As the Washington Legislature contemplates a much-needed update to the Distressed Home Law , real estate brokers are in a tizzy over what limitations they may or may not have in representing distressed sellers. First a little background; the Washington House of Representatives recently passed a revision to the distressed seller law which will be effective sometime within the next few weeks. The law, enacted in June 2008, created new duties for real estate licensees in order to protect owners of "distressed homes" who are vulnerable to foreclosure rescue and equity skimming scams. Under certain circumstances, agents and brokers were considered "distressed home consultants." This created conflicts in situations where a real estate agents represent buyers and are forced into a dual agency role. By definition agents often became "distressed home consultants" when providing routine real estate brokerage services.
The new law changed the definition of "distressed home consultant" to exclude licensed real estate agents and brokers when rendering real estate brokerage services as defined in Chapter 18.86 RCW. Although the revisions to the law clarify the position of the real estate licensee, the Washington Department of Financial Institutions has issued a draft interpretative statement indicating that real estate licensees may not represent sellers in negotiating a reduction in loan principal as in a situation where a "short sale" is being negotiated. For some reason this seems confusing to real estate brokers many of which somehow feel that they are exempt from this law because it doesn't make sense. What I fail to see is why they think anything from the Washington State Legislature would make any sense, especially in consideration of the debacle concerning the distressed home Law passed in June of 2008.
In a recent meeting of Eastside real estate brokers much of the discussion centered around the distressed home Law and the consensus was that the interpretive letter issued by the Department of financial institutions is strictly applicable to "loan modification." The problem with that is that the interpretive letter specifically addresses this issue. Here is an excerpt from the letter:
QUESTION PRESENTED:
BRIEF ANSWER
: Yes, under the Mortgage Broker Practices Act (MBPA), chapter 19.146 RCW, or Consumer Loan Act (CLA), chapter 31.04 RCW.
DISCUSSION:
The Division has received many inquiries regarding the applicability of the MBPA or CLA to loan modification services. According to callers, individuals are communicating directly with borrowers and lenders in order to negotiate loan modifications. In most of the calls, the caller inquires as to what restrictions are applicable to loan modification services.
For purposes of this Interpretive Statement, "loan modification" means a change in one or more of the loan terms. Loan modifications includes forbearances, repayment plans, modifications of interest rates, loan term (length), loan type, capitalization of arrearages, and principal reduction.
The MBPA defines a mortgage broker as any person who for compensation or gain, or in the expectation of compensation or gain (a) assists a person in obtaining or applying to obtain a residential mortgage loan or (b) holds himself or herself out as being able to assist a person in obtaining or applying to obtain a residential mortgage loan. See RCW 19.146.010.
It will be interesting to see how this shakes out in the next few weeks. As it stands many real estate agents are currently representing sellers in short sales. Based upon this interpretive letter, these agents will be forced to hire a mortgage broker ,attorney or an approved HUD consultant in order to facilitate negotiation of the short sale. This is great news for Northstone because we are uniquely positioned as both real estate and mortgage brokers and therefore can incorporate the representation of short sale sellers without charging an additional fee for this service, but I really wonder how it will play out in the long run. In terms of serving the many sellers in a short sale situation. Once again, what we are seeing is the result of our government protecting us, which for some, is a good thing. But for many of the honest players will result in loss of employment so I fail to understand how in the end it is justified.
by Brian Leavitt, a Licensed Real Estate Broker and Licensed Mortgage Broker representing Northstone Real Estate Inc, and Northstone Mortgage.
Brian serves clients within the Northwest Multiple Listing Service.
You can contact Brian directly by phone at 800-806-3145 or by email at brian@northstone.net. Click here to view his client newsletter.
Brian is licensed with the Washington State Department of Licensing and the Washington State Department of Financial Institutions License number 510-MB-19802 and is a member of the Seattle King County Association of Realtors and Northwest Multiple Listing Service.
