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.