Here's the problem...HB2791 has passed. It is no doubt that the number of homes lost at foreclosure auctions will increase. There's only one person left who can stop this madness. So here's a note to the Governor and where you can send it http://www.governor.wa.gov/contact/default.asp : 

Dear Governor Gregoire,

There is a travesty in progress and you are the only person that can stop it. Somehow a bill has gotten enough approval to reach your desk. HB 2791 will, and may I repeat WILL cause MORE home foreclosures in the state of Washington. There were 122 signatures presented to the Senate and many other equally appalled real estate professionals in large investor groups who agree that this bill is a tragedy for distressed homeowners. Their voices were never heard or worse, ignored for political purposes.

Please consider these points in opposition to the bill:

1.         HB 2791 eliminates the possibility of getting the bank to take a discount for the over mortgaged homes. In the case of a short sale, which most pre-foreclosure transactions are these days, it is illegal to give ANY funds to the foreclosed homeowner. This bill requires that 82% of the ‘fair market value’ go to the homeowner. That makes it a crime to comply with this bill if the transaction was a short sale. The Mortgage Forgiveness Act of 2007 was passed to give homeowners a break http://www.whitehouse.gov/news/releases/2007/12/20071220-3.html  HB 2791 takes that break away.

2.         There will be no way to come to an enforceable agreement on the “fair market value” of a distressed home because the urgency of the sale and the source of the appraisal order can alter the ‘value’ dramatically.

3.         It is impossible to have a fiduciary duty to the homeowner if you are a real estate agent, attempting to buy or representing a buyer, approaching a distressed home owner. You would automatically be in conflict of interest with yourself. Also, if you’re not an agent and just an individual or an investor, how can you attempt to purchase a home from someone and at the same time, represent their best interest? One more ‘also’, the bill is so vague about what constitutes a “distressed home”, that almost any real estate transaction could be argued that the Seller was a “distressed homeowner.”

4.         It would be very unlikely an investor would be willing to risk their money for a 5% - 8% return over two or three years. Here is sample math if the homeowner defaults or decides to ‘cash out’ under the proposed bill:

$200,000         ‘Value’

$164,000         82% paid to Foreclosed Homeowner

$200,000         Listing price if Foreclosed Homeowner leaves

$12,000           Real estate commission (6%)

$6,000             Excise tax and closing costs (estimated at 3%)

$5,000             Minimal repair cost (carpet, paint, cleanup, etc.)

$13,000           ROI if no significant repairs are needed (8%)

In short, this bill has gotten this far without the input or involvement of real estate professionals who can provide real world input. There is no doubt that something should be passed to protect homeowners from those few unscrupulous investors who wrongfully abuse the situation of distressed homeowners. But this bill will cause most honest investors to change their foreclosure business to buying at auction, rather than pre-foreclosures in order avoid the potential frivolous litigation that has been increasingly plaguing this industry. Investors who buy pre-foreclosures provide a vital resource for distressed homeowners who have no viable alternatives to resolve their situation other than a quick sale prior to the foreclosure auction. That resource will be greatly depleted by this bill, thus more homes will go to auction.