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HomeDistressed Property Conveyance Act

Distressed Property Conveyance Act


 Are Owner-Occupied Preforeclosures Legal for Washington Real Estate Investors? In a word: No.


RCW 61.34 effectively stops investors from working directly with owner-occupied and/or primary residences who are in foreclosure or may go into foreclosure

Preforeclosure activity can include marketing, lease-backs, claiming to be able to "save" the homeowner's credit and "save" homeowners from foreclosure and any other activity related to the preforeclosure. Those purchasing from Wholesalers step into the shoes of the Wholesaler and resultantly can be subject to the law by buying a contract even though they did none of the initial marketing and contract.

The "penalty for engaging in a "pattern" of equity skimming that is set forth in the Distressed Property Conveyances Act is found in RCW 9.94A, as a Class B Felony, Level II offense, which can include confinement in a state correctional institution, fine or both. Attorneys tell us the law cannot be avoided by disclosures. A number of private attorneys are making their living suing investors based on this law - and extracting significant "settlement" funds from sometimes unwitting real estate investors.

A full description can be found in the RCW itself and the subsequent Washington State Supreme Court Opinion on the Washington State Legislature website, linked below.

Washington Distressed Property Conveyance Act

The Legislative Findings of RCW 61.34:   "The legislature finds that persons are engaging in patterns of conduct which defraud innocent homeowners of their equity interest or other value in residential dwellings under the guise of a purchase of the owner's residence but which is in fact a device to convert the owner's equity interest or other value in the residence to an equity skimmer, who fails to make payments, diverts the equity or other value to the skimmer's benefit, and leaves the innocent homeowner with a resulting financial loss or debt."   

This law is wrought with issues in our opinion, many of which focus on the great number of preforeclosures that are now generally "off limits" to real estate investors who previously made direct contact with homeowners. We believe this law is more of a disservice to those in foreclosure than not. We also firmly believe that the majority of real estate investors worked honestly and toward everyone's best interest - including and especially the homeowner in distress. 

That said, whether we agree or not we all have an obligation to comply.  As an Association, REIA will not offer support for those working in the preforeclosure arena including through education related to preforeclosures, short sales, subject-to's (as related to preforeclosures) or loss mitigation. Those who speak at REIA Events are informed of the Washington law in advance of their visit but, while speakers attempt to comply with law in their presentation, they often do not rewrite their materials with Washington law in mind.  

The Washington State Supreme Court issued a subsequent Opinion in 2014 that stems from litigation related to the Distressed Property Conveyance Act. The opinion acknowledges the statutory provision of RCW 61.34 that includes properties that are either (1) "in danger of foreclosure or at risk of loss due to nonpayment of taxes" or (2) "in danger of foreclosure the process of being foreclosed to a default under the terms of a mortgage." The Washington State Supreme Court Opinion serves as a good reminder to remain diligent in avoiding preforeclosures. As is common when investors work with home owners to buy distressed residential properties, the investor loses.

Please take the time to read both the law and the Opinion. If you are told that the law is not being enforced in Washington, that the seller can sign a disclosure that eliminates your risk or something comparable, please consider your reading of the law and consult with a Washington attorney for more accurate information. There are many ways to invest profitably in Washington without the risk of committing a Felony.

Read RCW 61.34 byclicking here.

Read the related Washington State Supreme Court Opinion by clicking here.  


The preceding statements are not intended as legal advise.

Please consult your Washington State licensed real estate attorney for details.

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