S-3465

AN ACT Relating to real estate loan servicing; adding a new chapter to Title 19 RCW; prescribing penalties; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Borrower" means any person who becomes obligated on a real estate loan agreement, either directly or indirectly, and includes, but is not limited to, mortgagors, grantors under trust deeds, vendees under conditional land sales contracts, and persons who purchase real property securing a real estate loan agreement, whether the persons assume the loan or purchase the property subject to the loan.

(2) "Direct reduction provision" or "capitalization provision" means any provision which is part of a real estate loan agreement, whether incorporated into the agreement or as part of a separately executed document, whereby the borrower makes periodic prepayment of property taxes, insurance premiums, and similar charges to the lender or the designee of the lender, who applies such prepayments first to accrued interest and then to the principal amount of the loan, and upon payment of such charges, adds the amount of such payment to the principal amount of the loan.

(3) "Escrow account" means any account that is a part of a real estate loan agreement, whether incorporated into the agreement or as part of a separately executed document, whereby the borrower makes periodic prepayment to the lender or the designee of the lender of taxes, insurance premiums, and similar charges, and the lender or the designee of the lender pays the charges out of the account at the due dates.

(4) "Lender" means any person who makes, extends, or holds a real estate loan agreement and includes, but is not limited to, mortgagees, beneficiaries under trust deeds, and vendors under conditional land sales contracts.

(5) "Lender's security protection provision" means any provision that is a part of a real estate loan agreement, whether incorporated into the agreement or as part of a separately executed document, whereby the borrower prepays, pledges or otherwise commits cash or other assets owned by the borrower in advance of due dates for payments of property taxes, insurance premiums, and similar charges relating to the property securing the loan in order to assure timely payment of the charges and protect the lender's security interest in the property, and includes, but is not limited to, escrow accounts, direct reduction provisions, capitalization provisions, and pledges of savings accounts.

(6) "Person" means individuals, corporations, associations, partnerships and trusts, and includes, but is not limited to, banks, trust companies, national banks, savings banks, savings and loan associations, private bankers, credit unions, investment companies, insurance companies, pension funds, and mortgage companies.

(7) "Real estate loan agreement" or "real estate loan" means any agreement providing for a loan on residential property, including multifamily, occupied by the borrower in the amount of one hundred thousand dollars or less, secured in whole or in part by real property, or any interest therein, located in this state, and includes, but is not limited to, mortgages, trust deeds, and conditional land sales contracts.

NEW SECTION. Sec. 2. A lender may require a lender's security protection provision under this chapter either as a direct reduction provision, an escrow account, or a pledge of an interest-bearing savings account in an amount not to exceed the maximum amount that a lender may require a borrower to deposit in a lender's security protection provision under section 3 of this act and bearing interest at a rate not less than the rate required on lender's security protection provisions by section 5 of this act.

NEW SECTION. Sec. 3. A lender, in connection with a real estate loan agreement, may not require a borrower or prospective borrower to deposit in any escrow account that may be established in connection with the agreement:

(1) Prior to or upon the date of settlement, a sum in excess of the estimated total amount of property taxes, insurance premiums, and similar charges which actually will be due and payable on the date of settlement, and the pro rata portion thereof which has accrued, plus one-twelfth of the estimated total amount of the charges that will become due and payable during the twelve-month period beginning on the date of settlement; or

(2) In any month beginning after the date of settlement, a sum in excess of one-twelfth of the total amount of estimated property taxes, insurance premiums, or similar charges that will become due and payable during the twelve-month period beginning on the first day of the month, except that in the event the lender determines there will be a deficiency on the due date, the lender may not be prohibited from requiring additional monthly deposits in the escrow account of pro rata portions of the deficiency corresponding to the number of months from the date of the lender's determination of the deficiency to the date upon which the charges become due and payable.

NEW SECTION. Sec. 4. (1) Except as provided in subsections (2) and (4) of this section, any lender who requires a lender's security protection provision in connection with a real estate loan agreement shall pay interest to the borrower on funds deposited in the account at a rate not less than four and one-half percent. Interest shall be computed on the average monthly balance in the account and shall be paid quarterly to the borrower by crediting to the escrow account the amount of the interest due.

(2) Except as provided in subsection (3) of this section, this section does not apply to real estate loan agreements entered into prior to September 1, 1992, or on which the payment of interest on a lender's security protection provision violates any state or federal law or regulation.

(3) If federal law or regulation does not prohibit the payment of interest on a lender's security protection provision by federally chartered or organized lenders, then this section applies to the federally chartered or organized lenders and the state-chartered or organized lenders that are similar to the federally chartered or organized lenders with respect to a lender's security protection provision executed in connection with a real estate loan agreement entered into prior to and in existence on September 1, 1992.

NEW SECTION. Sec. 5. A lender requiring a lender's security protection provision with respect to which interest is required to be paid by the lender under section 4 of this act may not impose a service charge in connection with such a provision.

NEW SECTION. Sec. 6. In any real estate loan agreement when a lender does not require a lender's security protection provision, the parties may mutually agree to any arrangement whereby the borrower prepays, pledges, or otherwise commits assets in advance of due dates for payment of property taxes, insurance premiums, and similar charges relating to the real property in order to assist the borrower in making timely payments of the charges. Prior to entering any such arrangement, the lender shall furnish the borrower a statement in writing, which may be set forth in the loan application:

(1) That the arrangement is not a condition to the real estate loan agreement;

(2) If it is an escrow account, whether or not the lender will pay interest and if interest is to be paid, the rate of interest; and

(3) Whether or not the borrower must pay the lender a charge for the service. If a charge is agreed to, the charge may not exceed the amount of interest income earned under subsection (2) of this section.

NEW SECTION. Sec. 7. (1) If a lender has a requirement that the borrower pay funds into a lender's security protection provision for the payment of property taxes on property that is the security for the real estate loan agreement, insurance premiums, and similar charges, and there are funds in the account, the lender shall pay the taxes or the amount in the account if less than the taxes due and all other charges on or before the due dates for payments.

(2)(a) If the lender fails to pay the taxes in accordance with subsection (1) of this section resulting in a loss to the borrower, the lender shall credit the lender's security protection provision in an amount equal to the amount of loss for such failure, together with any interest that has accrued on the unpaid property taxes to the date the property taxes are finally paid.

(b) If the failure of the lender to comply with subsection (1) of this section is willful and results in the loss to the borrower, or if the failure to comply was not willful but upon discovery of the failure to comply, the lender fails to credit the lender's security protection provision required by (a) of this subsection, the borrower shall have a cause of action against the lender to recover an amount equal to fifteen times the amount left unpaid, together with any interest that accrued on the unpaid property taxes to the date of recovery. Any borrower recovering damages under this section is entitled to reasonable attorneys' fees at trial and on appeal as determined by the court in addition to costs and necessary disbursements.

NEW SECTION. Sec. 8. A violation of this chapter by a lender shall render the lender's security protection provision voidable at the option of the borrower, and the lender shall be liable to the borrower in an amount equal to:

(1) The borrower's actual damages or one hundred dollars, whichever is greater; and

(2) In the case of any successful action to enforce the liability, the court costs of the action together with reasonable attorneys' fees at trial and on appeal as determined by the court if the court finds that written demand for the payment of the borrower's claim was made on the lender not less than ten days before the commencement of the action. Attorneys' fees may not be allowed to the borrower if the court finds that the lender tendered to the borrower, prior to the commencement of the action, an amount not less than the damages awarded to the borrower.

NEW SECTION. Sec. 9. This chapter does not apply to a real estate loan agreement that is serviced or held for sale within one year by a mortgage servicing company neither affiliated with nor owned in whole or in part by the purchaser and which is made, extended or held by a purchaser whose principal place of business is outside this state. However, if the purchase agreement required a lender's security protection provision, then prior to entering into such an agreement, the mortgage servicing company shall furnish the borrower a statement in writing, which may be set forth in the loan application, that the mortgage servicing company is not required by the laws of this state to pay interest on the lender's security protection provision, and specifically informing the borrower why the borrower is not entitled to interest on the account.

NEW SECTION. Sec. 10. (1) To the extent not inconsistent with existing real estate loan agreements and provided such agreements are not silent with regard to a lender's security protection provision, sections 2 and 4 of this act apply to real estate loan agreements entered into prior to, on, and after.

(2) To the extent that the existing real estate loan agreements are inconsistent with the effect of sections 2 and 4 of this act, the existing real estate loan agreements are silent as to a lender's security protection provision, or any part of sections 2 and 4 of this act is declared unconstitutional as to real estate loan agreements existing prior to September 1, 1992, this chapter otherwise applies.

NEW SECTION. Sec. 11. This act shall take effect September 1, 1992.

NEW SECTION. Sec. 12. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 13. Sections 1 through 12 of this act shall constitute a new chapter in Title 19 RCW.