Posted by Coffee_Man at 5/30/08 5:07 p.m.

What I find funny about the new law is that condo's in buildings over 4 units are exempt from this. So if you are a distressed homeowner and you fall victim to this scam, the law won't protect you.

Posted by Kary L. Krismer at 5/30/08 6:53 p.m.

It's just one of numerous examples of really poor drafting. I'm pretty sure that wasn't intended. Conversely, a lot of the act applies to non-resident owners (contrary to what the NWMLS forms say), which also presumably is just poor drafting.

And the thing about buying within 20 days, that was probably aimed at folk that approach the seller within 20 days, offering a low price, but they picked up everyone who happens to close within 20 days!

There are numerous other examples. One I've not mentioned is the fact there's no transition language. They're just going to leave that to the courts. But for example, if someone closes a transaction on June 13, is that covered, even though all the agreement was done beforehand? That's why I've said the NWMLS is too late with these documents--especially Form 22-NFW.

Posted by Jillayne Schlicke at 5/30/08 9:20 p.m.

Thanks for the update Kary.

Also, WAR has posted their presentation here:

http://www.warealtor.org/dpmedia/dvd.asp

Question: there's been a lot of talk about how Realtors ought to be exempt from becoming a "distressed home consultant."

It seems to me that all the things listed in the definition of "distressed home consultant," are things Realtors can and often do. What do you think?

Posted by MLS4owners at 5/30/08 10:07 p.m.

In an effort to help people with a desperate financial need to sell their homes, the new law makes it much harder for those very same people to sell their homes.

The one law that will never be overturned is the Law of Unintended Consequences.

Ken Whitney
MLS4owners.com

Posted by Kary L. Krismer at 5/30/08 11:05 p.m.

Jillayne wrote: "It seems to me that all the things listed in the definition of "distressed home consultant," are things Realtors can and often do. What do you think?"

I don't think mortgage brokers, real estate agents or attorneys should be exempt. But instead having a no-brainer "fiduciary" standard, I would list what those parties must do, what they can do, and what they can't do.

Take agents for example. As it is written now, contacting a bank or a trustee to check on a foreclosure date or payoff arguably could subject them to liability. Why? That's part of doing an agent's job--it's not overreaching. There's no reason for agents to be restricted from doing that. It can get an agent into trouble under this act, for no reason. But a mortgage broker can get a homeowner into a new loan with a 3% pre-payment penalty, making their condition worse, and they're exempt.

And it's not so much that I have a problem with just being a fiduciary. That would be fine. As an agent I assume I'm a fiduciary. But being a fiduciary where you put the seller's interests ahead of your own, that just gives rise to a lot of questions, and a lot of potential for lawsuits. And the potential for lawsuits is increased tenfold with treble damages and attorney fees.

The bottom line is this is very poorly thought out legislation. It casts a wide net, capturing those who want to help a homeowner with those who want to scam them, while at the same time throwing back some of those who want to scam them.

It's too bad legislators don't have treble damage and attorney fee liability for proposing brain-dead amendments to good legislation. If they did, things like this wouldn't happen.

Posted by Jim Reppond at 5/31/08 5:50 a.m.

This is one of the worse pieces of real estate legislation I've ever seen! I can't believe Washington Realtors Association let this one slip by. I hope they are held accountable by the membership as much as the legislators for this trash.

BTW, what are the consequences if the owner chooses not to disclose or even lie to the agent regarding their "distressed homeowner" status in 1AA? Nothing. It has no teeth!

What about FSBOS? Now THEY have fiduciary responsibilities? Give me a break! These are just average unlicensed citizens just trying to sell their home.

This law is going to end up hurting the very people it was intended to protect.

Posted by Kary L. Krismer at 5/31/08 7:14 a.m.

Jim, you're right that it has not teeth on the forms. But that's just the NWMLS trying to cope with the problem that you can have a "distressed homeowner" in situations where they tell a third party something you don't know about. That's the problem with the legislation. What the NWMLS is probably trying to do is setup a fraud counter-claim to a CPA suit.

As to WAR, I've heard two things. That no one noticed the last minute amendments, and that the banks' lobbyists did notice. If no one noticed, I don't think you can fault WAR for last minute changes (or at least it's harder), but if another group did than you could.

Finally, I don't get your FSBO comment. I'm unaware of how they could be a fiduciary under this act, but crazy things are possible under the act, so please explain. A buyer can become a fiduciary (whether they're represented or not), but I don't see the FSBO. There are FSBO forms so that the FSBO makes the same warranty about not being in distress, but that's all I'm aware of.

Posted by Kary L. Krismer at 5/31/08 7:20 a.m.

Just to follow up on my comment of why real estate agents shouldn't get a blanket exemption:

Imagine someone's "business" is contacting people in foreclosure, telling them they can stop a foreclosure, etc. Should the person be exempt from this act just because they're a licensed attorney? Well arguably if perhaps the service they're selling is bankruptcy, not not if it's some scam. But the existing legislation goes too far. If you're a licensed attorney, you're possibly not a "distressed home consultant" no matter what you do--what scam you're running. So why should a licensed real estate agent be exempt? If they're running a scam they shouldn't be. If they're trying to help the seller sell a home to an unknown and unrelated third party, by using a MLS, they should be exempt. But just going out and taking a clock-hour course and passing a test shouldn't make you exempt from running a scam.

That's why I say they should list what you can, can't and must do. Make certain acts illegal, no matter your status. In such a system, checking with a bank or deed of trust trustee would be something you could do. There's no reason that should be a suspect activity.

Posted by Jim Reppond at 5/31/08 12:03 p.m.

Kary,

No offense, but the argument that "no one noticed the last minute amendments" at WAR as an excuse just doesn't cut it with me. It's THEIR JOB to notice, ESPECIALLY last minute changes. The devil is in the details. We pay huge dues for them to lobby for effective and thoughtful legislation. They failed miserably with this. We all have things we fail at. And often we have reasons for these failures. But let's not try to pretend that it wasn't a failure just because of excuses.

RE: The NWMLS Forms. I get it. It's just their way of dealing with a bad situation the best they can. They are "hoping" that this will absolve agents of automatic "Distressed Home Consultant" status by default. I still think it leaves the agents in an awkward position, at best.

Posted by Jim Reppond at 5/31/08 12:25 p.m.

Kary,

RE: FSBO irresponsibilities.
Sorry, I mis-spoke. I misunderstood my Broker's comments about this scenario. It was more directed at a situation where an agent is involved with a FSBO and during the transaction that a Seller becomes a "Distressed Homeowner" and how that can become problematic.

Posted by Kary L. Krismer at 6/1/08 7:59 a.m.

Jim, I'm not that familiar with the legislative process to understand who should have known what. I keep hearing different things on that. However, one thing that keeps coming back to me is that only a total of 3 members or either house voted against it. To me that means it slipped by even the elected officials.

Maybe I'll use a bank robber/cop analogy. The bank robber is Senator Weinstein, and the cops are the lobbyists. When a bank gets robbed my first thought isn't to blame the cop. For fault I go first to Senator Weinstein, and second to whatever attorneys he has access to that he had review the amended language.

But yes, that this occurred does show that every lobbyist for every interest has to review every amendment very carefully, even if that means doing so at odd hours.

Posted by Jim Reppond at 6/1/08 8:24 a.m.

RE: "Maybe I'll use a bank robber/cop analogy." Well put, Kary. It's important to remember who were the real bad guys in this. Still, there are a lot of angry Realtors and soon to be angry sellers who are going to be pointing fingers (besides me).

I think that many of us in the real estate industry have gotten to the point where our expectations of our elected officials is so low that we don't even bother with trying to hold them accountable anymore. That's why it is critical to have knowledgeable, competent, lobbyist in place to babysit them. And it's true that we hold them to a MUCH higher standard, partly because we pay them a lot of money to do this.

Posted by Kary L. Krismer at 6/1/08 3:10 p.m.

BTW, the term lobbyist has a bad connotation, but I'd hate to think how high the transfer excise tax would be but for WAR lobbyists, etc. And this is another example where they could have done some good--they just didn't. Sometimes the interests of consumer groups and special interest groups like real estate agents are aligned.

Posted by Dugald Allen at 6/1/08 3:21 p.m.

Kary wrote: "As to WAR, I've heard two things. That no one noticed the last minute amendments, and that the banks' lobbyists did notice."

As far as timing is concerned: The legislation was changed on the Thursday night with public hearings at 8am Friday. Not a lot of time. WAR was aware of the changes, but I don't understand why they didn't act.

Here is a quote from a senator (dated 5/6/08) who is on the Consumer Protection & Housing Committee:

"From what I'm being told by different attorneys, the Realtors/NWMLS are totally overreacting to have every listing redone. We will not be back in session until next January, at which time we can change the legislation as the Legislature sees fit."

...(snip)...

"It's interesting to me that not one Broker or WAR ever expressed any concern for the homeowners that were getting ripped off by their agents. If we overreached in writing the law, the industry is partly to blame for turning a blind eye on the situation long before the Legislature became aware of the problem."

Obviously, I was not very happy with these accusations, but you can see that WAR would have been fighting an uphill battle as well...

We are learning that the legislature's legal folks still do not agree with the real estate lawyers about these changes and the consequences of the law.

It's too late now...

Posted by Dugald Allen at 6/1/08 3:23 p.m.

....oh and WAR is now WR...

Posted by Kary L. Krismer at 6/1/08 3:43 p.m.

Dugald wrote: "We are learning that the legislature's legal folks still do not agree with the real estate lawyers about these changes and the consequences of the law"

I've already expressed my opinion that anyone that helped draft this and/or reviewed this for the legislature should be fired. The drafting is horrible. So quite frankly, I don't care what they think the legal consequences will be. Form 22-NFW didn't just come to the NWMLS because it wasn't a problem. It came about because of really lousy drafting, and that lousy drafting (probably by the same people who don't see an issue) will probably put a lot of people into bankruptcy or on the wrong side of a foreclosure sale date.

And Weinstein is an idiot if he thinks this is just about listings needing to be relisted. More likely he's just being a politician that doesn't want to admit a huge mistake.

Posted by Greg Perry at 6/1/08 4:06 p.m.

Yes, bad legislation. To me it looks like WAR could have been more diligent....but I wasn't there.....

Are NWMLS, big company, realtor attorney's overreacting? (again???? I thought they overreacted to the last court decision on the Seller's disclosure for 17 issue).

Don't you just love consumer protection laws that may hurt the consumer more in the long run?

Posted by Kary L. Krismer at 6/1/08 7:08 p.m.

Whether it's overreaction will be hard to judge.

If completed foreclosures go up 10 or 20 percent, will that be because of this law, or would most of that happened anyway?

If prices drop 5%, same questions.

Will 90% of purchase offers come in with Form 22-NFW, or will that trail off in six months to 10%?

The only way for sure you'll know it wasn't overreaction is if you see a bunch of agents and brokers sued because a listing didn't sell, or buyers sued because they bought at the wrong time.

Posted by Kary L. Krismer at 6/1/08 10:38 p.m.

This could almost be a blog piece on it's own, but we have four on this topic already. Here is my argument that the NWMLS forms are wrong on requiring an owner-occupied home. I'd be interested in anyone's thoughts who has read the statute a few times.

To assume that a court would interpret "distressed Homeowner" as requiring an owner occupied home requires that the court ignore the express wording of the statute, because the express wording of the statute uses the term "owner" not "homeowner." And any rational that "homeowner" is otherwise not used in the statute is simply incorrect. The very next definition after "homeowner" uses the term to define the term "in danger of foreclosure." Thus, the provisions of "in danger of foreclosure" only apply to resident owners. That means that the definition of "distressed home" does not require a resident owner if it is a "distressed home" because it is at risk of loss for nonpayment of taxes, or is in the process of being foreclosed. It only requires a resident owner if it is distressed due to being "in danger of foreclosure."

To put this into context, if you have an owner who bought a new home before selling their old one, their old house would only be a "distressed home" if it were actually in foreclosure, or at risk of loss due to nonpayment of taxes. But their new home could be a "distressed home" if they were actually in foreclosure, at risk of loss due to nonpayment of taxes, or "in danger of foreclosure." The legislature gave resident owners protection earlier (the four month anticipated problem), but they did leave non-resident owners totally unprotected. The interpretation taken by the NWMLS forms assumes that the owner would get not protection for their old home that they lived in only a couple of months earlier—which I find that extremely questionable. You'd have to assume that the court would offer someone who had bought prior to selling no protection as to their old home, despite the fact that the legislature didn't use the term "homeowner" in the definition of "distressed homeowner." I really don't see why a court would go out of its way to interpret the statute in a way other than written, when the "victim" was someone who simply had not sold a house that they recently lived in. That seems like an extreme stretch to me.

This is important because the definitions used in the forms are for the protection of the agents and the brokers. Under the forms, contractually the seller is to tell you if they are a distressed homeowner, but the forms only contractually obligate them to do that if they are the resident owner. If I am right, which undoubtedly I will be in front of at least some judge somewhere (or more likely most judges), the owner would not be in breach of contract for failing to disclose, because pursuant to the terms of the NWMLS forms they were not required to disclose. Similarly for brokers, they won't be able to rely on the agent working outside the scope of their authority, because the scope of their authority is only limited to owner occupied homes. What little protection the forms offer to agents and brokers totally falls apart as to non-owner occupied homes.

Posted by Kary L. Krismer at 6/2/08 12:01 p.m.

From Dugald's quote of Sen. Weinstein: ""It's interesting to me that not one Broker or WAR ever expressed any concern for the homeowners that were getting ripped off by their agents. If we overreached in writing the law, the industry is partly to blame for turning a blind eye on the situation long before the Legislature became aware of the problem."

This is exactly why I don't think a blanket exemption for real estate agents would be appropriate (nor is it appropriate for attorneys or some others now given an exception. It should be what you do, rather than who you are.

In one of these pieces on the topic, there's a Seattle Weekly article linked, where two scammers happened to be agents with a rather well known real estate firm. Did their broker turn a blind eye, or did the broker simply not know what they were doing? I don't know, but the fact that they were real estate agents shouldn't let them off the hook. Taking a 60 hour course and passing a test shouldn't let you off the hook.

Maybe it is partially brokers' fault. How carefully do you think they reviewed transactions that agents did on their own behalf?

But that doesn't excuse the poorly drafted legislation. when the remedy is worse than the illness, something is wrong.

Posted by Dugald Allen at 6/2/08 1:16 p.m.

Kary, I didn't quote the source and so the assumption that it was Weinstein is potentially incorrect.

I do agree that the definition of a distressed home owner is vague and contradictory. In one section, it says a distressed homeowner is someone who owns a distressed home (which specifically doesn't say owner-occupied) but then it says a "homeowner" is someone who is in their owner-occupied home.

Aaaagh!

Posted by Dugald Allen at 6/2/08 1:23 p.m.

Kary, I think that brokers really only check to see if the paperwork is complete and valid.

In the cases that the original law was intended to cover, there will rarely be paperwork issues, as there are likely valid purchase agreements, valid leases and valid options and - at least on paper - valid evictions.

Given that the broker might not know anything of the people in the transaction, it's most likely that they would not have caught the transaction in advance and would not have anything to do with the subsequent events.

Posted by Kary L. Krismer at 6/2/08 1:46 p.m.

Dugald, whoever it was (I guess I did make an assumption there), I'm basically saying they may very well have facts which support the statements. I assume that there's a reason that we as agents have to run all the paperwork on our personal transactions through the office, and I assume that reason is something more than the broker wants to make sure the paperwork is complete.

Stated differently, a broker should give an agent's own transactions closer review than their other transactions done with third parties.

And if it's a transaction that is for a third party that is a sale leaseback, that too should probably generate higher scrutiny, especially if there are repeated transactions with that client. The attorneys that go after these type of transactions look for patterns where the investor is repeatedly using the same agent, same loan broker, same escrow, and when they are, they sue all of them (per an attorney who spoke at a CLE I went to, who brings such actions). So a broker who doesn't look for these things does so at their own risk.

Posted by Kary L. Krismer at 6/2/08 1:59 p.m.

Dugald wrote: "I do agree that the definition of a distressed home owner is vague and contradictory. In one section, it says a distressed homeowner is someone who owns a distressed home (which specifically doesn't say owner-occupied) but then it says a "homeowner" is someone who is in their owner-occupied home."

If you can make it through what I posted last night, the homeowner part arguably only applies to the 4 month fear of default stuff, and the actual foreclosure would apply to any owner. I think that's a very likely interpretation of the statute, and plan to practice accordingly, notwithstanding the NWMLS forms.

The bigger question is what to do with condos. I can't come up with a legitimate argument around that exclusion of condo owners, but I have a hard time thinking a judge wouldn't protect a condo owner notwithstanding the language.

But I also am seemingly entirely exempt because I am an attorney. Maybe I shouldn't be sweating this stuff! ;-)

Posted by Kary L. Krismer at 6/17/08 10:38 a.m.

Well, there was no reductions in listings as a result of this change. In King County, SFR I'm only showing about 750 that possibly indicate that a revised listing agreement wasn't signed. I find that a bit hard to believe (that the number is that low).