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Are you a "Distressed Home Consultant"? A New law taking affect.

By Bobby Hubbard

Real Estate Agent with Keller Williams, Puyallup

May 07, 2008 12:19 PM

Well another twist in the foreclosure market of late. For those of us specializing in this niche, it may seem like another item to deal with, yet another hoop full of fire and obstacles to negotiate. Is it not enough to spend hours a day, trying to get in touch with the financial institution? Then as the offers role in wait and wait and wait for seemingly my hair to grow thinner and grayer? Is this really necessary?

I say ABSOLUTELY!

We've already been through the washing machine with the whole prededtory lending fiasco that has homebuyers causious of everything, including the poor real estate agents (yeah, poor us). However, I belive this law coming into effect in Washington June 12th, labeled HB-2791, Distressed Property Law, will open opportunities for us to regain the level of integrity and respect our profession deserves. The amount of money we stand to aquire in this industry can be phenominal! Here's our chance to prove ourselves!

This law requires us as agents to identify ourselves as a Distressed Home Consultant even if we are representing the buyers! now the NWMLS and Washington Realtors Assoc are trying to get the Attorney General to clarify and provide us with litrerature to supply our sellers, which will help re-enforce the fact that we are here to help. We, as agents, aren't, or shouldn't be there solely for ourselves. Especially in the foreclosure market. These people have probably been beaten up enough.

Here's what is written on WAR and NWMLS sites as to why this law has been entered:

The Distressed Property Law was passed during the 2008 Legislative session and signed into law by the Governor on March 30 for the purpose of protecting vulnerable property owners from scam artists who seek to steal the property owner's equity. For example, assume a property owner has $100,000 in equity in their home but loses their job and cannot make their mortgage payments. The property owner does not want to sell because they will be unable to buy another home, or maybe even rent a desirable home, because of the poor credit they have acquired since losing their job. After the notice of foreclosure is filed in the public record, a buyer/scam artist approaches the property owner and offers to take over the property owner's payments in exchange for a quit claim deed to the property. The buyer/scam artist offers to let the property owner stay in the property on a rental basis until the property owner can buy back the property from the scam artist. In reality, the scam artist knows that property owner will not be able to make the rent payments and will never be able to afford to buy the house back. Eventually, the scam artist evicts the property owner, who is now just a tenant, and sells the house, pocketing property owner's $100,000 equity. The law was intended to stop that type of transaction.

YEA! I say!

I'd like to hear what everyone else has to say about this law, and if it is nationwide or just here in Washington state.

Here's a link to WAR's site and further explanation: (click here)

Thanks everyone!

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Jerry Murphy, CRS, SRES

Long Realty West Valley - Anthem, AZ

Anthem, Phoenix, and Scottsdale AZ Real Estate

I think this is a very good law. Predators in any respect need to be thwarted. But I don't quite understand why we need a designation as a Distressed Home Consultant? I certainly wouldn't want that designation next to my name as it my pigeon hole me.

Anyway, thank you for the post Bobby.

May 07, 2008 12:27 PM

Anonymous

Joe Kaiser

Not to be the wet blanket, but this 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 . . .

"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:

http://pushedtoshove.com/2008/04/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.

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.

Joe Kaiser
www.pushedtoshove.com

May 08, 2008 02:22 PM

Bobby Hubbard

Keller Williams, Puyallup - Puyallup, WA

CDPE, CNE

Great Points Joe. I read through some of the info on your site and there is definately good infor there.

I have a question however. If a homeowner is going into foreclosure or even if we avoid foreclosure by short sale, the homeowner is not allowed to walk with any money, correct? If they could walk with cash...it wouldn't be a "short sale". And if that's the case, the homeowner gettting an offer of $10k "for the gazebo out back" just would't ethical would it?

The way I first read this law, granted by a take on those within my industry was that it just needs to be all up on the table to truely avoid foreclosure and save what's left of the homeowner's credit and good satnding. If that means working with an investor, by all means I'll be the first one to write papers. But they need to be in the best interest of my client and not solely of the investor, a "win win" if you will. I believe in helping people and, believe me, i could and probably will come your direction with properties in "distress."

Joe, thanks for your comments, they bring a level of clarity I was hoping to get from this blog.

May 09, 2008 06:29 AM

Sandy Nelson

Riley Jackson Real Estate Inc. - Olympia, WA

your Olympia area Realtor

This law goes against the grain of basic market principles. Private individuals should be free to buy, sell or trade. Private investors' motivation is to find a deal, and I would say most of them want to find a deal that is to their advantage. Sellers operate on the same principle and have the liberty to choose to whom they give their property. The principle of "buyer beware" is just as applicable as "seller beware". Next thing shoppers at "going out of business" sales will need to be "distressed property consultants" as well. Just my two cents.

Sandy

May 12, 2008 03:23 AM

Howard Goff

Keller Williams Realty - Vancouver, WA

Hmmm.... I do think this will be some deterrence to predators to the extent that they hear about it. That is the good news for homeowners.

Here is the bad news.

I have been making contact with people who are missing payments and attempting to educate them to the options they have to a) sticking their head in the sand and b) turning to the first "angel investor" who shows up to help. The basic message is that they need a person representing them who is knowledgeable and has a fiduciary duty to them. There are options to foreclosure and short-sale is only one of them. As someone pointed out above, just because a property is being foreclosed on does not mean it is a short-sale in the first place.

OK, fair enough if the law went that far and stopped it would be great and I would be willing to continue.

The law removes the ability for a seller who is currently in or may become in distress to agree to dual-agency. I am not sure from the wording if that means no dual agent or no dual broker but if the latter, it means if an owner lists a distressed property with an agent, no other agents working under the same broker may show the property. (Not exactly in the owner's best interest in my humble opinion).

Here is what I think is the worse part.

If a distressed owner is represented by a seller's agent and a buyer is represented by a buyer's agent (let's assume for now from different brokerages so there is no issue with dual agency), AND if the sale closes within 20 days of a docketed or advertised foreclosure sale THEN the everybody in sight including the buyer, the buyer's agent and the buyer's broker has a fiduciary duty to the seller.

Aside from the absurdity that the buyer in this scenario would have a fiduciary duty to the seller, making the buyer's agent hold a fiduciary duty to both the buyer and seller insures that one party would have the right to sue the buyer's agent. The agent just cannot serve two masters and I cannot see how the courts could enforce this laws obligation of an agent that already has a fiduciary duty to the buyer to also have a fiduciary duty to the seller. The wording in the bill creates two conflicting requirements which are impossible to meet simultaneously.

By the way, from the wording, it seems that should the seller somehow be able to conceal the fact that an auction is scheduled that the buyer and buyer's representatives would still be liable.

Further adding to the risk, what may have seemed like a safe transaction time wise (with regards to the 20 day rule) may end up in trouble because of any number of delays which would push the closing into conflict with the new law.

Without some level of clarification from the Attorneys General, I think agents will end up having to have all offers to purchase be contingent on the sale closing 20 days prior to a foreclosure auction and that sellers have a contractual obligation to inform buyer of any such action with seller agreeing to indemnify and hold harmless the buyer and buyer's representatives should the seller fail to inform buyer of such.

My guess is that this is a big loss for distressed homeowners as although it will deter some unethical investors from offering to "help" them, it will also mean that legitimate investors and real estate agents who have been able to mitigate an owner's credit report damage by changing a foreclosure to a short-sale will shy away from offering any assistance.

In addition, once the owner gets within 20 days of a foreclosure sale they will be past a point of no return as I doubt any agent could protect themselves from the potential liability created by this new law.

I, for one, am steering my efforts away from property which is or may become distressed until I have more information about how to avoid becoming a test case for the new law.

I would like to doubt that the legislature intended this law from deterring legitimate help from being offered to distressed property owners but it looks to me like this will be the result.

By the way, a number of states have passed such laws and so far as I know, Washington is the only state which did not specifically exempt real estate agents. The bill passed does specifically exempt several other industry groups and I think Washington REALTORS deserve some explanation from those whose job is to watch out for us how this bill got passed in its current form.

May 20, 2008 08:31 PM

Mimi Osterdahl, NW Living

eXp Realty - Bellingham, WA

"Do good work for good people."

Howard-

Fantastic points! Thanks for taking the time to write it all out.

Live good. Be happy.

-Mimi

May 21, 2008 06:56 AM

Bobby Hubbard

Keller Williams, Puyallup - Puyallup, WA

CDPE, CNE

Wow, what a great amount of information rising from this law. I do understand wanting to be deterred from working with deal such as this. I can't wait until the broker come back from their "classes" to further educated us on how this may shake out for agents.

Either way, I'm in the market for the distressed homeowner. I have begun a Keller Williams class to designate myself as a Certified Distressed Property Specialist. As of our first class yesterday and reading through the couple hundred pages of ciriculum, I'm very encouraged in this niche. I know if I do as I have always done and stay on the "upside" and truely go in wanting to help the homeowner, even if it is not sell, then no matter what, win-win.

Thank you to everyone who has commented, again, great info!

May 21, 2008 08:15 AM

Howard Goff

Keller Williams Realty - Vancouver, WA

Hi Bobby,

Distressed property owners need skilled representation not only to buyers but to their banks. I have been on the buyer's end of too many short-sale properties where the agent obviously didn't have the knowledge to really stay on top of these and push them through. Too much time goes by and what would have been a good buyer is gone.

It is a good niche and I hope to continue working there but only if I can a) protect myself from liability and b) if I can protect my clients from liability.

I think I can see how to do this for buyers but not entirely sure how to do it for the agent representing the seller. I haven't seen any suggested amendment language that has been approved to help us do this. If you figure it out please let me know. I am following your the comments here.

Keller down here is pretty big. What is your read on how the distressed owner's inability to waive the fiduciary duty in order to allow dual agency will affect the ability of other agents of the your broker from representing a buyer for a distressed property listed by you.

May 21, 2008 10:42 AM

Anonymous

Elizabeth

Anyone who thinks this new law is reason to say "YEA" is out of their everloving minds!

As a designated Broker, I resigned.

As for the lawmakers, I hope they can sell real estate and help these sellers out cause I am certianly not risking the liabiltiy here. This law will have the opposite effect than intended. All the law has suceeded in doing is make another set of "victims" and created "defendants" out of agents and possibly buyers.

The original intention was to put a stop to equity scamming which, hello, a short sale is about as far as you can get from equity scamming! Not only do buyers and sellers need an intelligence test before entering a transaction, law makers need one before voting on laws!

What part of the bulls eye on your back are you agents not seeing?

Jun 05, 2008 12:19 PM

Anonymous

Eric

Here is a great article that talks more about the new bill. In addition it appears that they are already working on a new form of the bill. So hopefully it is just a matter of time before agents get exempted.

http://www.nuwireinvestor.com/articles/the-legislative-labyrinth-of-hb-2791-51744.aspx

Jun 16, 2008 10:25 AM

#10

Colleen Fischesser Northwest Property Shop

NextHome Experience - Chelan, WA

A Tradition of Trust in the Pacific NW since 1990!

It's a hornet's nest of problems, typical of Government having a "knee-jerk" reaction to something. From what I've been told by several attorneys, it's an embarrasing, poorly drafted piece of legislation. Did they really intend for a buyer to have Fiduciary duties to a seller if closing takes place within 20 days of a foreclosure? It's ludicrous.

Jun 16, 2008 01:31 PM

Howard Goff

Keller Williams Realty - Vancouver, WA

If the buyer is an investor working directly with the seller offering the "service" of saving them from foreclosure then it makes sense for the buyer to have some duty of responsibility to the seller because not only is the investor a buyer, they are offering services to the home owner.

If the seller is represented by a licensed agent and the buyer has no contact with the seller then it is a bit hard to fathom.

Really sloppy language. Who created this bill, who voted on it? Will be fixed I suppose but in the mean time, worse for consumer with negative equity.

Two days ago, I had a client contact me about a property they wanted to look at. I checked the listing and found out why the attractive price, "short sale". I called the agent for the property and the agent told me, their was a property scheduled for auction 10 days out. Result, no sale.

If the buyer had ended up seriously interested and provided earnest money to the bank, they possibly would have postponed the auction. Auctions are postponed all the time for many reasons. A short sale is only half as bad as a foreclosure for the homeowner. As it was, this home owner was totally out of luck. Should this homeowner be thankful for the "protection" the legislature provided them?

Sure, the legislature may have stopped the "investors" (aka. sharks) who were helping distressed homeowners with equity give up their equity but I wonder if they didn't cause more harm overall by making homeowners without equity undesirable to buyers.

Bad language.

Note: someone is bound to make this point and I will agree so here it is. Most investors are not sharks. I personally am a real estate investor. I am sad to see that some investors behaved so badly that this law had to be passed in the first place. As a real estate agent, also frustrated at the mess the legislature made.

Jun 16, 2008 03:07 PM

Bobby Hubbard

Keller Williams, Puyallup - Puyallup, WA

CDPE, CNE

Strangely, I agree with almost all of the comments here. I do, however, do not feel that I, as a representative of the seller have a "bulls eye on my back". The reason pre-is this; I am receiving great coaching from a nationally renowned coach with years in the Short Sale/Pre-Foreclosure market. Secondly, My broker, equally respected in her craft, have set up protection avenues for me.

Like I've said earlier, these homeowners need help, whether it's with or without equity. Most of them are not bad people trying to take advantage of the mortgage companies, they are victims of life. And things happen. We all know this. If a buyer were to put on offer together, even days before the auction, would it really be against their best interest? I think not. If both agents act as we're supposed to, then the worst thing that can happen is the austion continues and the buyer doesn't get the property. I think it goes back to treating people as though you want to be treated.

I know I'm striking a chord with some of you but, you are correct, the law was written in haste, seemingly. When 13 (or is it 18) other states have this law in affect and Lenders, escrow, title AND AGENTS are exempt, why wasn't Washington agents put in the expemt collumn too? Well I'm told that is being worked on, though we'll surely have to wait a year before we see the changes. Until then, I'm going about my business of helping those who noone else wants to help. It's kind of like a firefighter, when everyone else is running out of building, firefighters are running in. Sorry, I used to be and will be again, a firefighter.

So if you have a short sale or distressed property you just don't want to handle, give me a call. i'll help and give you a 30% ref fee!

Also, thank you everyone for the comments. You all have had some great points and I really appreciate them!

Bobby

Jun 19, 2008 08:37 AM

Anonymous

Gary Buckley

This post done June 21, 2008

Bobby.... God Bless you. Your intentions are well founded. HOWEVER... I hope your brokerage makes you as bazooka proof as you have the confidence it will. I may be the first, but I won't be the last to convey my opinion to you of the following. Within the context of the current circumstance, there exists three important elements that influence your future well being. (1) An ignorant (and I don't say that with defamation in mind, but rather accuracy) well intentioned state government. (2) Sellers that you won't be able to identify ahead of time who gracefully accept your help and shoot you in the back of the head later when there is a buck to be gained courtesy of this government's legislation. (3) Predator trial attorneys hired by those Sellers that DO see the bulls eye on your back and the deep pockets of your brokerage. These legal firms have individually and in consortium with each other staying power longer than you or your brokerage can remain solvent. (Stay tuned to your t.v. where they will make themselves evident very soon, using the 4-year look back of this legislation to seek clients "victimized" within this window.) Don't be angry. They have college tuition accounts that need to be funded for their kids, too. You are overtly aggressive for this business, Bobby. I hope the best for you and your peers who are of equal mind and that you hear this resonate sooner for you than being too late, but warriors with the best of intentions supported by strong sponsors were laid to rest after some occasional victories. Was it worth it ? For you to decide. I personally am aware of courts and juries that trumped "best of intentions" and judges that buried otherwise lengthy, street readable comprehensive disclosures designed to protect those who attempted to protect others. You live and work in such a state. Your best intentions harmed the consumer. Period. End of story. It is a confidence builder to make you hear you will be protected, and I am not in a position to counter your brokerage. I can tell you in my opinion this law as it currently stands is as ambiguous as a sieve and does not address the countless vagaries associated with real estate circumstances, one transaction always unique from another. A big mystery to me in almost 30 years of real estate experience is those who would assassinate me after I sacrificed some or all commission and elements of my life to put those clients ahead of myself. And I am just a real estate guy. You have a post, above, from someone who could write encyclopedias on those who would bite the hand that feeds him. An experienced Top Gun would say...."Always check your 6 !" A broker friend tells me he would be a fool if he had to sell his house and not list with a deep pocket brokerage. He would then make one or two payments very late or not at all. He would then have what commodity traders call a put underneath him, which means there is a certain level he could allow his house to sell at which, below it, he ultimately with this law makes you and your brokerage liable for. I am only hitting the tip of the iceberg here. There are deeper more experienced minds than mine I have drilled into in recent weeks. There are cesspools and quick sands in this law that I speculate you are not mindful of.....perhaps your brokerage, too. At the NWMLS 3-hour presentation at Fife's LaQuinta Inn May 27th, the attorney presenter said a number of times within the context of his own presentation and to questions that came from the floor..."You would be best to seek an attorney for advice to that question." THEY are exempt from this law. I have nothing specific to contribute here. Everything here is my color of this issue. I am influenced by those minds I have come to respect the most in almost the last 20 to 30 years, some of which have first hand experience with what I write .... experience with legislators and the attorney general's office for years on this matter before it became law. Bobby, if you and yours believe you have that depth to allow you to walk through this minefield somewhat confidently, you do it with the understanding you will make, probably at the most, one mistake. Then you will experience the definition of glass half empty.

Best of luck..... or use best judgment

Gary Buckley, RE Guardian.com

Jun 21, 2008 12:46 PM

#14

Anonymous

Caution Advised

Bobby, your nationally known coach, if he or she is not telling you to back off until things get sorted out, is not someone you should be listening to.

And if you don't see the bulls-eye on your back, it only means you're blind to the danger that is HB 2791. Whether you choose to see it or not, you can be sure the bulls-eye is there.

The new law is so ridiculously ambiguous that there is no defense to claims of having acted inappropriately, even for agents or investors who do everything exactly right. That's the nature of ambiguities . . . there's no why of knowing what's what. When your sellers' attorney says you cheated her clients because you should told them they'd be better off by letting their property go to the foreclosure auction, how will you defend yourself?

You can't. There is no defense because there are no actual rules for you to follow. Everything becomes subjective, and you expose yourself to one lawsuit after another, even when you believe you're doing all you can to assist your sellers.

What are you going to say when an investor buys your seller's property and flips it, making a quick profit . . . and you soon hear from their attorney saying you should have known the property was worth more than what you sold it for? Sure, you did everything right, but so what? They claim that profit the investor picked up should have been theirs, and now they expect you to make up the difference, and there's nothing you can do or say except hire an attorney to defend you.

You think you're protected because you have all the new disclosures all signed off? Don't count on it. Their attorney now claims they were rushed, under duress with the foreclosure coming soon, and never had a change to read the paperwork. They say they trusted you and your judgment and signed those disclosures without even reading them because you told them it was a good deal, and now they claim it wasn't.

Again, you're defenseless to claims of not doing your job of looking out for their interests, and there's no escaping it. That's why this law is so completely ridiculous. Everyone becomes not only a consultant, they also become con artists and equity scammers the moment some attorney makes the claim.

And your investor client who bought their home and flipped it?

They sue him, too, and of course, right on cue, he too sues you for not disclosing your sellers were in default. Now what?

It's a complete mess that only someone not recognizing the liabilities would ever consider participating in.

So, when you hear from your distressed seller's attorney saying you failed to adequately fulfill your fiduciary responsibilities and they want treble damages and the $100k bonus the new law provides, good luck, because neither your broker or your nationally known coach can do much to help you.

Joe Kaiser

www.pushedtoshove.com

Jun 21, 2008 01:57 PM

#15

Bill Sauneuf

John L. Scott Real Estate / Yelm - Mount Vernon, WA

The Distressed Home law is a sloppy band-aid to make the politicians think they've helped in this year of real estate in the public eye.... It absolutely puts a bulls-eye on real estate agents who can be easily pulled-in to the position of being a distressed home consultant...

I look forward to this law being thrown-out as soon as possible. There certainly is room for a real law to help protect consumers from equity skimming scams, but this disaster isn't it.

I believe this law will have the effect of pushing more homes into bankruptcy as many buyer's agents will want to stay as far away from being a distressed home consultant as possible. The huge liabilities attached to a subjective standard are huge and terrifying.

-Bill

Jun 24, 2008 09:17 PM

James G. Pycha

James Pycha (R) - REMAX KAUAI - Princeville, HI

(R), REMAX Kauai Broker

The stated purpose of the new HAWAII law is to protect the property owners facing foreclosures, liens, or encumbrances from persons who would prey on them.

This act addresses possible misrepresentations by such persons who would offer assistance to these owners and requires them to fully describe their services in a written contract. It gives the property owner the right to cancel at any time before a "distressed property consultant" has performed all services called for in a contract.

The problem arises in the definitions section: "Distressed property consultant means any person who performs or makes any solicitation, representation, or offer to perform any of the following relating to a distressed property: ... Stop or postpone the foreclosure sale or loss of any distressed property due to the nonpayment of any loan that is secured by the distressed property..."

Previously, these were duties real estate professionals performed when they represent a seller in a short sale. Unfortunately real estate professionals are not specifically excluded in this law. However, lenders, attorneys and insurance companies are all exempt from the law. Why not real estate agents?

Short sales are a challenge for agents under the best of circumstances. They take much more time and their commissions are usually reduced by the lenders as a condition of approving the short sale transaction.

Agents work on short sales as a service to their clients. Under the new law, real estate professionals acting as "Distressed property consultants" have their compensation capped at two most recent monthly mortgage installments of principal and interest due on the loan first secured by the distressed property or the most recent annual real property tax... which ever is less".

This is very little incentive for a real estate professional to list, market, find a buyer and negotiate with the lender to help the distressed seller avoid foreclosure, especially when that compensation is split with a co-operating broker representing a buyer.

Ultimately, I believe the consumer will be harmed greatly by this law. If real estate agents are not involved in helping distressed sellers sell their property through the short sale process and marketing it on the Multiple Listing Service, the lenders will have no choice but to foreclose.

The law must be amended to exclude licensed real estate professionals from the definition of "distressed property consultant" when they are performing services on behalf of a buyer or seller.

Sep 24, 2008 08:12 PM

Michael Hege

Beach Villa Realty,LLC - Kapolei, HI

It's in Hawaii also and if one respects the letter of the law, it seems the best approach is to insulate oneself by having an outside party act as the DPC. The challenge is that the fee has also been legislated for performing this service at 2 months of the the monthly payment or 1 year's annual property tax (whichever is less) which puts the available compensation to a DPC at about $2,000 on a $500K property.

Feb 19, 2009 12:17 PM

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Fred Griffin Real Estate - Tallahassee, FL

Licensed Florida Real Estate Broker

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