Commentary on Washington State law and how it Relates to real Estate

Robert P. Dickson

Robert P. Dickson

Robert P. Dickson is an partner at Dickson Law Group, PS and a member of its real estate and environmental law practice groups. Though most of his work is carried out through commercial litigation, he focuses on real estate, corporate, and environmental law. Much of his practice consists of representing clients in advancing their real property rights against public as well as private entities. Mr. Dickson also teaches a real estate litigation course at the Seattle University School of Law. His experience includes: Easements Adverse possession and trespass Boundary line adjustments Unlawful detainer Land use/zoning Foreclosures Landlord/tenant Real estate transactions (e.g. Deeds of Trust, Promissory Notes, Real Estate Contracts, etc.) Model Toxic Controls Act (including CERCLA), and other environmental regulations Corporation and limited liability company formation and representation Administrative appeals Professional Associations Tacoma/Pierce County Bar Association Washington State Bar Association Young Lawyers Association J. Ruben Clark Society Master Builders Association Associated General Contractors Education Juris Doctorate, The George Washington University Law School, 2007 Bachelor of Arts, Brigham Young University, 2003 Bar Admissions Washington State Bar Association Western Federal District Court of the State of Washington Publications Zoning and Land Use Petition Act, Land Use and Environmental Law Chapter XXIII, Washington Lawyers Practice Manual Real Property Practice Chapter XIV, Section 9, Foreclosure and Realization, Washington Lawyers Practice Manual

Thoughts on forensic audits and what they can (or can’t do) for you

Lately I’ve been fielding calls from individuals that have obtained what are called “forensic audits” of their mortgage documents.  Usually, this is in conjunction with a difficult scenario that they have found themselves in, where they are behind on their payments and are looking for any ammunition to defend against a foreclosure.  In theory, a forensic audit is straightforward: a company will comb through your mortgage documents for “violations” or other signs of misconduct by the lending institutions.  This is usually not too difficult a task given that many of the regulations that control these transactions are extremely technical.  Violating them is easy, in other words.

The bigger issue is what to do with the violations when they are discovered.  There has not been a tremendous amount of precedent in this regard (at least in Washington, there hasn’t been), but I would advise against the notion that faulty mortgage documents equal borrower keeping home.  That is not likely to happen for a few reasons — first, the bank did loan money out to the individual, which technically, would need to return the funds if the transaction were undone and reset; second, the parties relied and acted upon the loan.  A court could reset the entire mortgage and order that, if possible, the parties be put back to their proverbial starting points.  This obviously present a problem in and of itself, given that the home may be underwater and the borrower may not have the funds to refund the bank for the money issued in the original loan.

So, in short, for those of you leaning on a forensic audit as the resolution to your mortgage predicament, I’d make sure to have a backup plan.

Tacoma gets national attention for potential upswing in housing prices. But is it true?

The Tacoma News Tribune reports that CNN Money outlined Tacoma as a large metro area that will see as much as “11.5%” growth in housing value in the coming months.  The article, however, utilizes data that some call questionable.

What is the estate’s personal representative (executor) allowed to do with a decedent’s real property during probate during probate? (Answer: a lot)

Imagine this: a loved one has died and you are left to be the executor/personal representative of the estate.  This person owned real property (a house or condo perhaps).  Now, an individual’s estranged daughter moves in and starts living in the home without permission from the estate.  What obligations or rights do you have as the executor/personal representative to the real property?

Pursuant to RCW 11.48.020 (full text below), the personal representative has the right to possess and manage real property of the estate during probate.  At common law, real property of the decedent was treated differently from personal property, as it vested in the heirs immediately upon the death of the owner.  So, the personal representative had nothing to do with the real property, including rents or profits.  The majority of states have changed the common law, like Washington, to allow the personal representative to have the immediate right to possess and manage real property, and to receive rents and profits of the estate.

 

Since in Washington a personal representative has the right to possess and manage real property, the biggest issue will likely be whether the home at issue is the property of the estate of the deceased.  Though it might not be applicable in the unlawful detainer action, if the personal representative is not collecting rent from the tenant, the failure to do so is arguably a breach of their fiduciary duties, as it could impact creditors’ claims in the probate action (and thus harm Frisbie, if ultimately she is found to only be a creditor). See e.g. City of Bellevue v. Cashier’s Check for $51,000 & $1,130.00 in US Currency, 70 Wash.App. 697, 855 P.2d 330 (1993) (administrator has a narrow ownership interest in estate real property for the limited purpose of satisfying the legitimate claims of creditors of the estate.).  As a general rule, an executor is accountable for his use of the deceased’s real property. In re Estate of Boston, 80 Wash.2d 70, 72, 491 P.2d 1033 (1971).

Interestingly, even the executor may utilize the house, however, where a person’s only right to possession of the property arises from his status as executor, if he chooses to use the house for his own benefit he must pay rent.  Id.; citing In re Estate of Hickman, 41 Wash.2d 519, 526-27, 250 P.2d 524 (1952).  RCW 11.04.250 also clearly indicates that an heir’s interest in the estate is limited by the claims of creditors, whose interests are represented by the administrator.  Until an estate is closed, the heirs may not treat estate real property as their own.  In re Estate of Peterson, 12 Wash.2d 686, 734, 123 P.2d 733 (1942)

Forecosures to be “up” in 2011

According to a recent article, many experts are predicting that the foreclosure crisis will continue through 2011.  Currently, there are about 5 million borrowers at least 2 months behind on their mortgage payments.

Federal Trade Commission’s new rules limits up-front fees for loan modification services

federal-trade-commissionOn November 19, 2010, the Federal Trade Commission (FTC) issued 16 C.F.R.  Part 322, the Mortgage Assistance Relief Services Rule (MARS) concerning providers of mortgage relief service.  While many relief providers are legitimate, “At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results,” FTC Chairman Jon Leibowitz said.  Unlike an attorney assisting a client  in a loan modification or short sale effort, many mortgage relief services do not have a good understanding of the consistently changing rules and laws (both state and federal) involving mortgages and foreclosures and are not subject to code of ethics.

The MARS Rule is designed to protect distressed homeowners from these mortgage relief scams.  The most significant new rule under MARS is that non-attorneys offering mortgage relief services may not collect any fees until:

  1. The company has provided the consumers with a written offer from their lender or loan servicer that the consumer decides is acceptable.

 

  1. The company has provided the consumers with a written from the lender or loan servicer describing the key changes to the mortgage that would result if the consumer accepts the offer.

 

  1. The company must remind the customer of their right to reject the offer without charge.

 

The MARS Rule also requires mortgage relief services to disclose key information to customers, including that the company is not associated with the government or the customer’s lender and that the lender may not agree to change the customer’s loan.   In addition, it the company tells the consumer to stop paying their mortgage, they must inform the consumer that this could cause them to lose their home and damage their credit rating.

In addition to the mandatory disclosures, the MARS Rule prohibits mortgage relief companies from making false or misleading claims about services, including claims about:

  • the likelihood of consumers getting the results they seek;
  • the company’s affiliation with government or private entities;
  • the consumer’s payment and other mortgage obligations;
  • the company’s refund and cancellation policies;
  • whether the company has performed the services it promised;
  • whether the company will provide legal representation to consumers;
  • the availability or cost of any alternative to for-profit mortgage assistance relief services;
  • the amount of money a consumer will save by using their services; or
  • the cost of the services.

In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers. Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

Attorneys are exempt from this new rule as long as they are engaged in the practice of law, licensed in the state in which the consumer or home is located, and comply with the State’s ethics rules.  These are requirements that any practicing attorney should meet anyway.  In addition, and fees attorney’s collect will be placed in a client’s trust account and only withdraw for work performed in accordance with the retainer agreement the client has signed.

All provisions of the rule except the advance-fee ban will become effective December 29, 2010. The advance-fee ban provisions will become effective January 31, 2011.

 

Source: http://www.ftc.gov/opa/2010/11/mars.shtm

Coming January 31st, FTC to limit loan modification scams

According to this article from the LA Times, the Federal Trade Commission (FTC) is starting to “clamp down” on phony loan modification companies.  Essentially, starting January 31st, loan modification companies will be prevented from getting upfront fees.  The evaluation by the FTC is simple: “[i]f a [loan modification company] seeks to charge you anything or collects money upfront, it will be in violation of federal law and subject to harsh penalties.”  For loan modification companies to continue, they will have to “contact your lender or servicer and give you a written proposal describing the key changes to your mortgage terms that the note holder [usually your lender] is willing to make before any more money can be collected in advance.”  In essence, loan modification companies are will be required to complete a pre-loan modification modification, before they can execute a final loan modification, at which point, they may be paid for their services.

The articles goes on to report that attorneys are largely exempt from the law:

The only exception will be for lawyers, who typically require retainers before they begin negotiating on a client’s behalf. They will be permitted to collect retainer fees for modification efforts but only if they deposit the money into “client trust accounts” under state bar regulations. Lawyers who charge advance fees also must be licensed by state authorities and be in compliance with state laws and regulations governing professional conduct.

This new regulation from the FTC is bound to frustrate many loan modification scams that seek to obtain funds from clients, but then provide nothing in return.  Fortunately, the FTC leaves in place law firms to handle upfront fees.

Bank of America resumes foreclosures

According to the LA Times, Bank of America is ending its temporary foreclosure “freeze” in 23 states.

Given that FHA has altered the waiting period for those who engage in strategic foreclosures (this applies to those who make the strategic decision to “walk away” from their home), seeking a loan modification might be the best option.  According to “HAMP” or the Home Affordable Modification Program: “Borrower eligibility is based on meeting specific criteria including:

 

1) borrower is delinquent on their mortgage or faces imminent risk of default
2) property is occupied as borrower’s primary residence
3) mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties. 

After determining a borrower’s eligibility, a servicer will take a series of steps to adjust the monthly mortgage payment to 31% of a borrower’s total pretax monthly income:

  • First, reduce the interest rate to as low as 2%,
  • Next, if necessary, extend the loan term to 40 years,
  • Finally, if necessary, forbear (defer) a portion of the principal until the loan is paid off and waive interest on the deferred amount.

Note: Servicers may elect to forgive principal under HAMP on a stand-alone basis or before any modification step in order to achieve the target monthly mortgage payment.”

 

Thinking about a change order in your construction contract? Write it down!

Construction projects are notoriously difficult to execute without changes.  It is the natural state of affairs that while a contractor is busy doing the work on the contract, changes arise.  Often, these changes are not due to his preference, but required by local municipalities, general contractor (if he/she is a subcontractor), or even the contract owner.

For example: a construction contract for a home may initially call for wooden shingles for the roof.  The parties may later discover that in fact the home owner’s association prohibits this, and instead, requires asphalt shingles.  Obviously, this can be a significant change depending on the anticipated budget outlined by the contract owner.  Even if your contract does not contain a provision that requires written, pre-approved change orders, it is imperative that you generate written documentation anyway.

This does not have to be difficult.  The contractor is not expected to draft a Shakespearean-level treatise, outlining all of the intricate details about the proposed change.  Rather, I recommend using a rule of thumb: the more significant the change, the more documentation is required.  If, as discussed above, the roof change comprises and additional $30,000 to the overall contract price, the contractor (and contract owner, if he is smart) should generate something akin to a contract amendment or addendum which outlines in great detail the change (including, the “why” the change had to take place…this can be quite useful down the road).  To the contrary, if the change is for something minor, like the type of garage door opener to be installed (which hypothetically adds $100 to the overall price), then less documentation is needed.  In that instance, a simple email that memorializes the (1) “why” the change was called for, (2) price difference, and a (3) narrative of the negotiations between the parties (meaning, how and when they came to agree to the change) should be sufficient.

Given that projects can assume a life of their own, and contractors and contract owners (or general contractors) can often fall victim to the habit of discarding change order formalities, then it is vital that at least some record be established of the change.  Though it may not seem like much, a short email stating “Bob and I discussed the HOA”s requirement that the roof be asphalt shingle instead of cedar and we agreed that the price would increase $30,000” can do wonders in court, should the change be disputed down the line.

(Note: I recommend utilizing emails for several reasons: (1) they are automatically date-stamped, (2) they show who was sent the message, (3) they are written, and (4) they are very difficult to get rid of.)

Foreclosures in Seattle spiked in June

This blog post from the Seattle Bubble Blog is quite informative about the most recent foreclosure assessment for the Seattle area.  Perhaps we are starting to see the second waive of foreclosures?

Though I’m sure we will eventually turn this market around, it seems to be clear that we are in it for the long haul.  It does not help with the recent news that Colliers closed its offices in Tacoma, and GVA Kidder Mathews intends to drop its affiliation with GVA (national brand/presence) in the coming months.

One can’t help but wonder whether or not the days of consistent 6–9% annual home appreciation are gone…at least for the foreseeable future.

Devil’s Head (tip of Key Peninsula) has been acquired for public use

According to an article in the News Tribune, Pierce County has (with the help of some private parties) acquired a “94–acre swath” at the toe of the Key Peninsula.