A new statewide real estate law went into effect in Washington on June 12, 2008 which does the public more harm than good.
Washington State's new distressed home law, designed to eliminate equity skimming schemes, puts undue risk and liability on real estate brokers, agents and even buyers by creating a new form of agency by statute. This new form of agency mandates a fiduciary responsibility between real estate broker, agent and even a buyer who strikes a deal with a distressed home seller.
For example: A buyer's agent sells a property to their client, and the listing is defined as distressed under the guise of the new law. In this market it is very common for a buyer to make a lower offer. If the offer is tendered, even a few thousand dollars below the asking price, under the new law the buyer could be viewed as taking advantage of the seller in this situation. The seller would have legal recourse to sue the real estate brokerage, the agent and the buyer under the new law for up to three times actual damages up to $100,000 plus attorney's fees!
My brokerage along with many others has taken a solid stance to not take any distressed home listings. In addition, agents statewide need to tread cautiously when showing homes that may carry a distressed status. This new status will be noted in the agent remarks as "NO 2008 LISTING."
Distressed homeowners are going to have a very difficult time finding good representation under these new laws, which are absurd to say the least. Any brokerage who takes such a listing is also taking on a gratuitous amount of risk and liability.
Further, a distressed home is only defined as an owner-occupied residential property up to four units. This would include the owner occupying a unit in a duplex, triplex or fourplex. However, this would exclude condos in buildings that have five or more units. So homeowners of many, but not all, condos apparently do not apply to the new law.
Please urge your state representatives, senators and the governor to repeal this law immediately as it will invariably do more harm than good by robbing desperate sellers of valuable agency representation and the expert marketing of property that really needs to be sold to avoid foreclosure. http://www.leg.wa.gov/legislature
Residential Marketing & Investment Specialist Seattle & Tacoma Area Real Estate
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Good points.
- If it's the home owner being thrown under the bus, then it's the real estate agents being run down by that bus because this law gives the home owner power to sue a "distressed home consultant" for three times the amount of damages (not to exceed $100,000) - other states with similar consumer protection laws have made licensed real estate agents exempt from the law, but not here. Funny how they remembered to exempt the just-recently-required -to-be licensed mortgage brokers, but failed to exempt Real Estate Agents who have held a license for years). At least this statement made by the media relations manager for the AG of Washington (From June) shows some hope:
"No [the Attorney General's office is not satisfied with the Bill], in fact we're going to be going back into legislature to ask for some changes," Alexander said. "We're actually meeting with the Realtors next month and we'll be working with them to hopefully draft an improved piece of legislation. This is a good starting point. Obviously it's not perfect and we want to go back and make sure that it's better." (taken from NuWire article The Legislative Labyrinth of HB 2791 07/16/08)
This is because the bill that started out as an eight page bill grew to 17 pages by the time it was finally passed. (The following is taken from NuWire article The Legislative Labyrinth of HB 2791 07/16/08): "many may not realize is that the Bill's final form, including the sections ruffling so many feathers, was not McKenna's doing at all. Instead it was the result of last-minute changes to which neither the Attorney General's office nor the Washington Association of Realtors were party"
At least it is a good sign that they will be talking... Let's hope we get some clarification to the law.
We are not the only ones concerned with this law: "the fact remains that the original intent of HB 2791 was lost during the legislative process. What was once a clear, concise Bill working to legitimize and regulate the foreclosure rescue industry became a complicated and confusing piece of legislation that could cause real estate professionals and investors to abandon pre-foreclosure properties altogether. Several important proponents of HB 2791 admit that the Bill has flaws that need to be addressed, including McKenna, the Bill's original creator." (taken from NuWire article The Legislative Labyrinth of HB 2791 07/16/08
So, if the original ceator of the bill and many who were proponenets believe it needs work - then they should fix it! We will see what the 2009 Legislative session does - let's hope they fix it right. I am hopeful that our AG will bring this back to the drawing table.
On another note: Just to clarify - a condominium is not considered a multi-family residence. The ownership rights are still "fee Simple". A condo is a separate and legal tax entity and, as such, would not be exempt from the law. A building that is one tax identity, containing more than four units are exempt (5-plex and up, and apartment buildings); the key here is "one tax entity" and how many units are part of that entity. A condominum project may be many units, but each unit is owned separately.
I enjoy your blog, Brad. You are a very good writer! Thanks for posting this very important and current topic. You are doing a great job bringing this topic to forum. I look forward to more discussion on this and future issues.
Brad,
You were right! The language of the statute does exempt condos in buildings of over four units....I was wrong! It would seem that, since a condominium is a residential property, that it should apply, and it does, but only for condos located in a building of four units or less.
- Just another example at how confusing and inconsistent the bill is.
Government at it's finest. Seller's are going to reap profits from this bill. If they can prove it. And many will try.
Thank you for your comments, Michael!
After I created this post, I later learned Washington's new distressed property laws were literally copied and pasted almost verbatim from Wisconsin's law. Wisconsin doesn't really have condo developments like we do here, so the definition pertaining to residential property should certainly have been made more relevant to our state.
What's even more troubling, since we basically imported Wisconsin's distressed property law, such cases that arise here in Washington will have to refer to Wisconsin common law, not Washington's. It's a completely complicated cluster that will hopefully be resolved in the upcoming '09 legislative session.
Why the legislature didn't proactively invite input from the real estate industry is beyond me. This is case in point why having open dialogue is so important for good decision making and best practices.
Brad