Why are units in 4+ unit condos not covered? It’s because whoever wrote it didn’t know what they were doing.

Why are buyers at risk if their sale closes within 20 days, as opposed to making an offer to someone within 20 days? It’s because it’s poorly written.

That’s what I can think of in 10 seconds. There are other examples that would take me longer.

It was written with good intentions, but it had the opposite effect of what was intended. This law (not the portion proposed by our AG) caused hundreds of people to be foreclosed out of their homes.

The question was is the sale within 20 days of a foreclosure rule dependent on the property being occupied? The question was asked because I take the position that part of the distressed property applies to vacant property (which is contrary to the NWMLS position). Anyway, when asked I had to look up the answer because I wasn’t sure how my vacant property analysis fit in with the 20 day rule. Here’s what the 20 day rule (RCW 61.34.020(3)(a)(x) says:

“(ix) Purchase or obtain an option to purchase the distressed homeowner’s residence within twenty days of an advertised or docketed foreclosure sale; . . ..”

Note that the phrase used is “distressed homeowner’s residence.” This indicates two things. First, that it wouldn’t apply to vacant property, because it requires a residence. Second, that a “distressed homeowner” can be an owner of a vacant home (contrary to the NWMLS position). If the term “distressed homeowner” included only owner occupied homes then the statute quoted above wouldn’t need to say “distressed homeowner’s residence.” The word residence would be surplusage, which supports my interpretation (which BTW, is that vacant houses would be included if they were actually in foreclosure, as opposed to just being in danger of foreclosure).

Now, does that mean that if a house is vacant, that an agent shouldn’t include form 22 NFW? I’d say no, because the statute is not clear as to what point the property is occupied. What if the owner moved back in while the property was pending? If there was no 22 NFW, the buyer would probably be stuck.

Finally, I’ll again repeat my thought that agents should not rely on either the vacancy exception or the 1-4 unit building exception in determining how they act with respect to a piece of property. Assume that you’re working with a property that would be potentially covered and act accordingly. If you then get sued, you can still rely on the exception, but also rely on the fact that nothing you did would have put you under the act even if the property had been covered.

Anyway, the uncertainty here points out the need for every agent to be aware of the distressed property law, and if in doubt get their own legal advice (not rely on a blog piece) and also to act cautiously.

I read this long paragraph while sitting in the drive through at Starbucks this morning. Thanks for following up with this!

I can personally vouch for Dale Galvin having spent many, many hours with him. He is a former student of mine.

I highly recommend Dale and his team.

Dale Galvin is an attorney who does escrow work and trustee services (foreclosure). One of the services they offer as part of escrow is dealing with banks on short sales. They would also deal with deed of trust trustees in foreclosure situations. There are added fees for these services, but they are moderate (well under $1,000.00).

Mr. Galvin interprets the DPL a bit more conservatively than I do, and in some instances a bit more conservative than the NWMLS. I’m not sure that really matters much. I’ve come to the conclusion that agents should totally ignore the exceptions, and assume that any property can be a distressed property when it comes to what services they provide, and what claims they make. Thus, assume that vacant condo unit in a 100 unit building would be subject to the law, even though there are possibly two exceptions that would keep it out. The last thing an agent (and the broker) wants is to be litigating their way out of a DPL lawsuit.

Getting back to Mr. Galvin, I think attorney based escrows have a distinct advantage in two situations: (1) Short sales; and (2) Properties in foreclosure. Given the attorney exemption in the DPL, they can feel free to contact banks and deed of trust trustees without subjecting themselves to the risk of frivolous lawsuits. Not to mention, dealing with banks is hardly a pleasant activity–that someone will do that for a modest additional fee is actually a good thing! So such services make it possible (less risky) for agents to take distressed listings.

In addition, such services can also help a buyer’s agent. Within the last year or so, one of our team members had a client make an offer on a short sale property, where it was apparent from the listing that the agent didn’t know what they were doing. That became more apparent the further we went into the transaction, and it never closed (although part of that was related to the property). If you’re in that situation and the listing agent isn’t already using an attorney based escrow, you could simply specify one. Keep in mind though that the seller would still need to cooperate with the escrow in assembling the “short sale package” and that typically that requires the listing agent’s assistance.

Finally, I’ve purposefully said “attorney based escrow” several times, because I’m not certain that an ordinary escrow would have any real protection at all from the DPL, but clearly the attorney based escrow has an additional exemption because attorneys are specifically exempt. If anyone wants to correct me on the issue of escrow exemptions, that would be fine–I haven’t looked at that issue closely. Also, I’ve not personally used Mr. Galvin’s services, so I am not suggesting using his services over that of some other attorney who might provide similar services.

Regarding public comment: that one lone guy arrived to comment on the original legislation that had been proposed in January. The changed legislation had only been in place for a few hours prior to the public testimony on 2/29.

Check out http://www.tvw.org and enter 2791 into the search box to pull up the 2/29 testimony video.

To change the law so drastically (it went from 8 pages to 17 pages of law) only hours before the testimony means that there was no opportunity for detailed review or for people to travel to Olympia to make those comments to the committee. It was a slick shell game ploy.

…and I don’t know how may lawsuits have been filed. It’s the **fear of the lawsuit** that’s driving buyers away.

I want to make it clear: I’m FOR protecting the public against scam artists and those who would unjustly steal from those in distress. However, the law was badly written and all-encompassing and destroyed an avenue that those in distress had to solve their problems. You just can’t put a buyer and seller into a fiduciary relationship. It can’t work. period.

So buyers stopped talking to those in distress. …and so those in distress have fewer options in front of them to solve their problems. It’s not a good situation. For anyone.

Also, that you are contacted by consumers really isn’t the point either. As I mentioned there are people that are ignorant, naive or risk adverse. When I talk to consumers, most of them haven’t even heard of the distressed property law, let alone understand how it works. Hopefully they obtain agents who are familiar with it and can protect them.

BTW, although the law is incredibly complex, the only thing buyers need to know is simple: Don’t close a sale within 20 days of a foreclosure–at least not without getting attorney advice first. For agents it’s much more complex.

Instead of “wrong” or “backwards” I prefer to think of it as looking at the DPL through a different lense.

We agree that the DPL could be re-written to clear up confusion in the language.

We disagree that the DPL is the SOLE cause or the primary or one of the leading causes of higher foreclosures in this state.

I interact with hundreds of agents each month. Right after June 12th….in July and August, there was mass fear surrounding these listings.

Today, (Nov 08) it is a completely different ballgame. Listing agents are taking these listings with far less fear of lawsuits, and homebuyers who fall in love with a home that happens to be a short sale are waiting it out.

I am contacted constantly…probably once a day now….by consumers who are looking to BUY short sales and pre-foreclosure properties.

You shouldn’t be looking at either number of lawsuits filed since June 12th, or number of sales closed withing 20 days of a foreclosure.

Some people do stupid things. That they might do stupid things doesn’t mean you (or your clients) should do the same things. Some people go out and install grow lights in their homes to grow illegal plant matter. Assuming there were a blog page pertaining to such activities, would you go an ask how many people are doing it to determine it was safe? Would you ask how many people have been doing it since June 12, 2008 to try to determine what the risk was of being shut down by the sheriff? I’d hope the answer to both questions is no.

That some people still might be buying in such situations doesn’t mean it’s a good thing to do. That others aren’t doing it at all because of the distressed property law means that there are some sellers out there who are not putting deals together to save their house from foreclosure. There is simply no way that this is not having an effect. Houses get lost to foreclosure even in hot markets. Take away potential buyers and more will be lost to foreclosure.

This is also why the expectation for current fair market value is not realistic. There has to be some discount for the added time, additional liability, and lack of seller engagement in the outcome from the buyer’s side of things. You never buy into a no-recourse situation at fair market value, be that a vacant relo, an estate sale or a short sale.