Washington Becomes a Lead State in Cracking Down on Foreclsore Scams

March 7, 2008
I almost missed it! This is great day because the legislature passed last night the equity skimming bill recommended by the Washington State Attorney General in January of this year. In two months the legislature passed a comprehensive bill specifically addressing foreclosure rescue scams. Representative McIntire called my this morning on his way back to Olympia from Seattle. He said that the yesterday’s session did not end until 1:30 this morning. The time was apparently very well spent.

This bill, HB 2791 , strikes right at the heart of the frauds that have been perpetrated on homeowners, making these scams felonies, as they should be. People who p[resent themselves to homeowners as consultants for foreclosures and default ed home loans are now subject to disclosure requirements and well articulated standards of behavior. The “savior” is prevented from absconding with more than 18% of the equity.

I will provide a more detailed discussion of the bill at a later date. When not impeded by special interests the Washington legislature is capable of very speedy action. With this bill (assuming the governor signs it, which is a safe assumption) Washington become one of the lead states in criminalizing this reprehensible behavior and regulating the permissible scope of legitimate activity.

Tips for Buying Foreclosed Real Estate

January 28, 2008

A buyer can often get a good-sounding deal after a bank has foreclosed on a parcel of real estate. Like all good-sounding deals, however, this one comes with risks that people ought to understand before making an offer. Typically this property is sold by a subsidiary of a bank, sometimes by a federal agency such as H.U.D. Remember that your seller (the bank or federal agency) knows nothing about the property and will take every imaginable step to immunize itself from responsibility to the buyer. (With banks it is usually a wholly owned subsidiary that has title to the property.) You will be pretty much on your own after closing and cannot look to the seller if the roof collapses the next day or some other disaster befalls you with your acquisition. If you receive a seller’s disclosure statement about foreclosed property, it may be a bit misleading since the seller’s period of ownership is likely to have been just a few months and chances are that the property has been unoccupied during that time.

Another point to bear in mind is that there are many different reasons a person suffers a foreclosure. One reason is that the property is not worth the debt on it. Another reason is that it would cost too much to repair to justify paying on the debt. Sometimes the property cannot be sold for enough to pay off the debt. Some bank owned property has been given back to the bank by a deed-in-lieu- of-foreclosure.

Banks look to recoup their loan balance and carrying expenses when they sell property they received through foreclosure. When large down payments were required of buyers, a purchaser of foreclosed property could count on there being equity in the property at the time of the foreclosure so that the price asked by the bank was likely to be beneath market value. With subprime loans accounting for a good number of the foreclosures, a buyer certainly cannot rely on the expectation that the debt on the property was less than market value. With 100% financing frequently provided to customers, banks in setting the asking price of foreclosed property at the amount of their debt are often putting the price at or above market value.

All of this requires that the buyer have a very clear idea of market value and that absolutely everything on the property be thoroughly inspected. You may also need bids for repair work before you make an offer.

It is often useful to get all the information you can from the bank about the history of the property.

You need to pay attention to the title to the property. If work has been done on the property you need to be sure that there are no disputes with contractors that could result in the filing of a lien after you buy the property. You should try to get a warranty deed at closing and discuss with the title company the array of title insurance options that are available to you through endorsements and extended coverage.

You can also talk with neighbors and through the recorder’s office get the names of prior owners. With luck you will be able to track down a prior owner to discuss the property.