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Washington Legislature Makes Further Adjustments to Foreclosure Laws

Holly Chisa

By Holly Chisa, HPC Advocacy, UTA Washington Lobbyist

The Washington Legislature wrapped up its 2023 legislative session with one bill with many changes to the foreclosure process.  For the first time since 2020, the session was fully in person.  While the option for remote testimony is here to stay, lawmakers returned to the building, and committees and floor votes were in Olympia.  During the 2022 elections, Democrats increased their voting blocks to 58-40 in the House, and 29-20 in the Senate.  These broad majorities require negotiating with Democrats and moderate Republicans to find common ground as much as possible in lieu of straight opposition to bills.

This session we anticipated additional legislation affecting foreclosure laws.  Negotiations with advocacy groups began in the Fall, 2022.  There was concern that the ending of restrictions on residential foreclosures would immediately lead to an increase in borrowers losing their homes.  Lawmakers were especially interested in passing preemptive laws to head off “a repeat of 2008” even as actual numbers of foreclosures post-COVID 19 are well below expected levels in Washington due to a hot housing market and reformed lending practices.  Fortunately, the United Trustees Association and its members have been actively engaged for years in negotiations with stakeholders and we were able to review proposed legislation and provide thoughtful comment to improve the language.

The Legislature passed HB 1349, which focused on several policy areas.

Beneficiary Calculations for Mediation

First, the legislation rolled forward the calculations used to determine whether a beneficiary is required to participate in mediation, and whether it owes fees to pay for the program.  HB 1349 extends the requirement to utilize 2019 reported numbers again for 2023 obligations.  The bill did create some confusion for beneficiaries as it retroactively required the use of 2019 numbers AFTER financial institutions were required to report into the WA Department of Commerce for 2023.  To its credit, the Department tried to notify as many financial institutions as possible about the likelihood of the Legislature taking this action so there wouldn’t be surprises among the banking community.  The Washington House staff bill report attempts to provide some clarifications as the new fees are confusing:

“Beginning January 1, 2022, the remittance requirement is based on the number of NODs, rather than NOTS, that a beneficiary issued or caused to be issued during the previous quarter. Each quarter a beneficiary is required to: report to the Department of Commerce the total number of residential real properties for which the beneficiary issued a NOD during the previous quarter, together with the street address, city, and zip code; and remit $250 for each residential property for which a NOD had been issued to the Department of Commerce to be deposited into the Foreclosure Fairness Account. The $325 NOTS-based remittance requirement is effective until June 30, 2023, and overlaps for a period with the new $250 NOD-based remittance requirements that went into effect January 1, 2022. After January 1, 2022, the NOTS-based remittance of $325 per every recorded NOTS is required only with respect to the NOTS for which remittance and reporting for that same residential real property was not made pursuant to the new $250 NOD-based remittance requirement. A beneficiary is exempt from the remittance requirement if it certifies that it has issued or caused to be issued fewer than 250 NODs during the preceding year.”

The beneficiary exemptions from the remittance requirements remain the same – the beneficiary must certify they had fewer than 50 NOTS recorded on its behalf in 2019.

Effective May 1, 2023 – date of the Governor’s signature

Successors In Interest

The new law affects successors in interest.  This section was heavily negotiated among the stakeholders.  There are several important changes trustees should be aware of.

The law removes the requirement that a successor in interest reside in the home to participate in mediation.  In previous passed legislation, the Legislature chose to remove the occupancy requirement for medication generally, allowing owners of up to four dwelling units to request mediation even if they didn’t live in the property.  It was difficult to argue in 2023 that the occupancy requirement should remain in place for successors in interest.

Effective July 22, 2023 – 90 days after Legislature adjournment

The law also provides some guidance on what documents can/should be considered to claim ownership interest in a property.  These include (but are not limited to):

  • – Excerpts of a trust document noting the claimant as beneficiary of a trust with title to the real property
  • – a will
  • – a probate order or finding of heirship
  • – a recorded lack of probate affidavit listing the claimant as an heir of the borrower
  • – a deed giving any ownership interest to the claimant
  • – and “other proof” documenting the claimant as an heir

These changes should not significantly affect current practices by trustees as most of the documents listed above have traditionally been accepted as evidence of SSI previously.

Effective July 22, 2023 – 90 days after Legislature adjournment

Rescission of the Trustee Sale

There is a shift in the timeline for the delivery of a trustee deed and rescission of the trustee sale that is important to note.  Under current law, the trustee executes the deed to the purchaser upon payment of the bid at the trustee auction.  Under the new law, the trustee is required to execute the deed to the buyer – HOWEVER, the trustee, beneficiary or an authorized agent for the beneficiary can declare the sale and trustee deed void for certain reasons up to the eleventh day following the sale.  Originally, advocates wanted the trustee to hold the deed for eleven days; this language allows for a window of time to unwind the sale instead.

Effective July 22, 2023 – 90 days after Legislature adjournment

Housing Assistance Fund Applications

The bill provides a temporary window of time for the Housing Assistance Fund (HAF) application/award process. Under the new law, a trustee must continue a foreclosure sale for 30 days once they receive notice that HAF has been applied for on behalf of a borrower, successor in interest, or an individual that’s been awarded title to a property.  The notification can come from an attorney or from the Department of Commerce or the borrower.  If the borrower receives HAF funds, the continuance is extended an ADDITIONAL 30 days.  Also important – the 30/30 day continuance cannot be included in the 120-day timeline established for the trustee sale.  If the HAF award will help cure the deficiency, the foreclosure sale cannot proceed while the beneficiary and borrower work through the application process.  A trustee sale can move forward if the HAF application is denied, or no funds are expected to be awarded and there are no further appeals available.  The trustee is not required to delay a sale if the borrower has already received a continuance previously unless the new application will result in a “substantial change in circumstances.”  They cannot apply repeatedly to HAF simply to delay the sale.

The statute provides for a sunset for the HAF provision when the federal dollars are exhausted.

Effective May 1, 2023 – date of the Governor’s signature

Application for Mediation

Finally, the new law makes changes to the timeline for application for mediation.  Under current law, election for mediation is allowed from the date a borrower receives the Notice of Default (NOD) up to 20 days after the Notice of Trustee Sale (NOTS) is recorded.  Advocates argued that borrowers were not receiving NODs in a timely manner, shortening their window of opportunity to elect mediation.  The law now states that a borrower can elect mediation 90 calendar days before the date of sale listed in the NOTS.  If an amended NOTS is recorded providing a 45-day notice of the sale, mediation must be requested no later than 25 calendar days before the date of sale listed in the amended NOTS.

Effective July 22, 2023 – 90 days after Legislature adjournment

As is becoming common practice in our Washington Legislature, we have one bill with several sections that affect the foreclosure process.  It is reassuring to note most lawmakers recognize our foreclosure and mediation processes are some of the best in the country.  Lawmakers are not eager to make significant changes, and we continue to support the position to allow the housing market to stabilize post-COVID before making any significant modifications to a generally successful program.

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