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Originally published Saturday, August 2, 2008 at 12:00 AM

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State's distressed-property law adding stress

Washington's distressed-properties law has been in effect only six weeks, and already a real-estate industry group is trying to change it.

Special to the Seattle Times

The state's distressed-properties law has been in effect only six weeks, and already a real-estate industry group is trying to change it.

The law (HB 2791), which took effect June 12, is aimed at protecting distressed-property owners from scams.

It adds rules for transactions involving distressed residential property, places restrictions on foreclosure-rescue efforts and outlines damages for those who break the rules.

While some say the law benefits the real-estate industry by helping homeowners in trouble, others say it discourages deals involving distressed property because the law creates more paperwork, exposes agents to more potential lawsuits, and obligates buyers and their agents to act in the best interests of distressed homeowners rather than in their own best interests.

That's a conflict of interest, says Dugald Allen, an agent with Windermere Real Estate's Bellevue South office and the vice president of the Real Estate Association of Puget Sound (REAPS).

The industry group plans to hire a lobbyist to push the Legislature to modify the law, Allen said.

He said his distressed-property listings are getting less traffic from prospective buyers than they were before the bill passed — maybe one visit every few weeks compared with up to four visits a week.

"I absolutely attribute the drop to what's happened with the new law," Allen said.

But others say real-estate agents and investors critical of the law may be crying foul over rules designed to cover a small subset of transactions in which scam artists fleece vulnerable homeowners of their equity.

Often, deals involve investors buying a distressed property and leasing it back to the residents until the residents can afford to buy the property back.

But sometimes "rescuers" prey on troubled homeowners by making lowball offers to buy the homes within a few weeks of foreclosure.

While some deals are legitimate, scam artists set conditions that make it impossible for a buyer to ever regain the title to the property.

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Melissa Huelsman, a consumer-protection lawyer in Seattle who has represented victims of foreclosure-rescue scams, said the law resembles those passed in 10 other states.

Huelsman said lawmakers sought her help in drafting the bill and in discussions about it after it passed.

She said some modifications — including adding condominiums to the types of property the law addresses — might be appropriate.

But she doesn't think it's necessary to remove real-estate agents from the list of "distressed property consultants" described by the bill.

"I've gotten yelled at by [real-estate agents]," Huelsman said. "This bill is to protect people who have equity in their home that can be lost."

Attorney General Rob McKenna says he's not entirely happy with the law. On July 22, McKenna told REAPS members packed into a conference room at the University of Washington that the law was too broad. He favored an earlier, narrower version, he said.

David Bell, an associate broker with Re/Max Metro Realty in Seattle, said the law is poorly written and could be clearer. The wording of the law "has created a scenario where some people who could help distressed homeowners don't necessarily want to do that now," Bell said.

Some brokerages are restricting agents from handling such listings, he said.

But Bell said he doesn't mind being a "distressed property consultant" and is stepping up his work with distressed properties.

"I believe [agents] need to have more liabilities," Bell said.

"Properties have gotten very expensive, and the trend in recent years is that agents have become a kind of 'disinterested third party' in transactions."

Regardless of the bill's eventual effect on owners and sales of distressed properties, it's succeeded in getting one thing: the attention of the real-estate community.

To see the complete bill: http://apps.leg.wa.gov/billinfo/summary.aspx?bill=2791

Jane Hodges is a Seattle freelance writer: janehodges@hotmail.com.

Copyright © 2008 The Seattle Times Company

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