Wednesday, June 18, 2008

HB 2791: Better Drowned Than Eaten?

Foreclosure rescue scams have been rampant since the burst of the bubble, as homeowners sunk by predatory lenders reached out for help. Many legitimate foreclosure rescue investors sailed in, offering to help distressed homeowners keep their homes and some of their equity, but with them came a swarm of sharks promising the same and leaving these homeowners worse than before. These foreclosure scam artists prey on the good faith and desperation of people already stung by human greed. Putting it politely, their human worth ranks somewhere between “the scum behind a prison toilet” and “depleted uranium”.

It is thus with good reason that Washington state Attorney General Rob McKenna and other bill sponsors first brought HB 2791 to the table: to protect desperate homeowners who had already demonstrated a lack of understanding about the real estate market. Unfortunately, in its final form, the bill doesn’t make the process more transparent for homeowners. Instead, it makes the buying process so opaque and perilous that no sane investor, no matter how well-meaning, would dare attempt even a short-sale, lest they become the victim of a zealous seller.

Some honchos in the industry believe that ethical investors will not be affected by the bill, but I am not so optimistic. Says Dugald Allen, vice president and legislative committee chair for the Real Estate Association of Puget Sound:

“Ethical investors should have no concerns about this law at all. All it does is put...you in the spotlight to tell the truth, and if you are an ethical investor you’ve always been doing that. It focuses people back into win-win scenarios where sellers can, in fact, be assisted...and [buyers] can make a reasonable profit doing it.”

Given the difficulties and dangers posed by the bill, Allen is either extremely optimistic about investors’ ability to adapt to the new regulations, or he just believes there’s no such thing as an ethical investor involved with foreclosure rescue. I can’t really agree on either count.

Under this new legislation, the risk squarely falls more on the buyer, and now that even short-sales are included in the bill, options are further limited. Some distressed homeowners have demonstrated the belief that “the world owes them one” in the way they have extorted money from lenders by threatening to destroy and deface the property before abandoning it. Human greed is what compelled these scam artists to approach distressed homeowners, but with HB 2791 now putting fiduciary duty on the BUYER (or “home consultant”), the question is who will protect them from the sellers?

This bill may have started with good intentions, but by penning these drowning homeowners off from the sharks, this legislature has penned them off from their only lifeboats, too. With the foment we’ve already seen surrounding this new bill, some political careers may be dragged under if reasonable changes aren’t made...and soon.

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4 comments:

June 18, 2008 at 10:48 AM Janelle said...

Attorney General McKenna has been working with the Washington State Realtors from the beginning to protect against the unintended consequences in the final version of the bill. Our original bill was modeled after legislation in other states and carefully crafted to allow homeowners to receive help from legitimate real estate professionals. Unfortunately, as noted in a previous NuWire story, the most onerous amendments were added to the bill in the final days of the session without input from either. Attorney General McKenna and the Washington State Realtors are scheduling a meeting to discuss the legislative fix in the coming weeks. The Washington State Legislature doesn't come back into session until January. We look forward to working with the industry to return the law to what we all intended-protecting desperate homeowners from the scammers who prey on them. (Janelle Guthrie, Communications Director for Attorney General Rob McKenna)

June 19, 2008 at 4:45 PM Joe Kaiser said...

Janelle Guthrie knows, or should know, that her office has received a grand total of 4 (!) foreclosure rescue scam complaints over the last five years.

Does that surprise you?

And by the way, in that same period there were many thousands of foreclosures statewide. Statistically, foreclosure rescue scams are insignificant.

Please do not overlook the importance of this fact. FOUR COMPLAINTS, in a five year period, does not a foreclosure scam epidemic make (you can confirm these numbers for yourself by requesting a copy of all such complaints from the AG's office under the Public Records Act, as I did).

Sure, it does happen, but nothing like we're led to believe. And when it does, there are plenty of attorneys eager to jump in and sue the scam artists who have acted inappropriately. That seems like a pretty good solution to me.

Creating a new law that up-ends the entire real estate marketplace was incredibly dumb, and I'm trying to be kind here.

Let's be clear . . . the original bill was a monstrosity. It stripped owners in foreclosure of their right to freely contract and forced them to needlessly jump through countless hopes in order to save their homes. With little time to spare, it makes stopping foreclosure a virtual impossibility.

Worse, it demonstrated a complete lack of understanding of the plight of people facing foreclosure. Having reviewed it early and seeing it as a train wreck even then, I suggest it's not something the AG's office should now be touting as "carefully crafted."

In reality, it, too, was a disaster in the making.

Creating laws that demand people in foreclosure be protected, to the point they lose their homes because of the protection. Is ludicrous, as is denying them the right to use a power of attorney or require them to be physically present at closing or any of the other numerous restrictions the new law (including the older bill's version) imposes on them.

Did you know that under the new law, owners (even owners represented by attorneys), aren't permitted to opt-out of the so-called protection, even if it means they won't be able to save their homes?

This is the AG's office saying to Washington state citizens, "we know what's best for you because you're to dumb to handle your own affairs." This is not the purpose of government and we should not stand for it.

The foreclosure rescue scam crisis in the state of Washington is a hoax, as Janell Guthrie and the AG's office knows. In reality, legislators were hoodwinked into believing the AG's claim a new law to protect families in foreclosure was desperately needed.

It wasn't. The old one was working just fine, thank you.

And now, because of the incredible incompetence of the drafters of this new law, homeowners will lose their homes, making this the debacle of the decade.

The AG's office contends there are 18 states that now have similar laws. Correct me if I'm wrong, but doesn't that mean 32 do not? I suggest the 32 states abstaining from participating in (and fueling) the foreclosure rescue scam hysteria should be commended and their approach should become our own model.

Stripping homeowners of the right to freely contract is not protection, Janelle, it's interference that we as citizens MUST NOT TOLERATE.

And for your office to do so merely for the easy political gain in this, an election year (who'd be against saving people from foreclosure scam artists?) is particularly sickening. SHAME ON YOU.

Make no mistake about it, Janelle, because of your office, at-risk homeowners in this state WILL LOSE THEIR HOMES and there will be no one to blame but Mr. Rob McKenna himself.

I suspect they'd all appreciate it if you'd just get out of the way so we agents and/or investors can provide them with the meaningful solutions they desperately seek.

Joe Kaiser
Pushed to Shove Blog

June 19, 2008 at 5:07 PM Joe Kaiser said...

Trent,

You've been conned, (you're not alone, btw).

There is no evidence that "foreclosure rescue scams have been rampant" of late. Show me your numbers and I'll show you mine.

Or, better yet, ask the AG's office for the totality of their foreclosure rescue scam complaints. The last time I checked (several months ago), there were precisely FOUR.

Though the new law may be clouded, the agenda here is crystal clear - the foreclosure rescue scam epidemic in this state is a hoax promulgated by the AG's office so Rob McKenna, in an election year, can say . . .

"Look at the new law I created to protect desperate Washington state homeowners from foreclosure rescue scammers. Aren't I wonderful?"

Uh, no.

Do they really think we're this dumb to not be able to see through that nonsense?

Joe Kaiser
Pushed to Shove Blog

August 15, 2008 at 9:12 PM EGD said...

I guess Joe Kaiser would be an expert in this area, since he is one of the only people actually being prosecuted by the Washington AG for foreclosure scams. Link to complaint below: http://www.atg.wa.gov/uploadedFiles/Home/News/Press_Releases/2007/SummonsFiscalDynamics121506.pdf

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