New Foreclosure Rules In Washington Assist Homeowners

Thursday, September 3, 2009

The predominant method to foreclose a residential property in Washington is through a non-judicial foreclosure proceeding. The law has been in effect for many years with relatively few major changes overall.  However, in its last session, the Legislature in Washington added a whole new section to the statute that changes the method of foreclosure dramatically for certain homeowners.

Lenders are now required to provide credit counseling to certain homeowners

The new statute is effective July 26, 2009.  We expect that many lenders nationally may not even be aware of this change in the State of Washington.  Not all borrowers are affected.  Not all loans are impacted. Owners of owner-occupied residential real estate, as defined in the Act, who have a Deed of Trust on their property that was recorded from January 1, 2003 through December 31, 2007 are impacted.  This is the group of owner-occupied property owners that are protected by this new change to the statute.

Lender must communicate with borrowers before even starting foreclosure

Before the lender can start foreclosure with a Notice of Default, they must (in the case of certain borrowers specified above) wait until thirty (30) days have passed after an initial contact with the borrower is made under a very precise and detailed methodology that is prescribed by the statute. Under the Act, the lender or authorized agent must contact the borrower by letter and by telephone in order to access the borrower's financial ability to pay the debt due the lender that is secured by a Deed of Trust on Washington owner-occupied property.  Keep in mind, again, that only affects loans made between January 1, 2003 through December 31, 2007.

Lender's first contact with borrowers

During the initial contact the lender representative shall advise the borrowers of their right to have a second meeting.  All meetings may occur telephonically and may be conducted by the loss mitigation personnel at the lender's place of business. The initial meeting provides an opportunity to assess the borrower's financial ability to repay the debt as well as a discussion with the borrower of financial options available to them.  If the borrower so chooses, they can move to the second meeting stage.  That is the homeowner's right under the statute.

Borrowers can control the extent of credit counseling accepted

The borrowers at that first meeting (typically telephonically) must be provided toll free numbers and information so that they may retain a "department certified housing counseling agency."  In addition, they must be provided information of how to contact the State Department of Financial Institutions as well as the statewide civil legal aid hotline for assistance and referral. The second meeting, through the authorized representative, must occur within fourteen (14) days after the first contact.  The statute provides detailed methodologies that the lender must take to attempt to advise defaulting homeowners before starting foreclosure.  There is a tremendous burden placed on the lending institution.

Impacts on your practice

Lenders were probably not ready for the implementation of this statute.  Local governmental agencies are also not probably ready or able to handle the onslaught of additional borrower consultation responsibilities expected under this statute. In the short run, we believe that the statute will create an additional time period (added to an already extended time period because of high volume) before foreclosure proceedings are initiated in the State of Washington.  As time progresses, we expect lenders will initiate this credit counseling action much sooner as borrowers initially default.  However, for those in the midst of default now, this new statute provides probably more time for the borrower.

In turn, this new statute adds more valuable time for all Real Estate Professionals to work with your seller and find a buyer for the property in (most likely) a short sale transaction.

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Comments

Micah - Wednesday, September 30, 2009 @ 7:54 AM
Keep posting more articles like this. Question, does a short sale offer delay the foreclosure process??