Taken from NWMLS – Discover:
What properties are considered to be “distressed homes”?
A distressed home is owned by a person who falls into any of the following categories:
- the homeowner is at risk of losing the home due to nonpayment of taxes;
- the homeowner is at least 30 days late on a mortgage payment;
- the homeowner is in default of any mortgage term such that the lender could accelerate the balance owing; or
- the homeowner believes they are likely to default on the mortgage within 4 months and tells this to, among others, a real estate agent.
What is the purpose of the law:
The Distressed Property Law was passed during the 2008 Legislative session and signed into law by the Governor on March 30 for the purpose of protecting vulnerable property owners from scam artists who seek to steal the property owner’s equity. For example, assume a property owner has $100,000 in equity in their home but loses their job and cannot make their mortgage payments. The property owner does not want to sell because they will be unable to buy another home, or maybe even rent a desirable home, because of the poor credit they have acquired since losing their job. After the notice of foreclosure is filed in the public record, a buyer/scam artist approaches the property owner and offers to take over the property owner’s payments in exchange for a quit claim deed to the property. The buyer/scam artist offers to let the property owner stay in the property on a rental basis until the property owner can buy back the property from the scam artist. In reality, the scam artist knows that property owner will not be able to make the rent payments and will never be able to afford to buy the house back. Eventually, the scam artist evicts the property owner, who is now just a tenant, and sells the house, pocketing property owner’s $100,000 equity. The law was intended to stop that type of transaction.
When does the law go into effect?
The law takes effect June 12, 2008.
Why is the law causing changes in the real estate industry?
An unintended consequence of the law has the potential for dramatically increasing the duties owed by a real estate agent to a distressed homeowner. The law defines the term “distressed home consultant” as anyone who helps or offers to help a distressed homeowner in a variety of ways. For example, if agent offers to save the distressed home from foreclosure by selling the home prior to foreclosure, it is possible that the law will be interpreted to mean that agent is a distressed home consultant. If seller is a distressed homeowner and a real estate agent contacts the short sale lender to obtain a reduced payoff or to delay a foreclosure sale, the real estate agent may be a distressed home consultant. If agent writes an offer on a distressed home and the transaction will close within 20 days of a foreclosure sale, buyer’s agent may be a distressed home consultant, and the buyer may be a distressed home consultant.
What is required of a distressed home consultant?
Before a distressed home consultant may assist a distressed homeowner, the two must have a written agreement. The current listing agreement does not satisfy the requirements for a distressed home consultant agreement. The distressed home consultant agreement must be in larger type than the existing listing agreements and must contain specific language not contained in existing listing agreements. In addition, a distressed home consultant owes fiduciary duties to the distressed homeowner which are more extensive than the statutory duties owed to a seller under the Agency Law.