On June 12, the Wash­ing­ton State “Dis­tressed Prop­er­ties Law” took effect. That’s House Bill — HB 2791 If you have the time to plow through the bill, here’s the whole offi­cial mess as a PDF file. If you have a shorter atten­tion span, read the June 6 Press Release from the Wash­ing­ton Attor­ney Gen­eral.

So, what’s the big deal, you ask.

Big deal because you, too, are a “Poten­tial Dis­tressed Home Owner” if you

1. Are at risk of loss for non-payment of prop­erty taxes,
2. in default under a mortgage,
3. 30 days behind on mort­gage — OR
4. believe that you could default on your mort­gage within 4 months and tell your lawyer, real estate agent, lender, mort­gage or credit coun­selor, etc.

The bill has many flaws,

such as point 4 in the list above, vague word­ing, and sweep­ing def­i­n­i­tions, but there are two major flaws worth not­ing. To be a Poten­tial Dis­tressed Home­owner you must be

1. occu­py­ing the property,
2. the prop­erty must be your pri­mary res­i­dence, and
3. this prop­erty has from 1 to 4 res­i­den­tial units

Any­thing miss­ing here?

Yep, the Dis­tressed Prop­erty Law does not cover any build­ing with more than 4 units, which excludes almost every con­do­minium com­plex.

What makes this an impor­tant flaw, you ask? Well, the pur­pose of HB 2791 is to pro­tect res­i­den­tial prop­erty own­ers in Wash­ing­ton from those shady char­ac­ters who are prey­ing on the dis­tressed home owner. It is to pro­tect them from con artist who “skim equity” and “steal homes”.

Since a good num­ber of first-time-buyers buy con­dos and since some of them financed their dream with ques­tion­able mort­gages this leaves a whole lot of tar­gets for the scam artists to pur­sue.

The other major flaw

of the bill is that it does not exempt real estate agents. (In other states that passed sim­i­lar leg­is­la­tion, real estate agents are exempt,) It is not that real estate agents are nec­es­sar­ily bet­ter than the aver­age per­son, but they are already cov­ered under other leg­is­la­tion, namely RCW 18.86 which gov­erns real estate prac­tice.

The bill cre­ates a whole new pro­fes­sion: the “Dis­tressed Home Con­sul­tant.” That new label was meant to apply to legit­i­mate fore­clo­sure spe­cial­ists and scam artists. It now also applies to real estate agents. The bill does exempt oth­ers equally likely involved in real estate trans­ac­tions: lenders, mort­gage bro­kers and lawyers.

These two flaws may be major but this one beats both.

Each bill that becomes leg­is­la­tion includes a “Fis­cal Note” which states the esti­mated Fis­cal Impact of the bill — that’s the impact on the bud­get, I sup­pose. And since that bud­get is paid for by our taxes that means the fis­cal impact on you and me. Accord­ing to the math wiz­ards in Olympia, the Dis­tressed Prop­erty is esti­mated to have “No Fis­cal Impact.”

No Fis­cal Impact? Let me count the ways.

The bill has resulted in numer­ous rewrit­ten and newly printed real estate trans­ac­tion forms. It has already cre­ated and will cre­ate more con­fu­sion and waste of time for any­one involved in buy­ing and sell­ing a home. That includes all the afore­men­tioned poten­tial dis­tressed home own­ers. The worst and most costly impact of this bill will be this: Every sane real estate agent will stay miles away from any­body sus­pected of har­bor­ing thoughts of being a poten­tially dis­tressed home owner. The poten­tial lia­bil­ity to be sued is sim­ply too great. Ulti­mately, this bill may achieve the oppo­site results of what was intended: more fore­clo­sures and more bank­rupt­cies. The shady char­ac­ters meant to be deterred by this bill will find other ways to ply their trade. Most condo own­ers remain unpro­tected and should watch out.

Much has and will be writ­ten about this law.

Here’s how a real estate fore­clo­sure spe­cial­ist (now becom­ing my Dis­tressed Home Con­sul­tant col­league) views this bill. Your com­ments are welcome.