The Washington legislature recently passed House Bill 2791, which is intended by the legislature to address certain abuses and scams relating to conveyances of distressed properties.  This Bill takes effect on June 12, 2008 and it affects the buyers, sellers and their agents involved in the sale of “distressed properties”.  The Bill is intended to help protect homeowners who are forced to sell their homes under threat of foreclosure and consequently loose the equity that they have generated in the property.

One consequence of House Bill 2791 is that every home buyer and real estate agent faces significant potential liability if they are involved in a transaction involving a “distressed property”.  As a result, the Northwest Multiple Listing Service (NWMLS) and other Washington MLS’s are modifying their forms and their procedures in order to comply with the requirements of House Bill 2791 and to improve the understanding and disclosure of facts between Sellers, Buyers and Agents.

A “Distressed Home” is defined by House Bill 2791 as a dwelling that is in danger of foreclosure or at risk of loss due to nonpayment of taxes or a default under the terms of a mortgage.  It is important to understand the term “in danger of foreclosure.”  It means any of the following:

1.         The homeowner has defaulted on the mortgage and the holder of the mortgage has the right to accelerate full payment of the mortgage and to repossess, sell or cause the property to be sold;

2.         The Homeowner is at least 30 days delinquent on a loan payment that is secured by the property;

3.         The Homeowner has a good faith belief that he is likely to default on the mortgage within the upcoming 4 months due to a lack of funds and has reported this belief to the mortgage holder, a credit services company, a mortgage broker, a real estate broker, an attorney, a mortgage or credit counselor, or any other party to a “distressed homeowner consulting transaction”. 

This is a very broad definition. 

If you are the Seller and your property is NOT distressed, the NWMLS requires the seller sign Form 1B-A, a one page document in which the Seller warrants that the property is not a Distressed Home.  While MLS4owners.com is not an agent for a seller in any transaction and never acts as a consultant in the sale of a distressed home, our customers are still affected by the law because buyers and the agents for buyers face new legal restrictions in their dealings with the Sellers of distressed homes.  If your property is not distressed, please complete and sign the attached Form 1B-A, and return it to us as soon as possible via fax or mail.  This form does not change any of the other terms and conditions of our original Agreement; it just adds language in regard to the new law and complies with the requirements of the NWMLS.

If your Property IS distressed, the NWMLS requires a new listing agreement (1B-DH) be signed.  This agreement discloses the property’s status under the new law and spells out the seller’s acknowledgment that neither NWMLS members nor buyers will be functioning as “Distressed Home Consultants.”  In other ways the form is similar to the Form 1B you signed when you activated your listing, but has been changed from 1 page of small print to 3 pages of larger print as the law now requires.  The expiration date of your original listing will be unchanged, as will the other terms and conditions.           

What if I do not want to sign the new NWMLS forms?  While it is entirely up to you whether to sign one of the forms, the NWMLS requires that the phrase “No 2008 Listing” be added to the agent remarks of any listing on which an updated form has not been obtained.  This comment doesn’t disclose whether or not the subject property is “distressed”, only that sellers have not made any representations as to whether or not the property is distressed.  This may affect the marketability of the property; therefore we recommend that all sellers complete either the Form 1B-A or 1B-DH, whichever is appropriate.

Will MLS4owners.com disclose that my property is “distressed”?  No, MLS4owners.com will not make this disclosure for you.  Generally listing brokers do not disclose that a property is distressed unless there is an agreement with the bank to accept a “short sale”. 

What is a Short Sale?    A short sale happens when the market value of the property is less than the amount owed to the mortgage and lien holders on the lien property, i.e., the sales proceeds are not enough to payoff all of the obligations owed on the subject property.  If you the Seller have an agreement with your lenders to accept less than the amount owed to the lenders, the listing broker needs to disclose “subject to short sale” in the agent’s remarks.  A short sale is one type of a distressed home conveyance. 

What is a “Distressed Home”            A “Distressed Home “ is a dwelling occupied by the owner as the owner’s primary residence in a single, duplex, triplex, or four-unit residential building that is (1) in the process of foreclosure or in danger of foreclosure because (a) seller has defaulted on a mortgage; (b) seller is at least thirty days delinquent on a loan secured by the Property; or (c) seller believes that seller is likely to default on such mortgage or loan within four months due to a lack of funds; or (2) at risk of loss due to nonpayment of taxes. A “Distressed Homeowner” is the owner of a Distressed Home.  A property must be occupied by the owner as the owner’s primary residence in order to be a Distressed Home. The Law does not apply to units in buildings with more than four units. A Condominium, townhome, or cooperative in a building with more than four units cannot be a Distressed Home. The Law does apply to both mobile and manufactured homes because they are single, residential buildings. [Source – Northwest Multiple Listing Service Legal Bulletin 179, June 1, 2008]

What is a “Distressed Home Consultant?”  The definition in House Bill 2791 of a “Distressed Home Consultant” is lengthy and the legislature has intended it to be very inclusive.  In general, a “Distressed Home Consultant” (“DHC”) is anyone who contacts a “Distressed Homeowner” by any means and offers to provide them assistance and relief in anyway with their mortgage holder or offers any other mechanism which will result in a delay on the foreclosure of the home, including a purchase of the home immediately before the actual foreclosure sale. 

Will the new law affect how offers are presented to me?  Yes.  Most offers are likely to include new form 22-NFW or similar form in which the seller warrants that they are not subject to foreclosure within 20 days and that none of the parties are functioning as a “distressed home consultant.”

What Should I Do?  If your home is not a “distressed home” and foreclosure of your mortgage is not an issue you need not worry about the application of House Bill 2791.  If your property is a “distressed home” or if you feel that foreclosure on your mortgage may begin within the next four months you should consult with a qualified real estate attorney.  The law is designed to help protect your interest in your property.  It does not prevent you from selling your property, but it does impose obligations of the buyers and the agents involved in the transaction.  MLS4owners.com does not have a license to practice law and cannot give you legal advice.  That is why it is important to consult with a knowledgeable attorney.  You can obtain an attorney by contacting your local bar association lawyer’s referral service.  In King County you may call (206) 383-3432 and in Pierce County you may call (253) 383-3432. 

New NWMLS Forms

You probably have downloaded the NWMLS Forms Viewer because you used it to read and prepare your Seller Disclosure Form and other documents.  If you need the Viewer for your Windows-based computer, it is available for free download at http://viewer.nwmls.com/ or http://www.mls4owners.com/P22.cfm.

If you are not distressed, here are links to the NWMLS Form 1B-A:
PDF version

If you are distressed, here are links to the NWMLS Form 1B-DH:

PDF Version

If you will be listing other properties as well, here is the new MLS4owners.com Listing Syndication Agreement and NWMLS Form 1B.

If an agent presents an offer to you, it will likely include new NWMLS Form 22-NFW, which is linked here for your review.

If you are unable to use the NWMLS Forms Viewer, PDF version are linked above.

What Does it Cost?