As of June 12, 2008, Washington State amended RCW 61.34, which makes it risky for anyone who tries to “save someone from foreclosure.” If anyone who approaches a distressed homeowner in foreclosure, the new law classifies this person as a “distressed home consultant.” A “distressed home consultant” legally is required to act as a “fiduciary agent” on behalf of the seller; in other words, investors must put the seller's interests before their own. The law requires that the investor and/or realtor be a “competent” fiduciary and know what they are talking about (i.e. no new investors or inexperienced realtors). An investor must disclose in writing how much profit they intend to make, what they intend to do with the property, what they currently value the property at and other “material facts.”
In the well-intentioned opinion of those who wrote the law, a homeowner is better off going to auction. Unfortunately, the lawmakers do not understand foreclosure auctions because they errantly believe a homeowner may get more equity at the auction. Homeowners get nothing at a foreclosure auction and the eviction process may be unpleasant. In addition, the “foreclosure” stays on their credit for 10 years and makes renting, getting a good job, purchasing another home and buying a car after foreclosure more difficult. Prior to this new law, we were purchasing discount notes and buying pre-foreclosure properties through short sale discounts from the bank. Zempower.com had thirteen doorknockers from Vancouver, WA to Blaine, WA and mass mailing targeting every pre-foreclosure in King, Pierce, and Snohomish County. We processed forty short sales a month and used to fully disclose any profits, intentions and other "material facts." A discount note is better than a short sale because it allowed us to waive the deficiency judgment, judgment, settlement and charge-off, which the seller would have incurred through a short sale. Even though we acted as a fiduciary and always only did what was in the best interests of the seller (particularly referring clients to 888.995.HOPE for Non-Profit Foreclosure Counseling), we will NOT continue this business model due to liabilities up to $100,000 through the Consumer Protection Act. Essentially, the new law makes it risky for anyone who attempts to "save someone from foreclosure."
In no way, do we try to save someone's home from foreclosure through foreclosure counseling, negotiations for repayment plans, loan modifications, forbearance and/or Deed in Lieu of Foreclosure. Rather, we refer all clients who maybe in distress to receive counseling from the Non-Profit Foreclosure Counseling Group HOPE NOW (888.995.HOPE).
"Deed assumptions " violate the "due on sale" clause in the mortgage note and is fraud if the investor does not pay an excise tax and/or does not offer "consideration" (i.e. paying the back-due payments off). In addition, a LLC or corporate structure will not shield you from personal liability in a "Subject To" contract. Many "distressed sellers" have been victimized by "deed transfer " scams including 1) an investor taking over the deed, refinancing the house to pocket money and then letting it foreclose or 2) an investor taking over a deed, renting out a house for money and then letting it foreclosure.
Although "deed assumption " contracts are not illegal, it is very risky under the new liabilities of RCW 61.34. In February 2008, a new bill WA Legislature HB 2791 stipulates that investors must pay at least 82% of the fair market value to a homeowner (as determined by a licensed appraiser) in a "deed transfer." It also allows a 5-day rescission period (making it illegal to deed a property before the waiting period), restricts "leaseback" (i.e. an investors buys a pre-foreclosure and leases it back to the seller) and requires "consideration." Violation is now a Class B felony and CPA (consumer protection act) liability up to a $100,000. We advise you talk to your attorney about the dangers of "leasebacks" and Equitable Mortgage and Usury laws.
With 11 years experience, we help our clients with due diligence, which may include researching preliminary title reports, IRS and state tax liens, DSHS liens, divorce settlements, encumbrances, bankruptcy filings, easements, back-due utility bills, assessments and entitlements. A licensed and bonded contractor also checks issues regarding buried oil tanks, septic versus public sewer, public water versus well, and structural issues including the roof, siding and foundation. Most importantly, we assist in its accurate comparable sales analysis.
Zempower works as a mentorship program and we do not work with everyone. If you are selected, we will empower you with education in the following areas:
• How to accurately comp properties
• How to set-up construction jobs
• How to borrow hard money
• How to procure self-directed IRAs and/or set-up your own fund
• How to do basic inspections on properties
• How to track foreclosure properties
• How to protect your assets
• How to do your own title search
Through Pinnacle Finance, you get pre-approved for a conventional loan through three local banks in Bellevue with income proof, asset documents and credit check. After getting pre-approved, you borrow a 30-day non-recourse “hard money” loan at the auction and put only 10% down payment. Pinnacle West shows up with the cashier's checks on the day of the auction and if you win the bid you sign the loan paperwork after the auction. The loan is converted into a normal conventional loan within 15 to 25 business days.
Many homes get postponed due to pre-foreclosure short sale activity or bankruptcy filings. We track properties at the auctions in Tacoma, Bellevue, Seattle and Everett for 3 months prior to the auction on Foreclosurepoint.com. Through our huge connections with pre-foreclosure investors, realtors and inspectors, we usually have 5 to 8 houses a week with full interior and exterior inspections, interior pictures and/or detailed market comp analysis. For properties that we cannot get into, our inspection representatives drive by the property and do an exterior inspection (if possible) and take pictures. We recommend that you also drive-by the properties.
Our in-house title officer starts the title search process. A standard title insurance policy is ready if or when the home is purchased (cost is $600). Around 7 pm on Thursday, we discuss an Exit Strategy, go over comparable sales and inspection reports, title and we determine a maximum allowable offer (MAO) (recommended 75% of conservative comps minus repair costs). You do not pay excise taxes or other closing costs at the Auction.
At 7:30 am, we go over the deals again and we allocate where the money is going and logistics. Bidding starts at 10 am. If you can make the auction, write the cashiers checks for the down payment to yourself (in increments of $3,000, $5,000, $10,000 and/or $20,000). If you win the bid, you will sign it over to the Trustee. Before bidding, we must show proof funds and we must also sign the checks over to the Trustee before they announce “Sold.” If you cannot come to the auction, Pinnacle West will front the 10% down payment and you must pay the down payment later in the office per the contract agreement. After the auction, you come to the office to sign loan papers, pay the 3% commission and pay for the title insurance policy.
After buying the property, clean out the place, change the locks and flip, refinance, rent or lease option the property.
