Big Change in Washington Real Estate Law this Week on June 12th with HB 2791: The Distressed Homeowner Law

This Thursday, June 12th, 2008, there will be some big changes to Washington State Real Estate Law with House Bill: HB 2791 that will effect Seattle Real Estate.

The new law was made to help protect Distressed Homeowners from being taken advantage of by buyers who might prey on those homeowners, and essentially swindle them out of their equity (equity skimming) by appearing to “save” the homeowners from losing their home.

Unfortunately, the new law also has some “bugs” in it and is causing a lot of confusion, concern and has extra liabilities for real estate brokers, their agents and potentially, oddly enough, ordinary home buyers like you.

The oddity of the new law is that under some circumstances, you as the buyer, could end up as a fiduciary to the Distressed Homeowner.  This means that you would have to act in the Best Interests of the Distressed Homeowner.  Instead of acting in your own best interests to buy the home, you would have to instead, put the Distressed Homeowners’ interests above your own! 

Now, this is not very likely to happen since the homes most buyers will make offers on are being sold because the homeowner is selling for regular reasons.  Those reasons include buying another house, moving out of town, or state, sad reasons from divorce, death, or illness, or even joyful reasons because two homeowners are marrying and they are selling the extra home. 

But there is a small (very small) possibility this could happen with buyers who are buying pre-foreclosure, foreclosure, and short-sale homes if extra care is not taken.  However, that status may or may not be known to the buyer or their agent, only if it is a material fact must it be disclosed to buyers and their agents.  If it is not a material fact, then it is possible get into a contract with a Distressed Homeowner, and not know until there is a 20 day notice of a foreclosure sale.  Once the buyer is notified of this situation, they automatically become Distressed Home Consultants and a fiduciary to the Distressed Homeowner

There is a provision in the new NWMLS forms so that the buyer will have the ability to get out of the contract for a certain time period following that notice.  To help prevent this from happening in the first place, there is a new form to be included with the Purchase and Sales Agreement…”The form provides a warranty from the seller that the closing date does not fall within 20 days of a foreclosure sale.”  

There is a lot more to the law than what I have written in this post, and if you are interested you can read it here .   I am not a lawyer, and I am not reading HB 2791 directly to make an interpretation and understand all its’ complexities.  However, I have read Legal Bulletin 179 that the Northwest Multiple Listing Service has provided to it’s members on their site to help explain the new law.  While I have read Legal Bulletin 179 several times, there are still questions that come to mind about the changes and how I can best help my clients. 

This new law is causing a lot of uncertainty for real estate brokers and their agents because there will be extra liabilities ($$$) that may cause them to choose to not work with Distressed Homeowners, and this is a bad thing…these homeowners need help selling their homes. 

Not only may some of these Distressed Homeowners have difficulty with listing their homes with agents because of potential extra liabilities, but there is a new buyers agreement that informs the buyer that the agent will not show homes known to be the homes of Distressed Homeowners…remember you as the buyer could end up as a fiduciary to the Distressed Homeowner.  Your agent also could inadvertently also become a Distressed Homeowner Consultant to the seller, and now would have to put the sellers’ best interests before your best interests!  How can limiting the number of potential buyers be good for Distressed Homeowners?

Of course right now all this is untested and there are many questions through out the Seattle real estate community still to be answered.   If you are a buyer, be sure you are talking to your agent about this.  If you are a homeowner with your home listed on the NWMLS, your agent should be talking to you now about the new documents you need to sign.  I have already talked with the one client with whom I currently have a listing contract with (the new one) and in his case (NOT a Distressed Homeowner) I have determined that there may actually be advantages for him with this new law, because some of his homes’ competition may be avoided by agents and buyers.

While the new law was made to help Distressed Homeowners, because of the concerns and extra liabilities for real estate brokers and their agents, it may actually hinder or prevent some Distressed Homeowners from being able to sell their homes, and end up in foreclosure instead.  I think that this is a very sad thing to add to Distressed Homeowners, well…distress.

Spoken by Deborah Burns | Discussion: 316 Comments »