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The Effects of COVID19 and Other Issues on the WA Foreclosure Fairness Act

Holly Chisa

By Holly Chisa, HPC Advocacy, UTA Washington State Lobbyist

As I’ve written about for the last several months, there are significant changes proposed for the Washington Foreclosure Fairness Act.  I want to provide you with an update as we continue with our negotiations on this issue.  The changes include expansion of the mediation program, changes to funding, the use of a portal for document management, and potential new fees and/or taxes to cover the costs.

Expansion of the Mediation Program

With COVID-19 affecting both homeowners and landlords, there is great interest in expanding the program to include up to four units and allowing in properties that are not the primary residence of the owner into the FFA.  Thanks to feedback received from the UTA Board recently, we have guidance on how other states have handled this issue.  We’ll look to use language from California and other states to limit to properties with payments current as of February 1, 2020; properties that include at least one tenant unable to pay due to COVID-19; include only primary loans – not seconds and beyond; and prevent the inclusion of “non-persons” like LLCs.

Changing Fees BACK to NODs from NOTS

For those of you who’ve been dealing with the FFA since its creation, you’ll recall that the initial funding source for the program was a fee on the reported number of NODs by beneficiaries for the previous year.  Each year beneficiaries above a certain number would submit their total count of NODs, and pay a fee associated with that number to the state.  A few years ago, that fee was switched to the NOTS, ostensibly as a way for the Department of Commerce to be able to verify whether the financial institutions were truly paying the full amount of fees owed as NOTS are filed.

Now, we’re BACK to the NOD, after revenue dropped severely in the change to the NOTS.  Coupled with this will be a change in the formula calculated for financial institutions to report the amount owed.  As UTA members are VERY aware, foreclosures are significantly down, including the number of NOTS.  This pushes the revenue total estimate down to about $300,000 expected to be paid in 2021 to the state for 2020 NOTS.  Lawmakers want to see if they can change the formula to require either the 2019 numbers be used to repeat the amount paid by financial institutions for 2020, or to expand to include ALL beneficiaries with no exemptions.  Clearly, retroactively charging a fee to beneficiaries will be questionable, and it’s unclear whether they can actually write this into the law.

Part of this discussion also includes requiring verification in some way that the beneficiaries are providing the actual number of NODs in Washington State.  Right now, the Department of Commerce claims they have few options to verify the number, or to notify a financial institution that they’ve had “X” number of NODs and are no longer covered by the fee exemption.  Commerce would like an additional step of reporting, which could include information on the NODs processed.  This information would come from the beneficiary and would include an address and parcel number.  This information would be exempt from public disclosure laws.  For a time there was a thought that the trustee could submit NODs to Commerce; that idea has now been rejected.  It may be that trustees are asked to assist beneficiaries in providing data to the beneficiaries for submission to Commerce, but that is a private decision between a trustee and a beneficiary and would NOT be required by trustees under the proposed law change.

Portals

Stakeholders are discussing the mandatory use of portals in mediations in the FFA.  This concept was discussed in the early years of the FFA, but at the time the technology was expensive and difficult to access by homeowners.  Now, with scanners available on phones and portals demonstrating success in other courts (most notably bankruptcy), there is an interest in bringing portals to Washington specifically for those entering mediation.  The goal is to reduce some of the more common issues of dispute in mediation, which includes requirements for documentation from the borrower, and what the needs are of the lender PRIOR to the mediation.  While many homeowners do not have scanners, it’s worth noting that any homeowner being referred to mediation MUST be referred to the program via a housing counselor or attorney.  Either of those entities could provide services to scan documents, and then would also have them for their own files.  Each party engaged in mediation would help pay to cover the cost of the portal; estimates have set that cost at roughly $40 per side.  The Legislature has the additional challenge of being statutorily prohibited from designing a program for a specific company or vendor, so the language providing for the portal will have to be written carefully.

Lenders want mandatory use of the portal for all parties, while some advocates would prefer a pilot.  More to come, but agreement on this issue could help with the ongoing disputes and tracking of paperwork among parties.  UTA Board members raised a critical point in ensuring that a trustee has a separate set of credentials from the beneficiary, to prevent confusion or liability risk for the trustee.

Negotiations will continue into January, when the Legislature gavels in January 11.  It will be critical to get as much of this resolved as possible PRIOR to January.  The Legislature expects to meet virtually in 2021, complicating these negotiations significantly.

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