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Washington Legislature Makes Changes to the DOTA, Addresses the Homestead Exemption

Holly Chisa

By Holly Chisa, HPC Advocacy, UTA Washington State Lobbyist 

The 2021 Washington legislative session saw some changes to the Deed of Trust Act (DOTA) in both funding and policy.  The Legislature also took action to address the Homestead Exemption, and a new wage lien bill has passed affecting third position liens.  Here’s an update to the final budget agreement and policy pieces passed by the Legislature when they adjourned on April 25th.

Foreclosure Fairness Act – Funding and Policy Changes

Governor Inslee has repeatedly extended the foreclosure moratorium in Washington, most recently to June 30, 2021.  The Governor is not expected to issue an additional extension, however.  E2SSB 5160 specifically limited the Governor’s authority to continue to extend the moratorium.  From E2SSB 5160 – NEW SECTION. Sec. 4. A new section is added to chapter 59.18 RCW to read as follows: (1) The eviction moratorium instituted by the governor of the state of Washington’s proclamation 20-19.6 shall end on June 30, 2021.

Homeowner advocates and lawmakers are concerned that the end of the moratorium will lead to a sharp spike in foreclosures.  The Foreclosure Fairness Act, or FFA, and its programs have not been well-funded historically and there is genuine concern that a July 1 restart of foreclosures will break the system.  The Legislature allocated the first real influx of money into the FFA since 2011 – a total of $173M for the Housing Assistance Fund (HAF) and $607K in General Fund State (GFS.)  This funding will provide resources to hire mediators and dramatically expand the program beginning July 1, the start of the 2021-2023 fiscal year.

ESHB 1108 expands the Foreclosure Fairness Act (FFA) to now include non-owner occupied homes, as well as homes with up to four dwelling units.  This is a shift for the FFA to commercial properties and properties where there is no requirement for the owner to live in the home.  The bill is in response to a concern that owners of rental properties have not been allowed to collect rent owed by tenants due to the eviction moratorium.  Once the moratoriums are lifted, there is a concern that both private homes and rental properties will be foreclosed on.  Including rental properties in the FFA is an attempt to offer these smaller landlords some assistance to work with financial institutions.

The FFA is already an overwhelmed system, and the addition of non-owner-occupied homes and up to four units will push the mediation harder.  It’s unclear yet how many properties will now be referred to mediation by the Washington Department of Commerce under the new expansion.  The Legislature and Commerce are anticipating a significant number, but others believe that a generally healthy economy and a significant number of workers able to keep their jobs and work from home might hold off a high bump in foreclosures.  Washington’s hot housing market may enable some to sell their homes and avoid foreclosure.  What’s unclear is whether the eviction moratorium severely damaged the rental market and left those owners with few options but to enter mediation.

Homestead Exemption revisions – TAKES EFFECT IMMEDIATELY (MAY 12, 2021)

The Legislature took action to increase the Homestead Exemption from $125,000 under state law to a new formula.  The new allowance is $125,000 OR the county median sale price of a single-family home, whichever is greater.  Most homes in Washington will fall above the $125,000 mark, with homes in the greater Pierce and Snohomish County areas above $500,000.  King County (with Seattle at its heart) has a current median value of $800,000.  The new law also changes the definition of forced sale to include any sale of the homestead property in a bankruptcy proceeding to reflect the recent court case of In re Good.

New, Higher Document Filing Fees for Counties – Effective July 25, 2021

E2SHB 1277 increases the filing fees for most documents filed with counties by $100 per document.  The fee is intended to be used for a variety of social service programs including homelessness prevention, the Foreclosure Fairness Act and counseling services, emergency housing, and vouchers.  This is a permanent increase.

ESSB 5355 – Wage Liens passes

After years of effort, employees can now file a wage claim against the real and personal property of a business owner for unpaid wages.  Additionally, liens can be filed for unpaid attorneys’ fees, benefits, damages, or other amounts owed.  A wage lien does not apply to any claim that is a lien covered by the construction lien statues.  An action to foreclose on the wage lien must be filed within eight months of the date the wage lien was recorded.  It can be done either judicially or through Washington Labor and Industries if the claim has been handled administratively through the Agency.  The wage lien is subordinate to any prior perfected security interest, lien, mortgage deed of trust, or other encumbrance.

This bill was strongly opposed by the business community, which was concerned that this lien can be placed on personal property as well as property owned by a business.  While language was added to the bill to attempt to clarify that personal property should NOT be affected by the law, it only created more confusion, and most business associations believe a private business owner could have their own property impacted.  This bill also complicates UTA efforts to address the system of disbursement of surplus funds.  UTA finalized the bill draft at the end of session; that bill will have to be worked over the interim to address the addition of wage liens into statute.

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