DISTRESSED PROPERTY LAW FAQs

Last updated: May 9 at 9:30am

The information provided in these FAQs was developed by the Washington REALTORS® and NWMLS. Because the law is new and in some cases, ambiguous, it must be interpreted before it can be applied. Different lawyers and judges will interpret this statute differently. You are encouraged to seek the advice of your own lawyer in determining your approach to compliance with the law. The following are recommendations by the Washington REALTORS® and NWMLS for compliance with the new law.

The following are the most commonly asked questions regarding the Distressed Properties Law. If you have additional questions, please call 1-888-222-8843 and leave a detailed message including your question and call back information. We will have someone who has expertise in that field return your call.

NOTE: This document will change often. To prevent confusion, the print function has been DISABLED!

Washington Realtors® Broker Classes Information

NWMLS Broker Classes Information

What is the purpose of the law?: 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.

When does the law go into effect?: The law takes effect June 12, 2008.

Why is the law causing changes in the real estate industry?: An unintended consequence of the law has the potential for dramatically increasing the duties owed by a real estate agent to a distressed homeowner. The law defines the term “distressed home consultant” as anyone who helps or offers to help a distressed homeowner in a variety of ways. For example, if agent offers to save the distressed home from foreclosure by selling the home prior to foreclosure, it is possible that the law will be interpreted to say that agent is a distressed home consultant. If seller is a distressed homeowner and a real estate agent contacts the short sale lender to obtain a reduced payoff or to delay a foreclosure sale, the real estate agent may be a distressed home consultant. If agent writes an offer on a distressed home and the transaction will close within 20 days of a foreclosure sale, buyer's agent may be a distressed home consultant, and the buyer may be a distressed home consultant.

What is required of a distressed home consultant?: Before a distressed home consultant may assist a distressed homeowner, the two must have a written agreement. The current listing agreement does not satisfy the requirements for a distressed home consultant agreement. The agreement must be in larger type than the existing listing agreements and must contain specific language not contained in listing agreements. The agreement must specify exactly what the home consultant will do for the property owner. In addition, a distressed home consultant owes fiduciary duties to the distressed homeowner. Under the Agency Law, agents owe clearly defined statutory duties to a seller. The new law increases the duties owed by agent to seller by creating a fiduciary obligation from home consultant to seller.

Should agents, who already have a signed listing agreement with seller on June 12, ask sellers to sign a new agreement?: Yes. It is the recommendation of the Washington REALTORS® and NWMLS that agents and brokers, who use the statewide listing agreement, require sellers who are in current listing agreements, to sign a new agreement. New statewide forms that comply with the law are being drafted and will be released, with comprehensive instructions for their use, by June 5. The new agreements will need to be signed not later than June 12, the effective date of the law.

What if seller's home is already listed prior to June 12 and seller refuses to sign the new listing agreement?: If agent or broker knows that seller is a distressed homeowner and seller refuses to sign the distressed home consultant agreement, then listing broker will likely have to terminate the listing agreement with seller. The new law provides that a distressed home consultant MUST have a written agreement, conforming to the new law's requirements, signed by seller, or the distressed home consultant may not provide services to the seller. In other words, if seller will not sign the distressed home consultant agreement, the new law prohibits broker and agent from providing the services agreed upon under the original listing agreement. Based on the new law, the original listing agreement will likely be unlawful and thus unenforceable.

If agent or broker does not know that seller is a distressed homeowner, there will still be a statewide agreement that broker will need seller to sign but the agreement has not yet been created. More information will be forthcoming on that issue.

In addition, for NWMLS members, new listing agreements will be required because the new listing agreements will protect not just the listing agent and broker, but also the selling agent and broker, and possibly even the buyer. NWMLS will not accept listings on the old listing agreement form effective June 12, 2008.

What should agents tell sellers when explaining the need for a new listing agreement?: Agents should tell sellers that the law has changed, necessitating the signing of some new forms by sellers and brokers. Agents should explain that the law has a valid and legitimate purpose, to protect consumers and prevent fraud, but that the law also requires certain action by real estate agents. The actions required of real estate agents can only be determined based on the warranties that seller can make regarding seller's status as a distressed home seller.

The Washington REALTORS® is working with the Washington State Attorney General on the development of literature that will be produced by the Attorney General for dissemination to consumers. At no point should a real estate agent be in the position of trying to explain the law to a client. Rather, it is anticipated that a real estate agent will be able to provide the literature prepared by the Attorney General to a client and advise the client to seek the advice of their own lawyer if more information is needed. As of the writing of these FAQs, there is no firm commitment from the Attorney General that the anticipated literature will be produced, what it will include or when it will be available. If the Attorney General does not prepare any literature, the Washington REALTORS® and NWMLS will prepare a handout for agents to give to seller's to help to explain the new law and the reason for the new listing agreement.

Should multiple listing services, other than NWMLS, develop policies and new listing agreements related to this new law?: Yes. All MLS's will have to develop new policies and new forms related to this new law. Leadership for each local MLS should meet with MLS legal counsel as soon as possible to develop policies and new forms. To the extent that any REALTOR-owned MLS in Washington State chooses to do so, the MLS is welcome to adopt the new policies that NWMLS will implement. Likewise, any REALTOR-owned MLS in Washington State is free to use the statewide listing agreement and the other new listing forms.

Is it true that the listing agreement/distressed home consultant agreement must be printed in seller's first language?: The law requires that the distressed home consultant agreement be written in the language that agent uses to describe his or her services to seller and also in English. In other words, if agent speaks to seller in a language other than English, then agent must translate the listing agreement/distressed home consultant agreement into the language used by seller and agent. Agent is required to achieve total accuracy in the translation. It is the recommendation of the Washington REALTORS® and NWMLS that agents and broker have the agreements professionally translated rather than translating the agreements personally. Seller and agent/broker must sign the translated agreement and the English agreement.

What properties are considered to be “distressed homes?”

A distressed home is owned by a person who falls into any of the following categories:

the homeowner is at risk of losing the home due to nonpayment of taxes;
the homeowner is at least 30 days late on a mortgage payment;
the homeowner is in default of any mortgage term such that the lender could accelerate the balance owing; or
the homeowner believes they are likely to default on the mortgage within 4 months and tells this to, among others, a real estate agent.

Must a seller identify themselves as a distressed homeowner before the law can protect them?: No. If a property owner fits any of the definitions of a distressed homeowner, then the law protects them as a distressed homeowner even if they never communicate that fact to anyone and even if they do not realize themselves that they are a distressed homeowner.

Are agents and brokers prohibited from participating in any types of real estate transactions?: Yes. The new law defines a particular type of transaction as a “Distressed Home Conveyance (or Reconveyance).” The statewide purchase agreement (Form 21) may not be used to create a Distressed Home Conveyance. A Distressed Home Conveyance is one in which the buyer takes title to the property but allows seller to continue living in the home with the promise that seller can buy the property back from the buyer at a future date or share in the equity of the sale of the property. The new law requires that a Distressed Home Conveyance purchase agreement include certain language that is not contained in Form 21 and that the Distressed Home Conveyance purchase agreement may be terminated by seller within five days following signing. If agent intends to write a purchase agreement that would constitute a Distressed Home Conveyance, agent MUST seek legal counsel for assistance drafting that agreement as Form 21 is not intended to meet the requirements of the law related to that type of transaction.

Are there any different requirements for maintaining transaction records under the new law?: Yes. The Distressed Home Consultant Agreement must be kept for at least five years following closing of the sale or termination of the agreement. It is recommended that all transaction records be maintained, at a minimum, for this five year period.

Are only designated brokers allowed to attend the live classes?: Because of the limited amount of time for implementation, there is no way that the Washington REALTORS® and NWMLS, even working together on this effort, can reach 45,000 licensees statewide. Accordingly, the classes are offered for designated brokers-only. With that said, however, it is critical that at least one person from every office attend the classes. Accordingly, if the designated broker is unable to attend the class, then he or she should appoint a representative to attend in their stead. Also, the designated broker can confirm space availability at the classes and if extra space is available, bring another person from their office. The Washington REALTORS® and NWMLS will produce a DVD to be made available to brokers, at no cost to brokers, to use in their offices for training their own agents. The classes will be taught during the weeks of May 12 and May 19 in multiple locations around the state. Check the Washington REALTORS® and NWMLS websites for class schedules. If the complete schedules are not already posted, they will be posted soon.

Is any more information available?: This set of FAQs will be updated as forms are drafted and strategies for approaching difficult situations are developed. Check postings on either the Washington REALTORS® or NWMLS websites every few days to determine if new information is available.

WA Realtors® Broker Classes

To register for the classes below, email dpclasses@warealtor.org

Washington REALTORS® and the NWMLS are offering classes for Brokers regarding the Distressed Properties Law. There is no charge for these classes. Because of the limited amount of time for implementation, there is no way that the Washington REALTORS® and NWMLS, even working together on this effort, can reach 45,000 licensees statewide. Accordingly, the classes are offered for designated brokers-only. With that said, however, it is critical that at least one person from every office attend the classes. Accordingly, if the designated broker is unable to attend the class, then he or she should appoint a representative to attend in their stead.

The Washington REALTORS® and NWMLS will produce an instructional video on a DVD to be made available to brokers, at no cost, to use in their offices for training their own agents. The classes will be taught during the weeks of May 12 and May 19 in multiple locations around the state. The DVD will be mailed to each Designated Broker the week of May 26th.

Following are the classes offered by the Washington REALTORS®. For the NWMLS classes, click here.

Date Location Time Address

May 12 Omak - North Central 8am - 10am Best Western Peppertree Inn
820 Koala Drive
Omak, WA 98841

May 12 Wenatchee Noon - 2pm The Coast Wenatchee Center
201 N. Wenatchee Ave
Wenatchee, WA

May 12 Ellensburg 3:30pm - 5:30pm CWU Student Union & Recreation Center
400 E University Way Room 271
Ellensburg, WA

May 13 Yakima 8am - 10am Red Lion Upper Terrace
607 E Yakima Ave
Yakima, WA 98901

May 13 Kennewick 11:30am - 1:30pm Red Lion Columbia Center
1101 N Columba Center Blvd
Kennewick, WA

May 13 Walla Walla 3:30pm - 5:30pm Walla Walla Association
6.5 N Second St, Suite 314
Walla Walla, WA

May 14 Pullman 8am - 10am Whitman County Association
115 SW Blaine, Suite A
Pullman, WA

May 14 Spokane 1pm - 3pm Northern Quest Casino
100 North Hayford Road
Airway Heights, WA 99001

May 14 Colville 5pm - 7pm Remax Select Associates, Inc
327 S Main
Colville, WA

May 15 Spokane 8am - 10am Northern Quest Casino
100 North Hayford Road
Airway Heights, WA 99001

May 15 Moses Lake 12:30pm - 2:30pm Moses Lake Convention Center
1475 Nelson Road NE
Moses Lake, WA

May 15 Cle Elum 4pm - 6pm Suncadia
3600 Suncadia Trail
Cle Elum, WA

May 19 Goldendale 8am - 10am Quality Inn
808 E Simcoe Drive
Goldendale, WA

May 19 Vancouver 1pm - 3pm Red Lion Hotel at the Quay
100 Columbia St
Vancouver, WA 98660

May 20 Vancouver 8am - 10am Red Lion Hotel at the Quay
100 Columbia St
Vancouver, WA 98660

May 20 Pacific County 2pm - 4pm Super 8 Motel
500 Ocean Blvd South
Long Beach, WA

May 21 Port Angeles 8am - 10am Port Angeles Association
127 E First St, Suite 2W
Port Angeles, WA

May 21 Sequim 11am - 1pm Sequim Bible Church Fellowship Hall
847 N Sequim Ave
Sequim, WA

NWMLS Broker Classes

To Register, please visit www.nwmls.com or call 1-800-541-0455

Date Location Time Address

May 12 Silverdale 10am - Noon Beach Hotel

May 12 Port Hadlock 2pm - 4pm The Inn

May 13 Bellingham 10am - Noon Best Western Lakeway

May 13 Mount Vernon 2pm - 4pm Best Western Cotton Tree

May 14 Bellvue 8am - 10am The Bellevue Club Hotel

May 19 Seattle 10am - Noon Hotel Deca

May 19 Seattle 1pm - 3pm Hotel Deca

May 20 Olympia 10am - Noon Ameritel Hotel

May 20 Olympia 1pm - 3pm Ameritel Hotel

May 21 Longview 10am - Noon Cowlitz Regional Conference Center

May 23 Lynnwood 10am - Noon Embassy Suites Hotel

May 23 Lynnwood 1pm - 3pm Embassy Suites Hotel

May 27 Tacoma 10am - Noon La Quinta Inn

May 27 Tacoma 1pm - 3pm La Quinta Inn

May 28 Aberdeen 10am - Noon Port of Grays Harbor

May 29 Oak Harbor 10am - Noon Best Western Harbor Plaza