BILL REQ. #:  S-4306.2 

Read first time 01/22/08.   Referred to Committee on Consumer Protection & Housing.

     AN ACT Relating to distressed home transactions; amending RCW 61.34.020, 61.34.030, and 61.34.040; adding new sections to chapter 61.34 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 homeowner of a distressed home 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 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 homeowner may reinstate the 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 homeowner to obtain a loan or advance of funds;
     (vii) Save the homeowner's residence from foreclosure;
     (viii) Avoid or ameliorate the impairment of the homeowner's credit resulting from the filing of an order to docket or a petition to foreclose or the conduct of a foreclosure sale;
     (ix) Purchase or obtain an option to purchase the homeowner's residence within twenty days of an advertised or docketed foreclosure sale;
     (x) Arrange for the homeowner to become a lessee or tenant entitled to continue to reside in the homeowner's residence;
     (xi) Arrange for the homeowner to have an option to repurchase the homeowner's residence; or
     (xii) Engage in any documentation, grant, conveyance, sale, lease, trust, or gift by which the homeowner clogs the homeowner's equity of redemption in the 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 homeowner is a customer of or a nonprofit credit counseling service.
     (4) "Distressed home consulting transaction" means an agreement between a 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) "Dwelling" means a single, duplex, triplex, or four-unit family residential building.
     (6) "Financial institution" means any federally or state chartered bank or trust company, savings bank or savings and loan association, or credit union.
     (7) "Foreclosure surplus transaction" means any transaction having the following components:
     (a) A homeowner assigns some portion or all of the surplus proceeds of a future foreclosure sale on the homeowner's distressed home; and
     (b) The consideration the homeowner receives for an assignment under (a) of this subsection, if any, is worth less than the amount of the surplus proceeds.
     (8) "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.
     (9) "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.
     (10) "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.
     (11) "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.
     (12) "Person" includes any natural person, corporation, joint stock association, or unincorporated association.

NEW SECTION.  Sec. 2   Foreclosure surplus transactions are declared unlawful and contrary to public policy. Any contract for a foreclosure surplus transaction is voidable by the homeowner at any time.

NEW SECTION.  Sec. 3   (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 property consultant to describe his or her services to the homeowner. If the agreement is written in a language other than English, the distressed property consultant shall cause the agreement to be translated into English and shall deliver copies of both the original and English language versions to the 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 homeowner;
     (c) Fully disclose the exact nature of the distressed home consulting services to be provided, including any foreclosure reconveyance 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 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 property consultant, and if the distressed property 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 in bold face type and in at least fourteen-point font:

NEW SECTION.  Sec. 4   A distressed home consultant has a fiduciary relationship with the 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 homeowner's best interest and in utmost good faith toward the borrower, and not compromise a 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 homeowner all material facts of which the distressed home consultant has knowledge that might reasonably affect the homeowner's rights, interests, or ability to receive the 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 homeowner for all money and property received from the homeowner.

NEW SECTION.  Sec. 5   (1) A person may not induce or attempt to induce a homeowner to waive the homeowner's rights under this act.
     (2) Any waiver by a homeowner of the provisions of this act is void and unenforceable as contrary to public policy.

NEW SECTION.  Sec. 6   This act does not limit or replace the Washington common law doctrines of equitable mortgages and contract unconscionability.

Sec. 7   RCW 61.34.030 and 1988 c 33 s 2 are each amended to read as follows:
     (1) Any person who wilfully engages in a pattern of equity skimming is guilty of a class B felony under RCW 9A.20.021. Equity skimming shall be classified as a level II offense under chapter 9.94A RCW, and each act of equity skimming found beyond a reasonable doubt or admitted by the defendant upon a plea of guilty to be included in the pattern of equity skimming, shall be a separate current offense for the purpose of determining the sentence range for each current offense pursuant to RCW 9.94A.589(1)(a).
     (2) Any person who knowingly enters into a foreclosure surplus transaction with a homeowner, or who arranges or facilitates a foreclosure surplus transaction for a homeowner, is guilty of a class B felony under RCW 9A.20.021. A foreclosure surplus acquisition shall be classified as a level II offense under chapter 9.94A RCW, and each act of foreclosure surplus acquisition found beyond a reasonable doubt or admitted by the defendant upon a plea of guilty shall be a separate current offense for the purpose of determining the sentence range for each current offense pursuant to RCW 9.94A.589(1)(a).

Sec. 8   RCW 61.34.040 and 1988 c 33 s 3 are each amended to read as follows:
     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.

NEW SECTION.  Sec. 9   Sections 2 through 6 of this act are each added to chapter 61.34 RCW.