New consumer protection law for distressed home owners | Column

Because of the recent housing and credit situations, as many as half of all homes in the country may be in danger of foreclosure. Distressed homeowners are likely to receive numerous solicitations from individuals and companies that offer to save the property from foreclosure with a new loan or some other proposal. Some of these companies are reputable businesses offering valuable services, while others are predatory schemes designed to steal the owner’s equity.

The Washington Legislature recently passed the Distressed Homeowner Act to regulate those companies and to prohibit abusive practices this took effect July 12. Even if you are not a distressed homeowner, the law will affect your transaction if your property listed for sale.

To protect the public, the statute has broad application. A “distressed home” includes not only homes that are in foreclosure, but also any home for which the mortgage payment is more than 30 days late, is behind on payment of taxes, or any home the owner thinks will be in default within the upcoming four months.

Anyone who contacts a distressed homeowner and offers to help save the property from foreclosure is considered a “distressed home consultant.” Real estate brokers and agents are considered distressed home consultants, while lending institutions, nonprofit credit counseling services, attorneys and some other businesses are exempt.

The Distressed Homeowner Act requires all distressed home consulting agreements to be in writing and contain certain disclosures.

The Distressed Homeowner Act also imposes on all distressed home consultants a strict fiduciary duty. This duty is similar to the duty of loyalty imposed on real estate agents under the Law of Real Estate Agency as outlined in the agency pamphlet, which your agent is required to be provide.

Some sellers do not wish to disclose even to their own agent that they are in financial distress. Generally, sellers have no duty to disclose their financial situation, and most of this information is confidential if disclosed. However, the law does require disclosure if a seller’s financial condition will affect his or her ability to sell the property.

For example, if a seller owes more than a property is worth and needs the lender to take less than is owed (a “short sale”), that information must be disclosed in the listing. The law does not require disclosure that the seller is a “distressed homeowner” or that the owner has used the distressed homeowner forms.

As a practical matter, the sale of a distressed home may have the effect of saving the property from foreclosure, even if the agent is not a distressed home consultant. To ensure their own compliance with the law and provide the best service, realtors need to know whether a party to a transaction considers them to be a distressed home consultant. Homeowners have the right to choose whether to hire a distressed home consultant, but any agreement for the agent to act as a consultant must be in writing and comply with the statute. Some agents are able and willing to act as distressed home consultants, while others are not. If you are in need of a distressed home consultant and your agent does not provide that service, he or she will gladly refer you to one who does.

This information is being provided to help you better understand the listing forms (should you be listing your home) that you will be signing, as well as the purchase and sale transaction documents that may refer to these new distressed homeowner laws. Even if you are not a distressed homeowner, you may still see reference to these issues in your listing and purchase and sale documents. You are strongly encouraged to consult with your own legal counsel to determine how these laws could affect you.

Contact Tracy Corriveau and Kim Poole at Windermere in Kingston, (360) 297-2661.

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