Begin with Section 13 00 Beginning Slide

Begin with Section 13 – 00 Beginning Slide

Section / Chapter 13

Licensees Are Not Distressed Home Consultants

Whenever a real estate licensee makes the decision to work with a homeowner who is classified by State definition as a distressed homeowner, the licensee is not classified a distressed home consultant under the normal practice of professional real estate. Real estate licensees are exempt from the definition of a Distressed Home Consultant when rendering “routine” real estate services. This is regardless of whether the licensee renders additional services that would otherwise constitute the services of a distressed home consultant. As long as the licensee is not engaged in activities designed to result in a distressed home conveyance, they are exempt from the classification of a distressed home consultant.

(On the next page put slides Section 13 - 001 and 001A)

1 Exception to the Exemption of Being a Distressed Home Consultant

If a licensee begins to participate in a Distressed Home Conveyance where a buyer is purchasing the property from a Distressed Homeowner, there could be problems. If the buyer purchases AND ALLOWS the Distressed Homeowner to continue to OCCUPY the property with the understanding that the property will be CONVEYED BACK to the current homeowner OR offers the current homeowner AN INTEREST in the portion of the proceeds from a future sale, the licensee has become a Distressed Home Consultant.

This is such a “risky” transaction that the Multiple Listing Services in the State does not have an existing form for that type of purchase. A custom form of wording is required for this type of transaction and it will require legal counsel on the part of the buyer and seller. This would be added as an addendum to the standard Purchase and Sale agreement. Licensees should refer their client(s) to find legal counsel.

NOTE – If a licensee participates in such a contract, the licensee’s exemption from the Distressed Property Act is lost. The licensee will face considerable liability possibilities if one or both principals do not live up to the addendum agreement.

2 Civil Law vs. Agency Law

In the old days, prior to 1997, the real estate profession did not have any State guidelines in regard to practicing as a real estate agent. Each licensee had no procedures to look at and determine how to practice professional real estate. In 1997 the legislature put together a series of RCWs and WACs clarifying the agency function in representing brokers and clients. This is known as the current agency law. Licensees have specific guidelines to follow. Licensees can look up procedures required by the State of Washington.

Prior to 1997, licensees were subject to civil law also known as old case law or precedents law. Parties had to enter into litigation to settle grievances by either negotiation or going to court and being subject to a judge's decision or a jury. This was rather costly. Most grievances were settled out of court and took a preponderance of time and lawyer fees. Usually, the licensee's errors and omissions insurance took care of each situation. Even when this was the case, however, a fair amount of time was lost by the licensee in settling grievances. Heaven help any licensee that did not have insurance.

3 Why Do We Bring This Up?

Getting into the Distressed Homeowner Consultant business will cause a licensee a far greater liability exposure. California has experienced a preponderance of lawsuits with short selling and “sell back agreements” between buyers and sellers. California licensees are not protected as well as Washington licensees are.

Distressed Home Consultant – If you have a seller listing and a buyer comes forward with a sell back offer, we suggest that you work with a licensee who has experience in this field. You should explain to your seller the problems that could ensue with the “sell back agreement”. You should explain that you are not a Distressed Home Consultant and that they should seek legal counsel.

4 Working for a Buyer

20 Day Rule – When a transaction closes more than 20 days prior to foreclosure of the property and buyer moves into the subject property, there is no problem regarding the transaction. Problems can occur when the closing date is within 20 days of a foreclosure on the subject property. The key is whether the seller is represented by an attorney or a licensee in the transaction.

The law provides that the buyer is not a DHC, if the parties reach mutual acceptance or close a sale within 20 days of a foreclosure sale, IF the seller is represented by an attorney or real estate licensee.

Further, the buyer is not a DHC for the seller, even if the seller retains possession after closing if:

1. The seller is represented by an attorney or real estate licensee

2. Possession is for no more than 20 days after closing; and

3. The purpose of possession is to arrange for the seller to relocate.

Normally, most buyers will not need to concern themselves with this Law in that they are occupying the property after closing and not allowing the seller to retain possession.

However, there are some circumstances under the Law where a buyer may unwittingly become a DHC for the seller. Theses risks can be mitigated by using NWMLS Form 22- FSBO where appropriate.

5 DHC Risk

Unfortunately, in these hard times, there are sellers out there that are not represented. When a seller is not represented in a transaction, the buyer and the licensee face the risk of becoming a DHC for the seller under this “20 Day Rule” and the “Delayed Possession” provision. To mitigate this risk, a licensee for the buyer should include a Form 22-FSBO (rev. 3/09) with any offer where the seller is not represented.

This form requires a seller to disclose whether or not the property is a “Distressed Home.” The form also requires the seller to warrant that mutual acceptance of the agreement and the closing date do not fall within 20 days of a foreclosure sale. If the seller can make this warranty, the buyer need not be concerned with the “20 Day Rule.”

6 DHC Risk

The Form 22-FSBO provides that if circumstances change and mutual acceptance or the closing date fall within 20 days of a foreclosure sale, the seller agrees to notify the selling licensee and the buyer of that fact in writing. If the seller provides this notice, the buyer has the option to terminate the agreement and is entitled to the return of any earnest money plus the buyer’s out of pocket expenses. If the buyer elects to proceed with the closing, the buyer needs to consult with an attorney because the buyer is a DHC for the seller. This is when there must be a separate written agreement with the seller.

Finally, to address the Delayed Possession provision of the Law, the form states that, despite what the parties agreed to on page one of the Purchase and Sale Agreement, the Possession Date will not be later than the Closing Date.

7 Delayed Possession – 20 Day Limit

Due to the Delayed Possession provision, even when the seller is represented in the transaction by an attorney or real estate licensee, a selling agent should consider limiting any delayed possession to 20 days or less. If the Possession Date is more than 20 days after the Closing Date and the seller is a “Distressed Homeowner,” the buyer will likely be considered a DHC for the seller.

When writing up the offer for your buyer, make sure that this “20 day or less requirement” is written within the agreement. Your broker will show you the procedure.

8 Not a Distressed Home Consultant

Under the distressed property law, you are not a distressed home consultant. You can do the following:

1. Offer to sell distressed property before foreclosure occurs.

2. Represent a distressed homeowner.

3. Close a purchase and sale agreement within 20 days of a foreclosure sale.

9 Contact Your Lawyer

Since this course is not being written by a practicing attorney, we suggest that you contact your broker and your lawyer regarding any possibility of a distressed home sale. You should explain the situation, and discuss the overall problems associated with the distressed property law.

10 Other Parties Exempt under the Law

The legislature allows the following people to practice as a distressed home consultant; they are not subject to the law in any capacity. In other words, the following parties are not subject to the penalties specified under the distressed property law.

1. Attorneys -- As usual, attorneys are exempt. Attorneys are usually always exempt under the law. When working with distressed homeowners they are not classified as a distressed home consultant. They simply remain as a practicing attorney.

2. Mortgage Brokers -- That's right! Mortgage brokers are allowed to work with distressed homeowners and represent their interests in financial negotiations. Mortgage brokers do not have to worry about the distressed property law.

11 Other Parties Exempt under the Law

3. Credit Consultants -- Firms and individuals that work with credit programs on behalf of homeowners are not labeled a distressed home consultant no matter the situation. They are allowed to represent distressed owners in providing financial advice and services.

4. Financial Institutions -- The financial institutions that got us into this credit mess are exempt. They can work with distressed homeowners without being labeled a distressed home consultant. Additional exempt financial institutions would include title insurance companies and escrow companies.

5. Mortgage Loan Services -- This is your catch-all term for any business that works with homeowners and their mortgage problems.