Home Foreclosures Reach an all time high in the US
It was reported this week by CNN Money that Home Foreclosures in the U.S. has toped 1,000,000 with Nevada, Arizona, California, and Florida accounting for 89% of the total of all Foreclosures. California, Nevada, Florida, Arizona and Michigan exhibited the greatest price depreciation in all transactions in the first quarter. While Wyoming, Utah, Montana, Texas and Alabama saw prices for all transactions increase the most. According to the NWMLS the Seattle market also saw a slight increase in sale prices as well over the last two months.
And as people were loosing their homes at the highest rate on record for the first three months of this year, there are new scams popping up everywhere to rip off and take advantage of stressed out, non English speaking, and unsuspecting homeowners that are willing to do almost anything to save their home. The worst of these scams is called Equity Skimming. The simplified version is : A Buyer will write an offer (below market value) for the home and then promises to rent the home back to the seller so they can stay in their home and when their fiances improve they can buy the home back. This Buyer then resells the home for a higher price and keeps all the equity that the seller had in the home and the seller has no place to live and has lost all their equity.
To help protect these vulnerable homeowners 17 States have passed new legislation pertaining to foreclosures and short sales. The State of Washington passed the new law that took effect Thursday June 12, 2008. And while the law has good intentions, many believe that it will end up hurting those it was intended to help. Apparently, Washington's new law was copied from the State of Wisconsin and there are many contradictions in this new law with our already existing Agency law. There is also so much vague language in the law that it’s impossible to interpret. Of the 17 states that passed a similar law, Washington is the only state that is holding Realtors responsible if something goes wrong. The law exempts financial institutions, mortgage brokers, mortgage loan servicers, credit counselors, and licensed attorneys, not real estate licensees. All the other state exempt real estate agents. The law also awards attorney fees and damages up to $100,000.
Now, I’m sure there are people out there that would say well those blank blank Realtors are a bunch of crooks and make too much money anyway so they deserve huge fines. And I agree…if we do something wrong or take advantage of some unsuspecting seller we should be responsible. And while I think that many Realtors don’t do that great of a job representing their clients best interests, I also don’t believe there are very many Realtors that are dishonest or would knowingly take advantage of someone or create an Equity Skimming scam of some sort.
But what this new law will do, in my opinion and many others, is force most Realtors to “stay the heck away” from Foreclosures and Short Sales. All a Realtor has to do to become a Distress Property Consultant and be subject to all the new laws and liabilities is to basically try to help sell that distressed property, as a Listing Agent of a Selling Agent. A Distressed Homeowner is the owner and occupant of a dwelling who is: 1. at risk of loosing the home for non-payment of taxes. 2. are in default under a mortgage. 3. are 30 days behind on a mortgage or 4. believes he or she "could" default on the mortgage within 4 months and tells a lawyer, real estate agent, lender, mortgage or credit counselor. But the Distressed Homeowner has NO duty to notify the real estate agent that they are a Distressed Homeowner, there doesn’t need to be a public notice of mortgage default to become Distressed, and the owners may not even know they are a Distressed Homeowner. Yikes! If they don’t know how are we supposed to know? Fortunately the NWMLS has just provided us with a new Listing Agreement that will hopefully cover this part somewhat.
Now the new law also defines what a dwelling is. A dwelling is a single, duplex, triplex, or four-unit family residential building. Condominiums in building more that 4 units are not subject to this statue…maybe they don’t have condos in Wisconsin. So if you don’t live in the home or if your unit is in a condo of 5 or more units this statue doesn’t apply to you. OK?
So how does a Realtor become a Distress Home Consultant? It’s pretty easy. They solicit or contact Distressed Homeowners and offer to perform any service that will:
• Stop or delay a foreclosure sale (try to sell the home)
• Assist a Distressed Homeowner to Obtain a loan (try to help refinance)
• Save the home from Foreclosure (sell the home)
• Close the sale within 20 days of the foreclosure (stay away from this one)
• Systematically contact distressed homeowners (mailings, phone calls, Blogs or ads)
• Draft a seller lease-back or an option to buy the home back
From what we have been told, one thing an agent should never do under any circumstances is draft or arrange a lease-back or buy-back for a distressed homeowner.
Let’s talk about another huge flaw in this statue. If a transaction to purchase a distressed property closes within 20 days of the foreclosure date then both the selling agent (that's the buyers agent) and the actual buyer become Distressed Home Consultants and owe fiduciary duties to the seller that are above their own. WOW! You have to be kidding me. If a buyer makes an offer on a home that will close within 20 days of the foreclosure date they have to put the sellers interest above their own or they can be held responsible for non-compliance and if found that they “got too good of a deal say” they can be sued for actual damages, plus double or triple damages of up to $100,000 and attorney and court costs. That’s has to be a pretty good home to buy. Under those circumstances we certainly wouldn’t want to be that selling agent and we would most likely advise our buyer client not to buy the home.
So how does a smart Realtor avoid all this? They don’t get involved with distressed home sales at all. This law was written to help protect the homeowner but instead we believe it will greatly hurt the homeowner because most realtors will not be willing to take on such risks. These Distressed Homeowners really need our help. Their best chance of getting out of all this is to sell the home before foreclosure. Maybe the credit counselors or attorneys can market and sell their homes? Do you think we need a revision to this law? Do you think we need a totally new law? But that can’t happen until about this time next year! So instead of getting many of these homes sold the banks will be taking them back and then selling them most likely in bulk, flooding the market and eroding home prices even more. Do you really think it matters whom we vote for?
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