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New Washington Law Protects Distressed Home Sellers

Latest state to try to rein in fraudulent 'rescue' operators

June 4, 2008

The law provides safeguards for people trying to stop the loss of their home and requires new disclosures and responsibilities for individuals claiming to help homeowners avoid foreclosure.

The measure aims to reduce foreclosure rescue schemes that can occur when the original homeowner is given the option to lease or buy back the home from a new buyer.

A growing number of homeowners, desperately trying to avoid foreclosures, have been lured by offers of assistance -- only to be cheated out of equity they've built up and tricked into transferring ownership of their home. Many homeowners are unaware that they've lost their property until they receive an eviction notice.

The new law in Washington requires a written contract with clearly disclosed terms and stops investors from taking homes for nominal amounts of money or no money at all. It also regulates the activities of "distressed home consultants," people who claim they will help you stop your foreclosure for a fee.

Who is covered

• The law protects distressed homeowners, defined as those whose principal residence is in danger of foreclosure because the homeowner has defaulted on a mortgage, are at least 30 days delinquent on the mortgage, haven't paid real property taxes or have told real estate property professionals that they are in danger of default.

• An individual who claims to help homeowners avoid foreclosure for a fee may be deemed a "distressed home consultant," who will be required to represent the best interests of the homeowner and to include special provisions in a rescindable contract.

New contract requirements

• Changes are being made to the standard form used to list properties on the MLS. In some cases, sellers will be asked to sign a new listing agreement before their real estate agent can continue to market the property.

• Homeowners should review their contracts to determine whether their agent is offering distressed homeowner consulting services.

Tips for Distressed Homeowners

• Consider alternatives to foreclosure. Your lender may be able to reduce your mortgage payments temporarily or assist you with refinancing your loan so that you can stay in your home. If you're unable to afford the house long-term, you may sell before the foreclosure sale and save some of your equity.

• Approach any offer of assistance with caution. Carefully select the professionals you choose to help you. A qualified real estate agent, attorney, credit counselor or other financial professional can help you properly complete a sale transaction.

• Ignore signs, fliers and hand-written notes offering foreclosure help. Scam artists typically advertise their "services" on posters pinned to telephone poles and fliers dropped on your porch. They also contact people whose homes are listed in public foreclosure notices.

• Read everything and don't sign any papers you don't understand. Once you sign papers, demand immediate copies that you can keep.

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