to go on and on about this, but you get the picture!
What do the rest of you think??
I'd love to be able to continue helping people....
Richard Dale-Mesaros :)
Chief Deal Weaver
www.BlackWidowNetwork.com
Richard :)
Chief Deal Weaver
www.BlackWidowNetwork.com - STRIKE FAST!
Submitted by Jillayne Schlicke on May 23, 2008 - 11:12pm.
Richard,
The ethical investors need to weed out the foreclosure rescue scam artists.
Next define what it means to be an "ethical investor," write down the definitions (as a group) and then rigorously hold your members accountable to those standards.
Realtors did this over 100 years ago.
The entire world would welcome this.
So, Chief Deal Weaver, does this sound like something you'd be willing to step up and take on?
Until then, federal and state regulators are going to have to clean up your industry for you.
Submitted by Joseph Kaiser on May 24, 2008 - 1:27am.
Not to be the wet blanket, but this new foreclosure rescue law does much more harm than good.
Here in Washington, the legislature actually believes losing a home to foreclosure is better than selling to an investor. After all, an investor might be a scam artist.
Equally ridiculous, they believe homeowners losing their properties at auction actually come out ahead. The sponsor of the HB 2791, Representative Pat Lantz, testified:
". . . foreclosure would be preferable to the distressed property conveyance."
That's bad enough, but there's more. She continued . . .
"Better that the homeowner receive the equity in the house through foreclosure than lose it all through the scam". — Rep. Patricia Lantz, 26th Legislative District
Here's the link to the video: Foreclosure is Better
This is a terrible law and an absolute embarrassment. It doesn't help people in foreclosure. In reality, it takes away their right to freely contract and in many instances, will cause them to lose their homes.
Lawyers I've talked to about it think it's a convoluted mess. Ask the folks at NWMLS what they think (all new docs, all new responsibilities, all listings to be resigned, etc.)
And by the way, the AG confirms there were a total of four (!) foreclosure rescue scam complaint received by their office over the last five years.
Why all the fuss, then?
"I'm Rob McKenna . . . aren't I wonderful. Vote for me."
Joe Kaiser
Pushed to Shove Blog
Submitted by Dugald Allen on May 24, 2008 - 6:38pm.
Jillayne,
I value your input and knowledge very much and certainly your expertise. I also have taken one of your courses that was informative and well put-together.
However, on this topic I believe that you are misinformed on two counts.
First, there IS someone working towards creating a standard for ethical investing in real estate.
The Real Estate Association of Puget Sound (REAPS / http://www.reapsweb.com) has been around for the past 25 years educating investors and providing networking and other benefits.
Several years ago, REAPS has established a code of ethics: http://www.reapsweb.com/173pages/coe.pdf that each member is expected follow - regardless of whether they sign the document or not.
REAPS is a non-profit 501(c)(6) Professional Association and our mission is to provide education, networking and benefits in this profession.
REAPS is also the only association in the Puget Sound area that is affiliated with National REIA and who administer national REIA's Professional Housing Provider designation. Other affiliated associations are down south in Vancouver (serving the Portland area) and up north in Bellingham.
We are actively working with the legislature (along with several other large professional associations in the state) to provide an environment where both consumer protection and opportunities for both investors and sellers abound.
On the second front: I don't believe that the bill, in its final form, was what the taskforce intended. The AG-proposed bill was much simpler and very specifically targeted scam artists who set distressed sellers up to fail in a Purchase with Lease-Option Back transaction (called a "Distressed Proerty Conveyance" in the new law) . Without going into too many details, the problem occurs when sellers are evicted and lose all Option rights after they fail to make rent payments that are at the level of (or higher than) their previous payments - the ones they couldn't afford.
As a footnote: the bill that the AG put forward was NOT what passed the legislature. The original bill was COMPLETELY rewritten and put forward only 3 business days prior to passing - it increased the size of the bill from 8 pages to 17 pages(!) - and was thrown in without sufficient time for comment.
Dugald Allen
Vice President, Legislative Committee Chair
REAPS
Submitted by Richard Dale-Mesaros on May 26, 2008 - 8:30am.
Jillayne,
I agree and appreciate your feedback.
Dugald,
You're preaching to the choir!
Just like Dugald, I'm part of our local Real Estate Investor's Association (www.NHREIA.com) and we're also affiliated with National REIA (www.nationalreia.com). All the REIA's throughout the country have codes of ethics, which their members are required to adhere to and these organizations are working with legislators as we speak, to help steer the lawmakers toward new bills that work for all parties involved.
So yes, I'm stepping up and so are REIA Board members nationwide. I must confess I've been quite SHOCKED at the amount of unethical behaviour I have seen by Realtors over the past few years that I've been investing, despite the strong set of ethics they're supposed to abide by. I know the NAR is doing what they can to keep this to a minimum....
Regards,
Richard :)
Chief Deal Weaver
www.BlackWidowNetwork.com
Submitted by Justin Lee on June 11, 2008 - 10:07pm.
While all of the debate over the validity of the new law is great, the bottom line is that investors must now protect themselves by having the appropriate disclosures signed by the homeowner.
For the right investor, I'm providing free legal documents and a lunch and learn next Friday, June 20th in Seattle.
It's being hosted by a prominent WA real estate attorney, and the diclosures, lunch, and information is all being paid for by me.
If you're interested in learning more, please check out my blog:
http://savemefromforeclosure.biz/blog/
Happy Investing,
Justin Lee
http://www.SaveMeFromForeclosure.biz
Submitted by Joseph Kaiser on June 21, 2008 - 12:22pm.
Dugald Allen said . . .
"As a footnote: the bill that the AG put forward was NOT what passed the legislature. The original bill was COMPLETELY rewritten and put forward only 3 business days prior to passing - it increased the size of the bill from 8 pages to 17 pages(!) - and was thrown in without sufficient time for comment."
Not true . . .
Just prior to the vote, in the comment period, Assistant Attorney General James Sugarman took the podium and encouraged the bill's passing (the final, ridiculous version), saying: ". . . that’s what we’re here in support of today."
It is disingenuous for the AG's office to now be maintaining "it's not our fault." It is, 100%, their fault. They specifically asked the legislature to support the version that ultimately passed.
Here's the link to Sugarman's video testimony . . .
http://pushedtoshove.com/2008/06/blame-where-blame-is-you/
Joe Kaiser
www.pushedtoshove.com