BILL REQ. #:  S-4877.1 

READ FIRST TIME 02/01/08.   

     AN ACT Relating to distressed home transactions; amending RCW 61.34.020, 61.34.040, and 59.18.030; adding new sections to chapter 61.34 RCW; adding a new section to chapter 59.18 RCW; and prescribing penalties.

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

Sec. 1   RCW 61.34.020 and 1988 c 33 s 4 are each amended to read as follows:
     Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.
     (1) (("Pattern of equity skimming" means engaging in a least three acts of equity skimming within any three-year period, with at least one of the acts occurring after June 9, 1988.
     (2) "Dwelling" means a single, duplex, triplex, or four-unit family residential building.
     (3) "Person" includes any natural person, corporation, joint stock association, or unincorporated association.
     (4))) An "act of equity skimming" occurs when:
     (a)(i) A person purchases a dwelling with the representation that the purchaser will pay for the dwelling by assuming the obligation to make payments on existing mortgages, deeds of trust, or real estate contracts secured by and pertaining to the dwelling, or by representing that such obligation will be assumed; and
     (ii) The person fails to make payments on such mortgages, deeds of trust, or real estate contracts as the payments become due, within two years subsequent to the purchase; and
     (iii) The person diverts value from the dwelling by either (A) applying or authorizing the application of rents from the dwelling for the person's own benefit or use, or (B) obtaining anything of value from the sale or lease with option to purchase of the dwelling for the person's own benefit or use, or (C) removing or obtaining appliances, fixtures, furnishings, or parts of such dwellings or appurtenances for the person's own benefit or use without replacing the removed items with items of equal or greater value; or
     (b)(i) The person purchases a dwelling in a transaction in which all or part of the purchase price is financed by the seller and is (A) secured by a lien which is inferior in priority or subordinated to a lien placed on the dwelling by the purchaser, or (B) secured by a lien on other real or personal property, or (C) without any security; and
     (ii) The person obtains a superior priority loan which either (A) is secured by a lien on the dwelling which is superior in priority to the lien of the seller, but not including a bona fide assumption by the purchaser of a loan existing prior to the time of purchase, or (B) creating any lien or encumbrance on the dwelling when the seller does not hold a lien on the dwelling; and
     (iii) The person fails to make payments or defaults on the superior priority loan within two years subsequent to the purchase; and
     (iv) The person diverts value from the dwelling by applying or authorizing any part of the proceeds from such superior priority loan for the person's own benefit or use.
     (2) "Distressed home" means either:
     (a) A dwelling that is in danger of foreclosure or at risk of loss due to nonpayment of taxes; or
     (b) A dwelling that is in danger of foreclosure or that is in the process of being foreclosed due to a default under the terms of a mortgage.
     (3) "Distressed home consultant" means a person who:
     (a) Solicits or contacts a distressed homeowner in writing, in person, or through any electronic or telecommunications medium and makes a representation or offer to perform any service that the person represents will:
     (i) Stop, enjoin, delay, void, set aside, annul, stay, or postpone a foreclosure sale;
     (ii) Obtain forbearance from any servicer, beneficiary, or mortgagee;
     (iii) Assist the distressed homeowner to exercise a right of reinstatement provided in the loan documents or to refinance a loan that is in foreclosure or is in danger of foreclosure;
     (iv) Obtain an extension of the period within which the distressed homeowner may reinstate the distressed homeowner's obligation or extend the deadline to object to a ratification;
     (v) Obtain a waiver of an acceleration clause contained in any promissory note or contract secured by a mortgage on a distressed home or contained in the mortgage;
     (vi) Assist the distressed homeowner to obtain a loan or advance of funds;
     (vii) Save the distressed homeowner's residence from foreclosure;
     (viii) Avoid or ameliorate the impairment of the distressed homeowner's credit resulting from the recording of a notice of trustee sale, the filing of a petition to foreclose, or the conduct of a foreclosure sale;
     (ix) Purchase or obtain an option to purchase the distressed homeowner's residence within twenty days of an advertised or docketed foreclosure sale;
     (x) Arrange for the distressed homeowner to become a lessee or tenant entitled to continue to reside in the distressed homeowner's residence;
     (xi) Arrange for the distressed homeowner to have an option to repurchase the distressed homeowner's residence; or
     (xii) Engage in any documentation, grant, conveyance, sale, lease, trust, or gift by which the distressed homeowner clogs the distressed homeowner's equity of redemption in the distressed homeowner's residence; or
     (b) Systematically contacts owners of property that court records, newspaper advertisements, or any other source demonstrate are in foreclosure or are in danger of foreclosure.
     "Distressed home consultant" does not mean a financial institution that the distressed homeowner is a customer of, a nonprofit credit counseling service, or a licensed attorney.
     (4) "Distressed home consulting transaction" means an agreement between a distressed homeowner and a distressed home consultant in which the distressed home consultant represents or offers to perform any of the services enumerated in subsection (3)(a) of this section.
     (5) "Distressed home conveyance" means a transaction in which:
     (a) A distressed homeowner transfers an interest in the distressed home to a distressed home purchaser;
     (b) The distressed home purchaser allows the distressed homeowner to occupy the distressed home; and
     (c) The distressed home purchaser or a person acting in participation with the distressed home purchaser conveys or promises to convey the distressed home to the distressed homeowner, provides the distressed homeowner with an option to purchase the distressed home at a later date, or promises the distressed homeowner an interest in, or portion of, the proceeds of any resale of the distressed home.
     (6) "Distressed home purchaser" means any person who acquires an interest in a distressed home under a distressed home conveyance. "Distressed home purchaser" includes a person who acts in joint venture or joint enterprise with one or more distressed home purchasers in a distressed home conveyance. A financial institution is not a distressed home purchaser.
     (7) "Distressed homeowner" means an owner of a distressed home.
     (8) "Dwelling" means a single, duplex, triplex, or four-unit family residential building.
     (9) "Financial institution" means any federally or state chartered bank or trust company, savings bank or savings and loan association, or credit union.
     (10) "Homeowner" means a person who owns and occupies a dwelling as his or her primary residence, whether or not his or her ownership interest is encumbered by a mortgage, deed of trust, or other lien.
     (11) "In danger of foreclosure" means any of the following:
     (a) The homeowner has defaulted on the mortgage and, under the terms of the mortgage, the mortgagee has the right to accelerate full payment of the mortgage and repossess, sell, or cause to be sold, the property;
     (b) The homeowner is at least thirty days delinquent on any loan that is secured by the property; or
     (c) The homeowner has a good faith belief that he or she is likely to default on the mortgage within the upcoming four months due to a lack of funds, and the homeowner has reported this belief to:
     (i) The mortgagee;
     (ii) A person licensed or required to be licensed under chapter 19.134 RCW;
     (iii) A person licensed or required to be licensed under chapter 19.146 RCW;
     (iv) A person licensed or required to be licensed under chapter 18.85 RCW;
     (v) An attorney-at-law;
     (vi) A mortgage counselor or other credit counselor licensed or certified by any federal, state, or local agency; or
     (vii) Any other party to a distressed home consulting transaction.
     (12) "Mortgage" means a mortgage, mortgage deed, deed of trust, security agreement, or other instrument securing a mortgage loan and constituting a lien on or security interest in housing.
     (13) "Nonprofit credit counseling service" means a nonprofit organization described under section 501(c)(3) of the internal revenue code, or similar successor provisions, that is licensed or certified by any federal, state, or local agency.
     (14) "Pattern of equity skimming" means engaging in at least three acts of equity skimming within any three-year period, with at least one of the acts occurring after June 9, 1988.
     (15) "Person" includes any natural person, corporation, joint stock association, or unincorporated association.
     (16) "Resale" means a bona fide market sale of the distressed home subject to the distressed home conveyance by the distressed home purchaser to an unaffiliated third party.
     (17) "Resale price" means the gross sale price of the distressed home on resale.

NEW SECTION.  Sec. 2   (1) A distressed home consulting transaction must:
     (a) Be in writing in at least twelve-point font;
     (b) Be in the same language as principally used by the distressed home consultant to describe his or her services to the distressed homeowner. If the agreement is written in a language other than English, the distressed home consultant shall cause the agreement to be translated into English and shall deliver copies of both the original and English language versions to the distressed homeowner at the time of execution and shall keep copies of both versions on file in accordance with subsection (2) of this section. Any ambiguities or inconsistencies between the English language and the original language versions of the written agreement must be strictly construed in favor of the distressed homeowner;
     (c) Fully disclose the exact nature of the distressed home consulting services to be provided, including any distressed home conveyance that may be involved and the total amount and terms of any compensation to be received by the distressed home consultant or anyone working in association with the distressed home consultant;
     (d) Be dated and signed by the distressed homeowner and the distressed home consultant;
     (e) Contain the complete legal name, address, telephone number, fax number, e-mail address, and internet address if any, of the distressed home consultant, and if the distressed home consultant is serving as an agent for any other person, the complete legal name, address, telephone number, fax number, e-mail address, and internet address if any, of the principal; and
     (f) Contain the following notice, which must be initialed by the distressed homeowner, in bold face type and in at least fourteen-point font:

NEW SECTION.  Sec. 3   A distressed home consultant has a fiduciary relationship with the distressed homeowner, and each distressed home consultant is subject to all requirements for fiduciaries otherwise applicable under state law. A distressed home consultant's fiduciary duties include, but are not limited to, the following:
     (1) To act in the distressed homeowner's best interest and in utmost good faith toward the distressed homeowner, and not compromise a distressed homeowner's right or interest in favor of another's right or interest, including a right or interest of the distressed home consultant;
     (2) To disclose to the distressed homeowner all material facts of which the distressed home consultant has knowledge that might reasonably affect the distressed homeowner's rights, interests, or ability to receive the distressed homeowner's intended benefit from the residential mortgage loan;
     (3) To use reasonable care in performing his or her duties; and
     (4) To provide an accounting to the distressed homeowner for all money and property received from the distressed homeowner.

NEW SECTION.  Sec. 4   (1) A person may not induce or attempt to induce a distressed homeowner to waive his or her rights under this chapter, except that a distressed homeowner may waive the five-business-day right to cancel as provided in section 7 of this act if the distressed home is subject to a foreclosure sale within the five business days and the distressed homeowner agrees to waive his or her right to cancel in a handwritten statement signed by all parties holding title to the distressed home.
     (2) Any waiver by a homeowner of the provisions of this chapter is void and unenforceable as contrary to public policy.

NEW SECTION.  Sec. 5   A distressed home purchaser shall enter into a distressed home reconveyance in the form of a written contract. The contract must be written in at least twelve-point boldface type in the same language principally used by the distressed home purchaser and distressed homeowner to negotiate the sale of the distressed home, and must be fully completed, signed, and dated by the distressed homeowner and distressed home purchaser before the execution of any instrument of conveyance of the distressed home.

NEW SECTION.  Sec. 6   The contract required in section 5 of this act must contain the entire agreement of the parties and must include the following:
     (1) The name, business address, and telephone number of the distressed home purchaser;
     (2) The address of the distressed home;
     (3) The total consideration to be provided by the distressed home purchaser in connection with or incident to the sale;
     (4) A complete description of the terms of payment or other consideration including, but not limited to, any services of any nature that the distressed home purchaser represents that he or she will perform for the distressed homeowner before or after the sale;
     (5) The time at which possession is to be transferred to the distressed home purchaser;
     (6) A complete description of the terms of any related agreement designed to allow the distressed homeowner to remain in the home, such as a rental agreement, repurchase agreement, or lease with option to buy;
     (7) A complete description of the interest, if any, the distressed homeowner maintains in the proceeds of, or consideration to be paid upon, the resale of the distressed home;
     (8) A notice of cancellation as provided in section 8 of this act; and
     (9) The following notice in at least fourteen-point boldface type if the contract is printed, or in capital letters if the contract is typed, and completed with the name of the distressed home purchaser, immediately above the statement required in section 8 of this act;

NEW SECTION.  Sec. 7   (1) In addition to any other right of rescission, a distressed homeowner has the right to cancel any contract with a distressed home purchaser until midnight of the fifth business day following the day on which the distressed homeowner signs a contract that complies with this chapter or until 8:00 a.m. on the last day of the period during which the distressed homeowner has a right of redemption, whichever occurs first.
     (2) Cancellation occurs when the distressed homeowner delivers to the distressed home purchaser, by any means, a written notice of cancellation to the address specified in the contract.
     (3) A notice of cancellation provided by the distressed homeowner is not required to take the particular form as provided with the contract.
     (4) Within ten days following the receipt of a notice of cancellation under this section, the distressed home purchaser shall return without condition any original contract and any other documents signed by the distressed homeowner.

NEW SECTION.  Sec. 8   (1) The contract required in section 5 of this act must contain, in immediate proximity to the space reserved for the distressed homeowner's signature, the following conspicuous statement in at least fourteen-point boldface type if the contract is printed, or in capital letters if the contract is typed:

"You may cancel this contract for the sale of your house without any penalty or obligation at any time before

NEW SECTION.  Sec. 9   (1) Any provision in a contract that attempts or purports to require arbitration of any dispute arising under this chapter is void at the option of the distressed homeowner.
     (2) This section applies to any contract entered into on or after the effective date of this act.

NEW SECTION.  Sec. 10   A distressed home purchaser shall not:
     (1) Enter into, or attempt to enter into, a distressed home conveyance with a distressed homeowner unless the distressed home purchaser verifies and can demonstrate that the distressed homeowner has a reasonable ability to pay for the subsequent conveyance of an interest back to the distressed homeowner. In the case of a lease with an option to purchase, payment ability also includes the reasonable ability to make the lease payments and purchase the property within the term of the option to purchase. An evaluation of a distressed homeowner's reasonable ability to pay includes debt to income ratios, fair market value of the distressed home, and the distressed homeowner's payment and credit history. There is a rebuttable presumption that the distressed home purchaser has not verified a distressed homeowner's reasonable ability to pay if the distressed home purchaser has not obtained documentation of assets, liabilities, and income, other than an undocumented statement, of the distressed homeowner;
     (2) Fail to either:
     (a) Ensure that title to the distressed home has been reconveyed to the distressed homeowner; or
     (b) Make payment to the distressed homeowner so that the distressed homeowner has received consideration in an amount of at least eighty-two percent of the fair market value of the property as of the date of the eviction or voluntary relinquishment of possession of the distressed home by the distressed homeowner. For the purposes of this subsection (2)(b), the following applies:
     (i) There is a rebuttable presumption that an appraisal by a person licensed or certified by an agency of the federal government or this state to appraise real estate constitutes the fair market value of the distressed home;
     (ii) "Consideration" means any payment or thing of value provided to the distressed homeowner, including unpaid rent owed by the distressed homeowner before the date of eviction or voluntary relinquishment of the distressed home, reasonable costs paid to independent third parties necessary to complete the distressed home conveyance transaction, the payment of money to satisfy a debt or legal obligation of the distressed homeowner, or the reasonable cost of repairs for damage to the distressed home caused by the distressed homeowner. "Consideration" does not include amounts imputed as a down payment or fee to the distressed home purchaser or a person acting in participation with the distressed home purchaser;
     (3) Enter into repurchase or lease terms as part of the distressed home conveyance that are unfair or commercially unreasonable, or engage in any other unfair or deceptive acts or practices;
     (4) Represent, directly or indirectly, that (a) the distressed home purchaser is acting as an advisor or consultant, (b) the distressed home purchaser is acting on behalf of or in the interests of the distressed homeowner, or (c) the distressed home purchaser is assisting the distressed homeowner to save the distressed home, buy time, or use other substantially similar language;
     (5) Misrepresent the distressed home purchaser's status as to licensure or certification;
     (6) Perform any of the following until after the time during which the distressed homeowner may cancel the transaction has expired:
     (a) Accept from any distressed homeowner an execution of, or induce any distressed homeowner to execute, any instrument of conveyance of any interest in the distressed home;
     (b) Record with the county auditor any document, including any instrument of conveyance, signed by the distressed homeowner; or
     (c) Transfer or encumber or purport to transfer or encumber any interest in the distressed home;
     (7) Fail to reconvey title to the distressed home when the terms of the distressed home conveyance contract have been fulfilled;
     (8) Enter into a distressed home conveyance where any party to the transaction is represented by a power of attorney;
     (9) Fail to extinguish or assume all liens encumbering the distressed home immediately following the conveyance of the distressed home;
     (10) Fail to close a distressed home conveyance in person before an independent third party who is authorized to conduct real estate closings within the state.

Sec. 11   RCW 61.34.040 and 1988 c 33 s 3 are each amended to read as follows:
     (1) In addition to the criminal penalties provided in RCW 61.34.030, the legislature finds ((and declares)) that ((equity skimming substantially affects)) the practices covered by this chapter are matters vitally affecting the public interest((. The commission by any person of an act of equity skimming or a pattern of equity skimming is an unfair or deceptive act or practice and unfair method of competition in the conduct of trade or commerce in violation of RCW 19.86.020)) for the purpose of applying chapter 19.86 RCW. A violation of this chapter is not reasonable in relation to the development and preservation of business and is an unfair method of competition for the purpose of applying chapter 19.86 RCW.
     (2) In a private right of action under chapter 19.86 RCW for a violation of this chapter, the court may double or triple the award of damages pursuant to RCW 19.86.090, subject to the statutory limit. If, however, the court determines that the defendant acted in bad faith, the limit for doubling or tripling the award of damages may be increased, but shall not exceed one hundred thousand dollars. Any claim for damages brought under this chapter must be commenced within four years after the date of the alleged violation.
     (3) The remedies provided in this chapter are cumulative and do not restrict any remedy that is otherwise available. The provisions of this chapter are not exclusive and are in addition to any other requirements, rights, remedies, and penalties provided by law. An action under this chapter shall not affect the rights in the distressed home held by a distressed home purchaser for value under this chapter or other applicable law.

Sec. 12   RCW 59.18.030 and 1998 c 276 s 1 are each amended to read as follows:
     As used in this chapter:
     (1) "Distressed home" has the same meaning as in RCW 61.34.020.
     (2) "Distressed home conveyance" has the same meaning as in RCW 61.34.020.
     (3) "Distressed home purchaser" has the same meaning as in RCW 61.34.020.
     (4) "Dwelling unit" is a structure or that part of a structure which is used as a home, residence, or sleeping place by one person or by two or more persons maintaining a common household, including but not limited to single family residences and units of multiplexes, apartment buildings, and mobile homes.
     (((2))) (5) "In danger of foreclosure" means any of the following:
     (a) The homeowner has defaulted on the mortgage and, under the terms of the mortgage, the mortgagee has the right to accelerate full payment of the mortgage and repossess, sell, or cause to be sold the property;
     (b) The homeowner is at least thirty days delinquent on any loan that is secured by the property; or
     (c) The homeowner has a good faith belief that he or she is likely to default on the mortgage within the upcoming four months due to a lack of funds, and the homeowner has reported this belief to:
     (i) The mortgagee;
     (ii) A person licensed or required to be licensed under chapter 19.134 RCW;
     (iii) A person licensed or required to be licensed under chapter 19.146 RCW;
     (iv) A person licensed or required to be licensed under chapter 18.85 RCW;
     (v) An attorney-at-law;
     (vi) A mortgage counselor or other credit counselor licensed or certified by any federal, state, or local agency; or
     (vii) Any other party to a distressed property conveyance.
     (6) "Landlord" means the owner, lessor, or sublessor of the dwelling unit or the property of which it is a part, and in addition means any person designated as representative of the landlord.
     (((3))) (7) "Mortgage" is used in the general sense and includes all instruments, including deeds of trust, that are used to secure an obligation by an interest in real property.
     (8) "Person" means an individual, group of individuals, corporation, government, or governmental agency, business trust, estate, trust, partnership, or association, two or more persons having a joint or common interest, or any other legal or commercial entity.
     (((4))) (9) "Owner" means one or more persons, jointly or severally, in whom is vested:
     (a) All or any part of the legal title to property; or
     (b) All or part of the beneficial ownership, and a right to present use and enjoyment of the property.
     (((5))) (10) "Premises" means a dwelling unit, appurtenances thereto, grounds, and facilities held out for the use of tenants generally and any other area or facility which is held out for use by the tenant.
     (((6))) (11) "Rental agreement" means all agreements which establish or modify the terms, conditions, rules, regulations, or any other provisions concerning the use and occupancy of a dwelling unit.
     (((7))) (12) A "single family residence" is a structure maintained and used as a single dwelling unit. Notwithstanding that a dwelling unit shares one or more walls with another dwelling unit, it shall be deemed a single family residence if it has direct access to a street and shares neither heating facilities nor hot water equipment, nor any other essential facility or service, with any other dwelling unit.
     (((8))) (13) A "tenant" is any person who is entitled to occupy a dwelling unit primarily for living or dwelling purposes under a rental agreement.
     (((9))) (14) "Reasonable attorney's fees", where authorized in this chapter, means an amount to be determined including the following factors: The time and labor required, the novelty and difficulty of the questions involved, the skill requisite to perform the legal service properly, the fee customarily charged in the locality for similar legal services, the amount involved and the results obtained, and the experience, reputation and ability of the lawyer or lawyers performing the services.
     (((10))) (15) "Gang" means a group that: (a) Consists of three or more persons; (b) has identifiable leadership or an identifiable name, sign, or symbol; and (c) on an ongoing basis, regularly conspires and acts in concert mainly for criminal purposes.
     (((11))) (16) "Gang-related activity" means any activity that occurs within the gang or advances a gang purpose.

NEW SECTION.  Sec. 13   A new section is added to chapter 59.18 RCW to read as follows:
     In an unlawful detainer action involving a distressed home:
     (1) The plaintiff shall disclose to the court whether the defendant previously held title to the distressed home, and explain how the plaintiff came to acquire title;
     (2) A defendant who previously held title to the distressed home shall not be required to escrow any money pending trial when a material question of fact exists as to whether the plaintiff acquired title from the defendant directly or indirectly through a distressed home conveyance;
     (3) There must be both an automatic stay of the action and a consolidation of the action with a pending or subsequent quiet title action when a defendant claims that the plaintiff acquired title to the distressed home through a distressed home conveyance.

NEW SECTION.  Sec. 14   Sections 2 through 10 of this act are each added to chapter 61.34 RCW.