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Changes Coming To Washington Deed Of Trust Act

Holly Chisa

By Holly Chisa, HPC Advocacy, UTA Washington Lobbyist

As of this writing, Washington State lawmakers are working with homeowner advocates, financial institutions, trustees, and state agencies to address multiple issues tied to foreclosure.  With roughly seven weeks to go to the end of session, and hard deadlines for bill passage ahead, there is a good deal of work to do and not much time to do it.

This session there are two bills – HB 2057 and SB 5797 – that are vehicles for resolving several issues around the DOTA.  State agencies, financial institutions, NationStar, and yes, trustees, have put their ideas on the table for fixing long-standing problems, and a recent Washington Supreme Court case.

The primary goal for the agencies is to resolve the funding issues tied to the Foreclosure Fairness Act and mediation.  Currently financial institutions pay a fee on NOTS to support the program, but financial institutions with less than 50 NOTS annually are exempt from the fee.  The Department of Commerce, which administers the program, spends time each year checking to see whether certain financial institutions truly are exempt, and have found a few that claimed the exemption and shouldn’t have.  This is not to imply that banks were intentionally not paying the fee, but that there is confusion as to when that fee applies.  Proposed changes to the law would require that the fee would be collected and remitted on ALL residential 1-4 NOTS filed by trustees.  The counties would collect those fees, and remit them back to the state.  If a financial institution believes they qualify for the exemption, they apply for a refund.  In addition to the logistics required for the collection of this fee by the counties, trustees are very concerned at the costs incurred to remit these fees, how they’d affect the “float” currently practiced by trustees during the foreclosure process.  It is possible this new fee structure could also affect the e-filing systems and other, modern methods of payment.

Trustees have responded by asking for some changes to the underlying laws of the DOTA that would simplify the process for trustees, making it system more cost-effective, and, perhaps, lessening the impact of the higher float.  Trustees have asked that language be added to the legislation to fix the issues around deceased borrowers.  The UTA would like language that would allow for a non-judicial path for deceased borrowers, and the ability to recognize a successor in interest.  These foreclosures could then proceed non-judicially.

Also, trustees have asked that language be included to address the non-monetary interest issue, similar to that used in California.  Because trustees are required to have a physical presence in Washington state, they are often used as an “anchor” when there are diverse parties during court proceedings.  Allowing trustees to petition the court to be dismissed from these proceedings due to a non-monetary interest would significantly lower the liability for trustees, specifically for those cases when they have no liability to begin with.  UTA is finding strong support for this proposal from the financial community and other parties, but is finding resistance from homeowner advocates.  We believe that there is a logical, reasonable argument that trustees should be able to reduce their liability for those cases in which they have no financial ties, and agree to include that language in the bill.  And, certainly, if the language works in other states without negatively impacting non-judicial foreclosures, there is no reason to think it shouldn’t work in Washington.

Trustees are also actively working with the various stakeholders to resolve the underlying issue that brought this bill forward – Jordan vs NationStar.  As I’ve written about previously, the Washington State Supreme Court ruled in 2016 that financial institutions do not have the right to enter a home (and some lawyers have interpreted even step on the property) if the financial institution believes the property to be abandoned.  The Court believes that private property rights take precedent because the DOTA does not directly address this issue pre-foreclosure.  (The ruling does not affect REO properties.)  Financial institutions are negotiating with homeowner advocates and municipalities to establish a program to certify abandoned homes so financial institutions can walk on the property and attempt to protect the asset.  Cities want financial institutions also to have some kind of duty to maintain, both outside, and, if necessary, inside the home.  Advocates are proceeding cautiously on this issue, as they do not want a financial institution to enter a home that MAY be occupied, or that the homeowner may eventually come back to.  It is unclear how this issue will be finally resolved, but the bulk of the negotiations are focusing on this topic.

We have already been negotiating for four+ months on these issues, and I anticipate many more hours of work in the weeks ahead.  I welcome comments and questions from UTA members as the negotiations move forward, especially if you have suggestions about the various issues laid out here.  We had a good Washington Day on the Hill in early February that provided trustees the chance to talk with lawmakers one-on-one about these issues, and I can provide additional comments or set up more meetings for members that would like to engage in these discussions in the coming weeks.  These are contentious issues, and are proving challenging to resolve.

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