'Distressed property' statute distresses real estate industry

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The new law defines a “distressed home” as a house that is in danger of foreclosure or at risk of loss for nonpayment of taxes, or is in the midst of a foreclosure proceeding. The statute defines a person who helps the homeowner sell such property as a “distressed home consultant.” That definition is broad enough to include real estate agents.

The statute requires: (1) that distressed-home consulting transactions be in writing in the same language the consultant used to describe the services to the homeowner; (2) written disclosure of the specific services and the consultant’s name and address; (3) a warning in large type that discloses that the seller could lose the property in the transaction; and (4) a five-day period in which the seller can cancel the contract without penalty.

Violation of the statute is a felony. A violation also renders the distressed-property consultant liable to repay at least 82 percent of the property’s value to the victimized homeowner, treble damages up to $100,000, and reasonable attorney fees.

Washington’s real estate industry is trying to correct these problems in two ways. First, lawyers for multiple-listing services and industry associations have drafted new forms of listing agreement that contain a warranty that the seller is not selling a “distressed home” as the new statute defines the term. That warranty will avoid problems for real estate professionals in most cases. If the home is a distressed home, then a new form will give the seller all of the statutorily required disclosures and urge the seller to seek legal advice. Second, the industry will lobby the Legislature to amend the statute to exempt licensed real estate professionals from its terms, since the statute’s drafters never intended to create that liability.