Web statistics include the terms people use to search on my websites. Through the first 36 hours of December 2009, the search terms which brought people to GNAde.com were:

1. washington state rodent disclosure buy home
2. stairs near the living room
3. home sellers disclosure form washington state
4. first time home buyer tax credit seattle
5. dining room with skylight lighting room design
6. mountlake terrace
7. real estate attorney northgate washington
8. customer testimonials examples real estate
9. form 17.doc washington
10. real estate laws for washington state
11. understand form 17 seller disclosure
12. bed master room door out
13. failure to provide resale certificate wa
14. example of home buyers form 17
15. the living end 1998
16. brick tudor homes
17. first time home buyer seattle
18. form 17 washington state law
19. declaration statement real estate washington
20. washington state form 17
21. real estate seattle area
22. property dealer — testimonial by clients
23. 8000 tax credit flyer

Six of the 23 terms deal with seller disclosure or mention directly Form 17, the Washington Seller Disclosure Statement which I have called “form fatale.” Two are looking for information about the which has not only been extended for tax credit for first-time buyers but also expanded to include tax credits for current home buyers.

Five search terms deal with specific locations (Mountlake Terrace and Northgate ) and home style or features (brick tudor, stair location, skylights). The latter where likely image searches.

The one seach term on the list that has me baffled is “the living end 1998.”

The Mystery of Capitalism by Hernando De Soto.

I posted a blog about this book on SERENE™ back in January 2007 which is worth repeating in part:

Hernando De Soto, makes a very good case for private ownership of property as the engine of any economy. Without having documented proof of property ownership entrepreneurship would be impossible. Over 80 percent of all businesses in this country are started because the home served as collateral.  He says:

This wasn’t always possible. After the California gold rush there were about 800 separate property jurisdictions, each with its own laws. Outside each jurisdiction a property did not “exist”. It was without value. The earlier squatters who occupied land did so outside the formal legal system. It took several decades to create the nation-wide formal legal ownership of property that can be documented through title.

I’ve bolded in the above the word “documented” to emphasize the missing characteristic of the newly-minted financial instruments known as derivatives — mortgage-backed securities, collateralized debt obligations, and credit default swaps.

Not surprisingly, De Soto’s commentary in the WSJ picks up where his book leaves off:

These derivatives are the root of the credit crunch. Why? Unlike all other property paper, derivatives are not required by law to be recorded, continually tracked and tied to the assets they represent. Nobody knows precisely how many there are, where they are, and who is finally accountable for them. Thus, there is widespread fear that potential borrowers and recipients of capital with too many nonperforming derivatives will be unable to repay their loans. As trust in property paper breaks down it sets off a chain reaction, paralyzing credit and investment, which shrinks transactions and leads to a catastrophic drop in employment and in the value of everyone’titles property.

In other words, what has taken us centuries to develop, which is the documentation and categorising and registering of ownership of real property (title) has been willfully ignored by the people who’ve invented these derivatives.

In De Soto’s own words, his WSJ article says:

Ever since humans started trading, lending and investing beyond the confines of the family and the tribe, we have depended on legally authenticated written statements to get the facts about things of value. Over the past 200 years, that legal authority has matured into a global consensus on the procedures, standards and principles required to document facts in a way that everyone can easily understand and trust.

The result is a formidable property system with rules and recording mechanisms that fix on paper the facts that allow us to hold, transfer, transform and use everything we own, from stocks to screenplays. The only paper representing an asset that is not centrally recorded, standardized and easily tracked are derivatives.

(Emphasis mine).

De Soto does not believe the solution to the current crisis lies in “clinging to the hope that the existing market will eventually sort things out.” What is the market to sort out if the market does not know who owns it, much less what “it” is worth?

“Modern markets only work if the paper is reliable,” De Soto concludes.

As a Realtor® I know this only too well. Documentation of ownership and value are critical to every real estate transaction. Cloud on title is a bad thing.

The cloud that darkens most of these derivatives needs to be lifted before we can see our way out ot this mess.

When we started our collaborative search via the Web, the young family had their eyes set on Seattle neighborhoods,  specifically the Queen Ann and Green Lake areas.  As it turned out the two most attractive homes we saw after their arrival were one in the Wallingford neighborhood and one in Queen Anne — the latter chiefly because of a wonderful view of the city.  But there were drawbacks with all these homes:  too far to walk to everyday conveniences, restrictive parking and heavy local traffic.

What these newcomers to Seattle liked were trees, parks, and open spaces. That’s what they liked about the eastside neighborhoods. Not having a car initially and intending to buy just one car, the proximity to public transport was critical. Surprisingly, some best eastside neighborhoods offered greater convenience than some of the Seattle locations. Finally, the quality of  pre-school facilities made the South Bellevue home nearly ideal.

Because executing a lease can be done fairly quickly I educate my clients about landlord and tenant law at the outset.  I will give them a standard lease to review before the time comes to fill it out, date and sign.

Finding the right rental home is a good thing.  Renting that home the right way will make the stay enjoyable.

P.S.

To the uninitiated, the process of renting  a home would appear to be simple. After all, there is no financing, no title issues, no escrow.  In fact, an inexperienced single-family home landlord and a less than qualified renter can get into plenty of trouble.  That’s why many home rentals are handled by real estate agents or, even better, by property management companies. They know how to qualify a renter with credit and background checks, they use rental contracts designed to eliminate misunderstandings and are in compliance with the law. Their service includes a walk-through with a detailed check list that captures defects before move-in. They know to give the renter required information on the dangers of lead paint and mold. They will de-commision that hot tub to avoid an accident and eliminate unnecessary liabilty.

Black sheep are found in every profession. They seem to multiply when opportunites to cheat are on the rise. However, opportunity tempts not only professionals but amateurs. And there are more amateurs than professionals.

When Seattle real estate was hot in 2005 and 2006 (it started to simmer down in August 2007) I missed out on a lot of business. Who needs an agent to sell a home when an ad on craigslist will bring crowds to the seller’s door? How many For-Sale-By-Owner deals went down with no real estate agent representation for the buyer? How many buyers went straight to the listing agent in the hope of saving some money?

How many more buyers used a relative or friend with a real estate license just a few weeks old? How many people got a real estate license just to buy for themselves and go into the flipping homes business?

How many of these do-it-yourself artists are now facing foreclosure?

Too bad there are no statistics on this.

A Sense of Anticipation: We are moving to Seattle!

The move may be months away but pictures of distant homes for sale are being forwarded to relatives and friends. “Look where we could be living in Seattle!” Several real estate agents receive emails from what looks to them like a promising prospect. “We are relocating to Seattle; can you send us some more information on this home?”

The Reality: the Transferee’s Relocation is Being Outsourced.

Elsewhere, in the other world — the real world of corporate relocation — company policies and procedures on relocation determine what happens next. The relocation of an employee is an outsourced activity delegated to a relocation management company which handles every aspect of the relocation and, most importantly, the cost of the relocation.

The Reality: Relocation is Expensive and Costs Need to be Managed.

According to Worldwide ERC (formerly Employee Relocation Council), the current, average cost of a domestic relocation was for:

• Current Employee Homeowner $62,185
• New Hire Home Owner $55,165
• Current Employee Renter $18,365
• New Hire Renter $16,177

According to ERC, of the nearly 400,000 transfers generated by ERC member companies, 1/3 are new hires and 2/3 are current employees and 54% are home owners while 46% are renters. (ERC provides no data for international relocations but we can safely assume that the costs are higher.)

Managing the Cost Means Managing the Transferee

It’s understandable that relocation management companies are charged by their corporate clients to manage these costs. The sooner the transferee can become a productive employee the better. The less the transferee has to worry about logistics and life outside work the more likely the transferee will be productive.

Thus, many relocation management companies like Cartus (formerly known as Cendant) hire destination consultant companies like Full Circle that ensure the smoothest possible “settling in” of the transferee. When dealing with international relocations the destination consultants are dealing with visa issues, opening bank accounts and obtaining social security cards — activities that require considerable knowledge and expertise. In the end, this expertise benefits the transferee and saves the employer money.

Reducing the Cost of Relocation by Turning an Expense into Income

If the relocation involves real estate — selling and/or buying — relocation costs are “shifted” from Cartus and the corporate client, such as Microsoft, to companies and individuals involved in the real estate transaction.

Here’s how it works. The relocation management company works with select real estate brokers who assign agents to work with the transferee. For that privilege, the agent pays a referral fee — up to 40% of the real estate commission — to the relocation management company. If the transferee sells and buys, this happens twice.

Controlling the Process

In the case of Cartus, the preferred brokers are the ones that are owned by Realogy, the parent company of Cartus. The Realogy Franchise Group consists of well-known real estate companies, including CENTURY 21® and Coldwell Banker®.

A link on the Realogy’s website leads to the Title Resource Group (TRG) which “…is a full-service title and settlement services company” that …“serves real estate companies, corporations and financial institutions in support of residential and commercial real estate transactions”…“TRG is a nationally managed family of companies operating under well-known, local brands.” On the fact sheet it says that “TRG is as an integral part of the Cartus Asset Recovery Program.” Expense recovery may be more accurate.

The Internet Interferes with the Process

Back to the beginning: the transferee and any “significant other” are intelligent, internet-savvy individuals. They would like to have a say in the selection of the real estate agent. To them the choice of neighborhood and schools should not be left to someone chosen by corporate relationships. The transferee may have found an agent who speaks her language and knows the difference between living in Munich and Seattle because the agent has lived there himself. The transferee may also want to be the one to choose the mortgage lender since this is a major financial decision which requires a great degree of trust which can only be found in a personal relationship. Neither the purchase of a home nor the financing should be treated as a commodity.

The Transferee Has a Choice

Many transferees don’t know that they have a choice because the relocation process is not as transparent as it should be. In most cases, all a transferee has to do is to make her/his desires known to the employer and/or the relocation management company who then will have the transferee’s choice of broker/agent sign a referral agreement. This agreement allows for part of the commission to be paid back as a referral fee at the closing of the real estate transaction.

Possible Conflicts

What if the broker/agent refuses to sign the agreement and the transferee insists on choosing the agent? What if the agent is a long-time friend of a transferee who is moving to another city? Can the relocation management company insist on the referral fee “after the fact?”

Tortuous Interference and RESPA Issues

After-the-fact-referral-fees are not a recent issue. An article in Realty Times, published first in 2000, stated: “Tortuous interference is the interfering by one real estate licensee [broker/agent] with a contractual relationship between another real estate licensee [broker/agent] and their client. This is a violation of license law in every state. This law is broken every time a relocation company speaks with a transferee or the transferee’s agent about a referral fee after a contractual relationship has begun.”

The same article also raises concerns with RESPA — the Real Estate Settlement Procedures Act: “…unjust enrichment is a RESPA law violation and is reportable to the Department of HUD [Housing and Urban Development). RESPA regulations are such that no fee can be charged, received or paid in a real estate transaction without due cause. In other words, any fee charged must be earned and deserving in order to be paid or received.”

Centralized Management vs Transferee Choice

The best relocation practice takes advantage of the valuable services of relocation companies and experts while respecting the transferee’s right and desire for personal service. If YOU have been transferred, what has been YOUR experience?

Share it with others on SERENE where you will be heard and seen.

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.

Getting more complex over time.

The state legislature keeps adding and changing Form 17. The last major change was in 2003. Subsequent effective dates and changes/additions pertained to:

• January, 2005: sex offender in area
• June, 2005: proximity to farms
• June, 2006: farm proximity language changed
• June, 2007: environmental section added plus other major changes

Major changes include:

• Definition and destinction between improved and unimproved residential property
• Amends the existing Form 17 used for “improved” property
• New Seller Disclosure Statement to be provided to buyer of “unimproved” property zoned for residential use
• Limits a Buyer’s ability to waive receipt of either form

Changes to sections of the form include:

• Section 6 – title of section changed from “Common Interests” to “Homeowners’ Association/Common Interests”.
• Section 7 – title of section changed from “General” to “Environmental”. This section must be provided to the Buyer, and receipt of this section cannot be waived by the Buyer, if the answer to any question in the section is “yes”.
• Section 7(D) – replaces old questions related to flooding with new question asking about existence of shorelines, wetlands, floodplains, and critical areas on the property.

Who must provide Form 17?

The requirement is getting tougher. Not having occupied the premises is likely no longer a valid excuse. One exception remains: when the owner has passed away.

What if the Seller does not provide Form 17?

The buyer can walk away from the purchase just before closing and get the earnest money back.

What’s the role of the real estate agent?

The agent can not assist the seller in filling out the form. The buyer acknowledges this by signing below a statement that reads: “…the disclosures made herein are those of the seller only, and not of any real estate licensee or other third party.”

Must agents disclose what they learn from Form 17?

Once the Form 17 has been provided to the buyer the answers become known to the real estate licensees representing the seller and the buyer. Having learned of material facts through Form 17, the real estate licensees must disclose them.

I am not using an agent to sell my home. Do I need to provide Form 17?

Absolutely.

If you are interested in the details of the new content and rationale behind the changes to the Washington State Seller Disclosure Statement, visit the Washington State legislature website (pdf file).

If you are looking for my wife you need to head over to the Washington State Department of Financial Institutions (DFI) and check the Licensee Database. Among the kind of subjects you can search are Investment Companies, Escrow Officers, Mortgage Brokers, and now also Loan Originators.

The photo montage above shows the online search results for her and me (excluding the photos). She now works for Choice Lending  in Bellevue.

It’s hard to believe but until January 1, 2007 loan originators did not have to be licensed in the State of Washington. Given the tremendous responsibility that comes with advising someone on financing residential property, I think this change is for the better. Some cynics may disagree. “The state’s just seeing this as a way to collect more fees,” or “a licensed crook is still a crook” are some of the arguments.

I was told at a recent real estate workshop that some loan originators did not line up to be fingerprinted for the license because they would not pass the criminal background check. Let’s hope the change to a licensed status keeps the worst out of the business. Let’s hope that mortgage fraud will decrease proportionately.

Obviously, having shared a certain kind of license for 30 years, I could have told you that Frances Ann is honest, competent, patient, superb at explaining things, detail-oriented, always courteous and charming, but you may have pointed out that I was biased. Yes, I am. But I am also right. Just ask her. I am always right.

This blog has been updated February 7, 2008.