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Proposed Bill Would Allow Liens To Not Be Extinguished At Time of Trustees Sale

Holly Chisa

By Holly Chisa, HPC Advocacy, UTA Washington State Lobbyist

It’s week seven of the Washington Legislative 2019 session, and it’s progressing about as we expected.  With large majorities in the Washington House and Senate, and a Governor announcing his presidential candidacy, it’s no surprise over 2000 bills have been introduced in just a few weeks addressing everything from climate change to data privacy to bankruptcy.  Here’s a snapshot of the work the United Trustees Association has been doing in Washington over the past several months.

Once again, the UTA made its presence known with a Day on the Hill visit on February 5.  Michelle Mierzwa visited with seven lawmakers in the House and Senate.  She discussed various policy points, including the role trustees play in the foreclosure process.  There are no specific bills this session that directly affect foreclosure.  This was an opportunity for lawmakers to become better educated on the role of trustees in the process, and to check in with lawmakers on their interest in the issue.  Our sincere thanks to Michelle for traveling to Washington State once again to talk with lawmakers on issues important to the UTA.

One bill that the UTA is opposing is HB 1514, related to wage liens.  This is not a new issue for the UTA or other interested parties.  This bill has been introduced over the years in various forms, all opposed by financial institutions and the UTA.  The bill would change the lien status for unpaid wages for workers.  Under current law, a worker can file a wage complaint with our state Labor and Industries for unpaid wages.  They also can bring a civil case against an employer in court, including additional penalties if the withholding of wages was/is intentional.

Under the proposed law, a wage lien would be created.  The lien would take the priority position, above other debt owed to cities and other government agencies, and the financial institution.  It would not apply to property that would be subject to the construction lien statutes, or of property of the state.  The wage lien must be foreclosed on within one year of the recording.  The lien can be foreclosed on judicially, or by the Washington Labor and Industries nonjudicially.  The claimant can also foreclose on the lien if the Washington Labor and Industries (L&I) has issued a final and binding citation and a notice of assessment, and the individual has notified L&I that he or she will be moving forward with the foreclosure without the help of L&I.  The total amount of each wage lien cannot exceed 4% of the financial institutions’ security interest in the property.

There are two primary challenges with the proposed law.  First, the lien is in the superior position.  Selling a home at foreclosure does not guarantee there will be enough money at the sale to cover all the debts owed, including whatever liens are in place by government agencies, even at 4% of the financial institutions’ security interest.  The bill does not limit the number of wage liens that can be filed, and in sum they could well exceed the total money generated at the trustees sale.  Additionally, the way the bill is drafted, there are only three ways to extinguish the lien:

Section 7(a) If an action for the underlying wage claim is not brought within one year of the date the wage lien was recorded;

(b) If the action for the underlying wage claim is dismissed with prejudice and no appeal is filed within the applicable appeals period. If an appeal is filed, the wage lien continues in force until final judgment is rendered; or

(c) Upon payment and acceptance of payment for the employee’s wage claim.

Under these conditions, if the lien isn’t paid from the proceeds of the sale of the home, and isn’t dismissed by the one year deadline or by a court, the lien remains.  Considering the worker is allowed to repeatedly file the lien year after year as it expires, the potential for these liens to hang on a property are significant, especially if each individual worker owed wages files.

UTA is partnering with other interested parties, including the title companies and financial institutions, to oppose the bill.  The issue clearly isn’t whether a worker should be paid wages.  The issue is the significant potential for clouded title, and for these liens – if there are enough of them – to not be extinguished at the time of the trustees sale.  UTA testified to that point in the bill’s hearing, and continues to talk with lawmakers to oppose the proposed law.

UTA also continues to monitor the potential expansion of the real estate excise tax (commonly known as REET) to foreclosure sales.  This proposal has been pushed in years’ passed.  Lawmakers are looking for an additional $4 billion for the next biennium, and this would fall into that category.

My thanks, as always, for UTA members who actively provide me with feedback as I work through issues at the Legislature.  Even without legislation directly affecting foreclosure, there are always bills being worked by the UTA in Washington State.

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