Hope you’re enjoying the heat. Certain lenders may not be enjoying the heat caused by the new changes to RCW 64.24.

On July 26, 2009, legislative changes to the Washington Deed of Trust Act went into effect. The Act amends RCW 61.24.005, 61.24.010, 61.24.040, and 61.24.060; reenacting and amending RCW 61.24.030; adding new sections to RCW 61.24; adding a new section to RCW 59.12.

The principal amendments require coaching of delinquent borrowers for deeds of trust made from January 1, 2003, to December 31, 2007. Prior to sending a notice of default, the trustee, beneficiary, or authorized agent must contact the borrower by letter and by telephone in order to assess the borrower’s financial ability to pay the debt secured by the deed of trust and explore options for the borrower to avoid foreclosure.

According to the legislative record, a 30-day extension is made to the current timeline for foreclosure, measured from the time the lender contacts the borrower by letter and telephone to attempt a work out to avoid foreclosure.

During the initial contact, the beneficiary or authorized agent must advise the borrower that he or she has the right to request a subsequent meeting and, if requested, the beneficiary or authorized agent shall schedule the meeting to occur within fourteen days of the request. The assessment of the borrower’s financial ability to repay the debt and a discussion of options may occur during the initial contact or at a subsequent meeting scheduled for that purpose. During the initial contact, the borrower must be provided the toll-free telephone number made available by the department to find a department-certified housing counseling agency and the toll-free numbers for the department of financial institutions and the statewide civil legal aid hotline for possible assistance and referrals.

The new law does not apply to deeds of trust securing: commercial loans, obligations of a grantor who is not the borrower or a guarantor, or a purchaser’s obligations under a seller-financed sale.

After the initial contact is made, if the lender is to proceed with a notice of default, then the notice must contain the following:

You should take care to protect your interest in your home. This notice of default (your failure to pay) is the first step in a process that could result in you losing your home. You should carefully review your options. For example:

You may feel you need help understanding what to do. There are a number of professional resources available, including home loan counselors and attorneys, who may assist you. Many legal services are lower-cost or even free, depending on your ability to pay. If you desire legal help in understanding your options or handling this default, you may obtain a referral (at no charge) by contacting the county bar association in the county where your home is located. These legal referral services also provide information about lower-cost or free legal services for those who qualify.

That’s just some of the highlights. For full detail see http://apps.leg.wa.gov/billinfo/summary.aspx?bill=5810&year=2009#documents.

Because these new requirements only apply to institutional loans, it is hard to determine if they will actually assist in preventing foreclosures. Lenders must be willing to actually modify loans and work with borrowers for the new law to have any actual benefit. Otherwise it’s little more than window-dressing. While all institutional lenders have loan modification programs, few if any really work for consumers facing declining home values, along with job loss, reduced hours and pay, or loss of spousal income. The barriers are substantial and most borrowers don’t qualify under present standards. Without a willingness to modify loans on a broader basis, the new laws simply forestall the inevitable, causing a brief reprieve from foreclosure at a greater administrative expense, which will ultimately be borne by all borrowers. The new Act expires December 31, 2012. If it were open-ended, I suspect we’d all be in for a lot more heat when shopping for new loans.

On July 26, 2009 amendments to the Seller Disclosure Act (RCW 64.06) go into effect. The amendments impact mandatory seller disclosures in both improved and unimproved residential real estate transactions. According to an analysis by a non-partisan legislative staff for the use of legislative members in their deliberations, the changes include:

The definition of “unimproved residential real property” is modified to exclude timber land.

A seller must amend the disclosure statement if the seller learns from a source other than the buyer of additional information or an adverse change that makes the disclosure inaccurate.

Unimproved Residential Real Property Disclosure Statement.
Several questions on the disclosure statement are modified in the title, flooding, soil stability, and environmental sections.

Title.
• The question regarding rights-of-way, easements, or access limitations is modified to ask whether they affect the buyer’s use of the property rather than “may” affect the buyer’s use of the property.
• The question relating to zoning violations, nonconforming uses, or any unusual restrictions on the property is modified to ask whether they affect future construction or remodeling rather than “would” affect future construction or remodeling.
• Rather than asking whether there are any covenants, conditions, or restrictions which affect the property, the question asks whether there are any recorded against the title.

Flooding, Soil Stability, and Environmental.
• Questions related to flooding, standing water, or drainage problems and fill dirt, waste, or other fill material are moved to the “Environmental” section.
• The question related to transmission poles is changed to ask whether there are transmission poles or other electrical utility equipment installed, maintained, or buried on the property that do not provide utility service to the structures on the property.
• The question related to radio towers is modified to ask for information about those that cause interference with cellular telephone reception.

Improved Residential Real Property Disclosure Statement.
Several questions on the disclosure statement are modified in the title, water, structural, systems and fixtures, and environmental sections.

Title, Water, Structural, Systems and Fixtures.
• Rather than asking whether there are any covenants, conditions, or restrictions which affect the property, the question asks whether there are any recorded against the title.
• A question is added about defects in the operation of the water system.
• Rather than asking whether the roof has ever leaked, the question asks whether the roof has leaked within the last five years.
• A question is added about whether the property has a wood stove, fireplace insert, pellet stove, or fireplace and whether the wood stove or fireplace inserts are certified as clean burning appliances to improve air quality and public health by the U.S. Environmental Protection Agency.

Environmental.
• A question is modified to ask whether there is any flooding, standing water, or drainage problems that affect the property or access to the property.
• A question is modified to ask about dirt, waste, or other fill material on the property.
• The question related to transmission poles is changed to ask whether there are transmission poles or other electrical utility equipment installed, maintained, or buried on the property that do not provide utility service to the structures on the property.
• The question related to radio towers is modified to ask for information about those that cause interference with cellular telephone reception.

See Final Bill Report SHB 1420 (http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/Bill%20Reports/House%20Final/1420-S%20HBR%20FBR%2009.pdf).

In reviewing the changes, it seems that many of the questions that arguably drew upon ambiguous personal interpretation, belief, or state of mind have been simplified and call for fact answers. For example, the question “are there any rights-of-way, easements, or access limitations that may affect the buyer’s use of the property…” has been changed by deleting the word “may.” This makes a lot of sense. After all, who other than the buyer can really say if a right-of-way may affect his or her use of the property? The disclosure concerning covenants, conditions, or restrictions has been updated to simply ask if there are any CC&Rs recorded against title, with the words “that effect title” removed. How is a lay person to determine if a covenant effects title or not? Overall the amendments add clarity and precision to the seller’s disclosure obligations. More clarity should result in fewer lawsuits.

Sellers are supposed to furnish a disclosure document to buyers in compliance with RCW 64.06 within five days of presenting an offer. Buyer’s have three days to accept or rescind their offer. However, according to RCW 64.06.07, other than the right of recision prior to closing, RCW 64.06 provides no other remedy to a buyer if a seller fails to deliver a disclosure statement in a residential sale transaction.

The NWMLS has updated Form 17 for the sale of improved residential real property, Form 17C for the sale of unimproved real property, and Form 35, the inspection addendum. Any disclosure in a residential real estate sale after July 26, 2009 should be on the new NWMLS forms or derived directly from RCW 64.06 to comply with the new law.

On April 7, 2009 the Washington Legislature passed House Bill 1856, amending RCW 59.18.570. The new law is designed to provide greater protection to victims of domestic violence, sexual assault, unlawful harassment, or stalking. The statute provides a means for victims of these crimes to flee an abusive situation, and more important, break a residential lease after meeting certain qualifications.

In brief, if a tenant or household member is victim of one of these crimes, has a valid protective order, reports the act to a qualified third party and furnishes this information to the landlord, then the tenant or household member may terminate the rental agreement and quit the premises without further obligation. The request to terminate must be made within ninety days of the reported act. If the rental is terminated under this section, then the tenant is discharged from payment of rent for any period following the last day of the month of the quitting date. Further, the tenant or household member is entitled to return of its deposit, even if the agreement has a forfeiture clause.

If the harassment is from the landlord, then the tenant may terminate the rental agreement and quit the premises prior to making a copy of the protective order or written record of the report, provided that a copy of the order and record are furnished in seven days.

The revisions to RCW 59.18.570 also address adding or changing locks, engagement of law enforcement, and procedures for vacating the dwelling unit.

The forgoing is only a brief explanation of the new law. The full House Bill may be found at http://apps.leg.wa.gov/documents/billdocs/2009-10/Pdf/Bills/House%20Passed%20Legislature/1856-S.PL.pdf. If you are a renter and victim of domestic violence, sexual assault, unlawful harassment, or stalking, then you may wish to consult with an attorney for detail on the law and breaking your lease.

The amendment to RCW 59.18.570 are sensible clarifications to existing law designed to protect a vulnerable class of Washington citizens. The effective date of the new law is July 26, 2009.

The condo market continues to degenerate. Development deals are catering left and right. Many buyers are no longer qualified to close on their presales. Consequently, creative buyers and sellers are looking to the courts to read into their presale agreements what they argue are implied covenants. So far Western Washington courts are not agreeing with creative interpretation of those presale agreements.

Some time has passed since the limo driver’s case against Bellevue Towers was filed and discussed in the press and this BLOG. Recall that the plaintiffs sued Bellevue Tower’s developers and lender for fraud in the inducement, breach of contract, mistake, conspiracy, and violations of the Washington Consumer Protection Act with respect to the presale agreement for their condos. Prior to filing their answer to the complaint, defendants filed a motion to compel mediation and arbitration. In their opposition, the plaintiffs argued that the arbitration clause was unconscionable and should be rejected; that the purchase contract was an unconscionable adhesion (“take it or leave it”) contract; and that the “loser pays” attorney fee clause was unconscionable. In their reply the defendants pointed out that none of the terms were hidden and significantly, that plaintiff’s counsel was told on more than one occasion that ADR is required under the terms of the agreement. King County Superior Court agreed with Bellevue Towers and stayed the proceedings and granted the motion to compel mediation and arbitration. The defendants were also awarded attorney fees. No big surprises there. The court simply upheld the real estate purchase agreement as written, including the alternative dispute resolution and attorney free clauses.

The understandably hard part to swallow for many is losing one’s earnest money when one can’t close a purchase because the developer’s preferred lender that promised you that sweetheart loan, well, maybe just short of promised, advises that you’re no longer qualified to borrow, the promised rate and terms have vaporized, and that you’ll need more down payment money you don’t have because the condo you prequalified for is worth less then when you put down your $50,000 or more that you’re now going to kiss off along with attorney fees. (Run on sentences are allowed in blogs.)

In a similar but different case, on June 25, 2009 the Supremes filed an En Blac Opinion in the matter of Torgerson v. One Lincoln Tower LLC, another Bellevue high rise condo purchase dispute. In this case the development stalled and the developer rescinded its purchase agreements offering to return deposits. The Buyers sued for specific performance and damages. King County Superior Court and Division I upheld the purchase agreement and found for the defendant developer.

Supreme Court Justice Sanders framed the issue as to whether or not a real estate contract can limit a buyer’s remedies for breach to return of deposits and certain monies spent improving the property. The plaintiffs argued that the limitation is unconscionable. The contract contained a standard clause, in all caps, stating that if the buyer fails to close without excuse, the seller can keep the deposit and terminate the agreement.

The Court found that: (1) the contract provisions limiting remedies enforceable (“It is black letter law of contracts that the partes to a contract shall be bound by its terms” Alder v. Fred Lind Manner (2004)); (2) the remedy limitations do not fail their essential purpose; (3) that limitation on remedies is not void for public policy reasons; and (4) that the sellers are entitled to attorney fees by contract as the prevailing party.

In this case, the Court concluded that the buyers, real estate agents, were “sophisticated buyers.” The Court found the buyers were given the opportunity to provide input into their agreements. I’m not convinced of that. Few high rise developers, even in this market, are going to renegotiate seller default provisions under any circumstance. But I suppose knowing that is in itself an opportunity to better understand your position in a transaction.

For now I think it’s safe to conclude that Washington Courts, at least in Western Washington, are going to continue to firmly uphold the limitation of remedy clauses in standard real estate purchase and sale agreements. As Justice Sanders’ stated, “… remedies limitations can cause … Buyers or Sellers to bear the risk of the other party’s breach, depending on changes in the housing market.”