Nonjudicial Foreclosure of Deeds of Trust.
Most loan obligations for residential real property in Washington are secured by deeds of trust, which resemble mortgages. A deed of trust is a written instrument conveying title to real property to a trustee as security until the grantor repays the loan. The grantor is the loan borrower or the purchaser of the real property, the trustee is usually a title insurance company, and the lender is the beneficiary of the deed of trust. In the event of default, deeds of trust may be foreclosed either through the judicial process or through a nonjudicial trustee's sale (nonjudicial foreclosure).
Nonjudicial foreclosure on residential real property is subject to detailed notice and process requirements under the Deeds of Trust Act (DOTA). The main requirements include the following:
Foreclosure Mediation Program.
Under the DOTA, a borrower may request that a housing counselor or attorney refer the borrower to mediation under the Program at any time after a notice of default has been issued, but no later than 90 days before the date of sale listed in the NOTS, or no later than 25 days before the date of sale listed in an amended NOTS.
An attorney or housing counselor may refer a borrower to mediation under the Program by sending a referral notice to the borrower and Commerce stating that mediation is appropriate. Within 10 days of receiving the referral notice, Commerce must select a mediator and send a notice that the parties have been referred to mediation to the beneficiary, the borrower, the housing counselor or attorney who referred the borrower, and the trustee.
Required Documents.
Within 23 days of Commerce's notice that the parties have been referred to mediation, the borrower must transmit to the mediator and beneficiary the initial homeowner financial information worksheet that must include information about the borrower's: (1) current and future income; (2) debts and obligations; (3) assets; (4) expenses; (5) tax returns for the previous two years; (6) hardship information; and (7) other applicable information commonly required by federal mortgage relief programs.
Within 20 days of the beneficiary's receipt of the borrower's documents, the beneficiary must transmit documents required for mediation to the mediator and the borrower, including:
Mediation Session.
Within 70 days of receiving the referral from Commerce, the mediator must convene a mediation session in the county where the property is located, unless the parties agree on another location. The mediator must send written notice of the time, date, and location of the mediation session to the borrower, the beneficiary, and Commerce at least 30 days before the mediation session.
The notice must contain statements related to the following mediation session requirements:
The participants in mediation must address the issues of foreclosure that may enable the borrower and the beneficiary to reach a resolution including, but not limited to, reinstatement, modification of the loan, restructuring of the debt, or some other workout plan. Generally, payment of the mediator's fee must be divided equally between the beneficiary and the borrower.
Mediator's Written Certification.
Within seven business days after the conclusion of the mediation session, the mediator must send written certification to Commerce, the trustee, and parties of:
Options After Mediation.
If the parties are unable to reach an agreement, or if the borrower failed to act in good faith during the mediation, the beneficiary may proceed with the foreclosure after receipt of the mediator's written certification.
Mediation's Impact on Timing of a Trustee's Sale.
If a borrower has been referred to mediation before an NOTS has been recorded, a trustee may not record the NOTS until the trustee receives the mediator's certification stating that the mediation has been completed. If the trustee does not receive the mediator's certification, the trustee may record the notice of sale after 10 days from the date the certification to the trustee was due. If the mediator subsequently issues a certification finding that the beneficiary violated the duty of good faith, the certification constitutes a basis for the borrower to enjoin the foreclosure.
If a borrower has been referred to mediation after the NOTS was recorded, the sale may not occur until the trustee receives the mediator's certification stating that the mediation has been completed.
Duty to Mediate in Good Faith.
A violation of the duty to mediate in good faith may include:
The mediator's certification that the beneficiary failed to act in good faith constitutes a defense to the nonjudicial foreclosure. In any action to enjoin the foreclosure, the beneficiary is entitled to rebut the allegation that it failed to act in good faith. The mediator's certification that the beneficiary failed to act in good faith during mediation does not constitute a defense to a judicial foreclosure or a future nonjudicial foreclosure action if a modification of the loan is agreed upon and the borrower subsequently defaults.
Annual Report to the Legislature.
Commerce must report annually to the Legislature on the performance of the Program. The report must include:
Foreclosure Fairness Account.
The Foreclosure Fairness Account (Account) is a nonappropriated account in the custody of the State Treasurer, administered by Commerce, that funds the Foreclosure Fairness Program, which provides homeowner foreclosure assistance through housing counseling, mediation, and civil legal aid. Biennial expenditures from the Account must include $400,000 to fund the counselor referral hotline. The remaining funds must be distributed as follows:
Remittance Requirements.
Account revenue comes from remittances from beneficiaries of deeds of trust. Each quarter beneficiaries of deeds of trust on residential real properties with up to four dwelling units are required to:
A beneficiary is exempt from the remittance requirement if it certifies that it has issued or caused to be issued fewer than 250 notices of default during the preceding year.
Common Interest Communities.
A common interest community (CIC) is a form of real estate in which each unit owner or homeowner has an exclusive interest in a unit or lot and a shared or undivided interest in common area property. In Washington, several statutes govern residential CICs, such as condominiums, cooperatives, leasehold CICs, miscellaneous communities, and plat communities.
The Washington Uniform Common Interest Ownership Act (WUCIOA) took effect July 1, 2018, and is applicable to CICs created on or after that date. A CIC created prior to the effective date of the WUCIOA may choose to opt into the WUCIOA.
Older CICs that have not opted into the WUCIOA are regulated by the following statutes, depending on their ownership structure and the date they were created:
Effective January 1, 2028, the older CIC statutes will be repealed and the WUCIOA will apply to all CICs regardless of their creation date.
Assessments and Charges.
A CIC unit owners' association may impose assessments for common expenses, which usually include expenditures for administration, maintenance, repair, and replacement of the common elements of a CIC, as well as any allocations to reserves. An association may also collect reasonable charges for late payments of assessments and establish a rate of interest to be charged on all subsequent delinquent assessments.
Collection of Delinquent Assessments.
An association may be entitled to recover any costs and reasonable attorneys' fees incurred in connection with the collection of delinquent assessments. An assessment is delinquent when the payment of the assessment is missed or late. Under the WUCIOA, the HPRA, and the WCA, an association has a statutory lien on each unit for any unpaid assessment against the unit from the time the assessment is due. With some exceptions, the association's lien takes priority over all other liens and encumbrances. Under the HOAA, the governing documents of the CIC may provide for a lien on the lot of any owner for unpaid assessments.
To collect delinquent assessments, an association may bring a collection action in court or foreclose its lien on the unit. The WUCIOA and the WCA allow associations to foreclose liens either judicially or nonjudicially, depending on the ownership structure of the community and the nature of the unit owners' interests in the units. The HRPA allows an association to foreclose its liens in the same manner as a mortgage of real property. The HOAA does not specify how an association may foreclose its liens.
All four CIC statutes require that every aspect of a collection, foreclosure, sale, or other conveyance to enforce a lien for unpaid assessments must be commercially reasonable.
Preforeclosure Requirements—Notice of Delinquency for Past Due Assessments.
The WUCIOA, the HPRA, and the WCA prohibit an association from commencing an action to foreclose the association's lien for delinquent assessments unless certain preforeclosure requirements are met. These preforeclosure requirements also apply to a CIC organized under the HOAA if the governing documents of the CIC provide for a lien on the lot of any owner for unpaid assessments.
These preforeclosure requirements include the following:
Foreclosure Mediation Program.
Beginning January 1, 2026, the Program is expanded to apply to CIC associations seeking to foreclose liens or deficiencies via nonjudicial or judicial foreclosure and to CIC unit owners who are delinquent or who may become delinquent on their assessments. Unit owners may receive housing counseling services and may contact a housing counselor or attorney to request referral to mediation under the Program. The process for mediation related to foreclosure of association liens is similar but not identical to the process for mediation related to nonjudicial foreclosures of deeds of trust.
Meet and Confer Requirement.
For foreclosures of association liens, prior to referring a unit owner to mediation under the Program, the housing counselor or attorney must submit a written request to the association on behalf of the unit owner requesting that the unit owner and association meet and confer about the assessments. The unit owner and the association must meet and confer within 30 days of the housing counselor's or attorney's request to the association to meet and confer, or at a later date as agreed to by the parties. The meet and confer session may be held by telephone or videoconference. Legal representation is not required for either party participating in the meet and confer session, and each party is responsible for its own respective attorneys' fees if any are incurred.
If the association refuses to meet and confer or otherwise fails to respond to the request within 30 days, then the unit owner may be referred to mediation under the Program. If the unit owner refuses to participate in the meet and confer session after it has been scheduled, then the unit owner may not be referred to mediation. However, if there is insufficient time to meet and confer due to the recording of an NOTS or a pending foreclosure judgment, the unit owner may be referred to mediation regardless of whether the unit owner participates in the meet and confer session.
During the 30-day time period between when the request to meet and confer is made and when the meet and confer session is held, the association may not charge the unit owner for any attorneys' fees that the association incurs attempting to collect a past-due assessment.
The meet and confer requirement applicable to nonjudicial foreclosures of deeds of trust is not changed.
Mediation Referral Timeline.
Following a meet and confer session between a unit owner and an association, the housing counselor or attorney must determine whether mediation is appropriate based on the individual circumstances. The referral to mediation may be made at any time after the meet and confer session, after refusal to participate by the association, or after 30 days has passed since a request was made with no response from the association, but no later than 90 days before the date of sale listed in an NOTS provided to the unit owner or no later than 25 days before the date of sale listed in an amended NOTS. For a judicial foreclosure, the referral to mediation may be made at any time prior to the entry of judgment in foreclosure. Once an NOTS has been recorded or judicial foreclosure has been filed, nothing requires a delay or prohibits the referral of a unit owner to mediation.
If the unit owner does not elect to mediate within the applicable timeframe, the unit owner and the association may still agree in writing to engage in mediation through the Program.
The mediation referral timeline applicable to nonjudicial foreclosures of deeds of trust is not changed.
Referral Notices.
An attorney or housing counselor may refer a borrower or unit owner to mediation under the Program by sending a referral notice to the borrower or unit owner and Commerce stating that mediation is appropriate. Within 10 days of receiving the referral notice, Commerce must select a mediator and send a notice that the parties have been referred to mediation to the beneficiary or association, the borrower or unit owner, the housing counselor or attorney who referred the borrower or unit owner, and the trustee if applicable.
Required Documents.
For foreclosures of association liens, within 23 days of Commerce's notice that the parties have been referred to mediation, the association must transmit certain documents required for mediation to the mediator and unit owner, including:
Within 20 days of the unit owner's receipt of the association's documents, the unit owner must transmit the documents required for mediation to the mediator and the association, including:
The types of required documents applicable to nonjudicial foreclosures of deeds of trust are not changed.
Mediation Session.
Within 70 days of receiving the referral from Commerce, the mediator must convene a mediation session in the county where the property is located, unless the parties agree on another location. The mediator must send written notice of the time, date, and location of the mediation session to the borrower or unit owner, the beneficiary or association, and Commerce at least 30 days before the mediation session.
The notice must contain statements related to the following mediation session requirements:
For foreclosures of association liens, the participants in mediation must address the issues which led to foreclosure that may enable the unit owner and the association to reach a resolution, including, but not limited to, a delinquent assessment payment plan, waiver of late fees or attorneys' fees imposed by the association, modification of a delinquent assessment, modification of late fees or charges related to a delinquent assessment, or any other workout plan. For foreclosures of deeds of trust, the issues that participants in mediation must address are not changed.
Generally, payment of the mediator's fee must be divided equally between the beneficiary and the borrower, or between the association and the unit owner.
For foreclosures of association liens, the unit owner and the association are responsible for their own respective attorneys' fees if any are incurred during mediation.
Mediator's Written Certification.
Within seven business days after the conclusion of the mediation session, the mediator must send written certification to Commerce, the trustee, and parties of:
Options after Mediation.
If the parties are unable to reach an agreement, or if the borrower or unit owner failed to act in good faith during the mediation, the beneficiary or association may proceed with the foreclosure after receipt of the mediator's written certification.
Mediation's Impact on Timing of a Trustee's Sale.
If a borrower or unit owner has been referred to mediation before an NOTS has been recorded, a trustee may not record the NOTS until the trustee receives the mediator's certification stating that the mediation has been completed. If the trustee does not receive the mediator's certification, the trustee may record the notice of sale after 10 days from the date the certification to the trustee was due. If the mediator subsequently issues a certification finding that the beneficiary or association violated the duty of good faith, the certification constitutes a basis for the borrower or unit owner to enjoin the foreclosure.
If a borrower or unit owner has been referred to mediation after the NOTS was recorded, the sale may not occur until the trustee receives the mediator's certification stating that the mediation has been completed.
Mediation's Impact on Timing of Judicial Foreclosure of Association Liens—Tolling of the Statute of Limitations.
If a unit owner has been referred to mediation before the filing of a judicial foreclosure, the association may not file a complaint for judicial foreclosure until the association receives the mediator's certification stating that the mediation has been completed. If a unit owner has been referred to mediation after the filing of a judicial foreclosure, but before a judgment has been issued in the foreclosure action, the association may not seek judgment in the foreclosure action until the association receives the mediator's certification stating that the mediation has been completed. If the association does not receive the mediator's certification, the association may file for judicial foreclosure or move for judgment in a judicial foreclosure action after 10 days from the date the certification to the association was due.
If an association entitled to bring a judicial foreclosure action participates in mediation, the time spent in mediation is not counted as part of the time limited for the commencement of the judicial foreclosure action.
Duty to Mediate in Good Faith.
A violation of the duty to mediate in good faith may include:
The mediator's certification that the beneficiary or association failed to act in good faith constitutes a defense to the nonjudicial foreclosure. In any action to enjoin the foreclosure, the beneficiary or association is entitled to rebut the allegation that it failed to act in good faith. The mediator's certification that the beneficiary or association failed to act in good faith during mediation does not constitute a defense to a judicial foreclosure or a future nonjudicial foreclosure action if a modification of the loan or delinquent assessment payment plan is agreed upon, and the borrower subsequently defaults or the unit owner fails to pay assessments.
Housing Counselor Duties and Limitations on Liability.
Housing counselors have a duty to act in good faith to assist unit owners by:
Housing counselors must provide certain information to Commerce to assist with the annual Program report to the Legislature.
Annual Report to the Legislature.
Beginning December 1, 2026, Commerce's annual report to the Legislature on the performance of the Program must also include:
Online Common Interest Communities Foreclosure Resource Center.
Commerce is required to create an online CIC foreclosure resource center to distribute information about foreclosure programs and resources, including the housing counseling program, meet and confer process, the Program, language translations of the notice of delinquency form, and any other programs and resources that Commerce determines are relevant. Such information must be made available in language translations that Commerce provides in its other programs. When the information is requested verbally, Commerce must use a phone-based or other similar interpretive service.
Preforeclosure Requirements—Notice of Delinquency for Past Due Assessments.
The notice of delinquency form for past due assessments in each of the four CIC statutes is modified to include information about the meet and confer process and the mediation referral process. The form must include a statement that housing counselors and attorneys may assist unit owners in meeting and conferring with their associations to resolve past due assessments, and may refer the unit owner to the Program based on the circumstances.
The first preforeclosure notice required to be sent by the association to the unit owner must be mailed by the association no later than 10 days after the date that the assessments become past due. The association should maintain this preforeclosure notice information and make it available to any unit owner upon request, as well as generally available to all unit owners.
The following requirement is added to the list of preforeclosure requirements that an association must satisfy before commencing an action to foreclose the association's lien for delinquent assessments: if a unit owner is referred to mediation under the Program, an association may not commence an action to foreclose a lien on a unit for past due assessments until the mediation is completed and the certification of mediation is issued, or after 10 days from the date the mediator's certification was due to the association.
Definitions.
Definitions for the following CIC terms are added to the DOTA: assessment, association, notice of delinquency, and unit owner.
Foreclosure Fairness Account.
A new fee is created, required distributions from the Account are modified, and a new report is required.
Foreclosure Prevention Fee and Notice.
A foreclosure prevention fee of $80 must be assessed for each residential mortgage loan, as defined in the state Consumer Loan Act, originated within or outside the state and related to property located within the state, except for reverse mortgage loans issued to seniors over the age of 61. This fee must be remitted into the Account at the time of closing by the escrow agent or other settlement or closing agent. This fee may be financed in the loan and paid from the loan proceeds or from any borrower cash contribution at the time of closing.
At or before the time that the fee is assessed, the escrow agent or other settlement or closing agent must provide the borrower with a notice of the foreclosure prevention fee and its purpose. Commerce must create a notice form that can be used to satisfy this notice requirement. The notice form must include the toll-free numbers for the statewide foreclosure hotline recommended by the Washington State Housing Finance Commission.
"Residential mortgage loan" is defined in the state Consumer Loan Act as any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other consensual security interest on a dwelling or residential real estate.
Distributions.
Account funds must be distributed as follows:
Report to the Legislature.
By December 31, 2025, Commerce must provide a report to the appropriate committees of the Legislature on the types, numbers, and amounts of fees that are remitted to the Account for revenue collected from July 1, 2025, through November 30, 2025. Annually thereafter, Commerce must post this information on its website.
As compared to the engrossed second substitute bill, the amended bill:
(In support) This bill expands and sustains a program that is a lifeline for homeowners. This bill is necessary to preserve a vital state resource and help save every home possible. When someone loses their home, it is devastating. Foreclosure removes people from their communities and can trigger a ripple effect that devastates the entire neighborhood. This particularly impacts low-income families, communities of color, people that live in rural communities, and seniors.
The idea for the Foreclosure Fairness Act (FFA) originated during the Great Recession around 2009 when many people were losing their homes to foreclosure. At that time, the state had no foreclosure prevention system in place. People did not know how to connect with the banks. A very large group of stakeholders, including the banking industry, homeowners, and homeowner attorneys, came together to try and problem solve. They decided that the key components of the Foreclosure Fairness Program (FFP) should be housing counseling, meet and confer, and mediation.
This program has touched 78,000 families across the state and it makes a difference. One of the very first people served by this program was able to save their family home of 25 years one week before the sale. Another homeowner, whose family has been in their home since the late 1940s, struggled with the subprime mortgage crisis 16 years ago and ended up spending three years in preforeclosure with no idea what the process was. Eventually, they were able to get connected with a housing counselor and go to mediation to get a modification on the loan. Today, they are still in the house 11 years later, and they have not missed a payment or been late on a payment since that loan modification.
When people do not have access to resources, it is very difficult for them to act in time to protect their homes. This bill will make sure that foreclosure prevention resources get out to the community. Having knowledge about these services is as important for homeowners as knowing to call 911 when there is an emergency. Everyone who buys a house should have the knowledge that they need to save that house when a crisis arises.
The major source of funding for the FFP is a fee paid by the banks when the notice of default is provided, but there have also been a lot of federal dollars and some lawsuit dollars through the Attorney General's Office (AGO). The FFP has multiple funding sources, but, as those sources dry up, keeping the FFP intact has become concerning. This bill seeks to create a new source of funding through a fee paid at the time a residential mortgage is originated. Establishing a sustainable funding mechanism through the $80 fee is going to help to keep the FFP intact and prevent residential foreclosures. This funding will help maintain housing counselors, legal assistance, and the foreclosure prevention services that help Washington families stay together in their homes.
The state foreclosure prevention hotline, created by the FFA in 2011, serves as the single point of entry for struggling homeowners seeking help. When homeowners call, the hotline workers assess their situation and connect them to appropriate resources which is most typically housing counseling or legal aid. Housing counselors and legal aid attorneys work with the homeowner for as long as it takes and can represent them in mediation if needed. This centralized approach streamlines access to assistance and ensures that no homeowner falls through the cracks. In 2024, the hotline served 12,000 homeowners in distress, and demand is expected to remain high as homeowners continue to struggle to recover from the pandemic and face an uncertain economy. Without sustainable funding from this bill, the state risks losing this critical safety net and stranding about 9,000 homeowners who would be unable to reach the hotline when they need it the most.
Nonprofit foreclosure prevention housing counseling programs and housing counselors help families avoid displacement and stabilize communities. An average of five years after exiting housing counseling services, 82 percent of distressed homeowners that receive housing counseling services are still in their home or have sold their home and realized its equity. The ability of housing counseling programs to serve homeowners depends on stable funding. Federal stopgap funds expire at the end of June and without funding from this bill, some housing counseling programs will be decimated, and distressed homeowners will be stranded without support when they need it most.
The Foreclosure Prevention Unit at the Northwest Justice Project (NJP) has provided foreclosure defense to Washington homeowners for 15 years. The FFA has always provided the NJP with a small amount to fund legal aid. However, without a new source of funding, the NJP will have to close its foreclosure prevention doors in July. Since beginning this work in 2010, the NJP has opened over 9,300 foreclosure related cases. The NJP estimates that it has preserved over 138 million dollars in equity for low-income and middle-income homeowners by saving their homes from foreclosure. The NJP serves the most vulnerable people with the biggest legal challenges and does the legal work that housing counselors cannot do.
The AGO strongly supports this bill and its creation of an additional source of funding to support the important work of the FFP. For over a decade, the FFP has helped homeowners explore possible alternatives to foreclosure through free housing counseling, civil legal aid, and foreclosure mediation. The program has been incredibly successful, is beneficial to both consumers and lenders, and provides critical resources to help consumers understand their rights during a stressful and confusing time. These new funds are vital to ensuring that the AGO can continue to dedicate resources to helping homeowners and lenders explore alternatives to foreclosure, provide consumers with information about the FFA, and refer consumers to housing counseling and legal aid.
Community bankers support this bill. Today, a majority of the mortgage originations are happening out of state by non-depository institutions. In the original bill, it was unclear whether Commerce would be able to get the new $80 fee from mortgage originations happening outside the state, which raised concerns that in-state depository institutions would bear a disproportionate amount of the weight from the new fee. These concerns are resolved by the language in the amendment. This is notable because it is already getting much more difficult for in-state banks to compete in this area. Recently, several state-chartered banks have announced that they are withdrawing from the residential lending market.
This bill also expands the FFA to include HOAs and condominiums (condos). For the first time, homeowners facing condo or HOA foreclosure will be able to opt into mediation under the FFA. Condo and HOA homeowners need the FFA mediation protections. They are particularly vulnerable and the costs are high because the vast majority of these cases are judicial foreclosures. Recently, there has been a spike in the number of foreclosures by HOAs and condos. Around 22 percent of homeowners in Washington live in HOAs and condos. This is a huge part of the housing stock, and this bill will make a huge difference for these homeowners.
The HOA community needs education about foreclosure prevention. Ninety percent of sheriff's sales of real property each month are HOA sales, and homeowners in HOAs need to know how to prevent these foreclosures in the future. HOA boards are made up of volunteers who are not educated about these issues. Some HOA members are being forced into foreclosure with fines and a lot of attorneys' fees. There have been over 800 Homeowner Assistance Fund program grants to homeowners in condos and HOAs over the past three years, amounting to over $5 million in assistance to prevent foreclosure in HOAs and condos. The proportion of those grants ranges from 95 percent toward assessments to 5 percent, because the attorneys' fees, late fees, interest, and other costs can range from 5 percent to 95 percent of the total cost. When 95 percent of the debt comes from fees, the fees are not reasonable. There needs to be some definition on what reasonable attorneys' fees are. Also, some of the language in the bill should be adjusted to address concerns related to people who refuse to pay their bills for no good reason. In these cases, the rest of the homeowners should not have to pay for the attorneys' fees.
(Opposed) Community associations, such as condos and HOAs, are nonprofit entities run by volunteer board members who are also homeowners in the community. Community associations are distinctly different in nature than the for-profit mortgage lenders that the FFA currently applies to. If a community association is prohibited from charging the legal fees and costs related to the meet and confer session and mediation session to the homeowner who is delinquent on their assessments, this means that all the other homeowners in the community will be unfairly burdened by having to pay these legal fees and costs. A person with authority to make decisions on behalf of the association should have legal representation with them during the meet and confer session and mediation session that does not financially burden other homeowners. Under other community association statutes and governing documents, there is a standard fee shifting provision which allows reasonable attorneys' fees and costs to be recovered.
(In support) Senator Tina Orwall, prime sponsor; Brad Tower, Community Bankers of Washington; Steve Horvath, HOA United; Raelene Schifano, HoA United; Heidi Anderson, Attorney General's Office; Paula Sardinas, FMSGS and WBBA; Inye Wokoma; Denise Rodriguez, Washington Homeownership Resource Center; Marc Coté, Parkview Services; and Tom McKay, Northwest Justice Project.