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.