@Jim L. -- thanks for letting me know about 61.34. I read every word, plus the 2014 WA supreme court decision related to it. Then, to help me wrap my head around it, I went through item by item and tried to translate it to plain language. Here it is. I'd be interested in any comments about anything I may have misundersood:
RCW 61.34 in plain language, by a non-expert non-lawyer
First, regarding the risk of felony:
Although 61.34 places more requirements on the investor than you can shake a stick at, only a couple of them are punishable by a felony conviction. They are:
- Buying the home with a promise to take over the mortgage payments, but then failing to make those payments yet gaining value from the home, and:
- Seller financing secured by a lien that is lower priority than another lien placed on the home by the buyer, and the buyer defaults on that higher priority lien while gaining value from it (probably by taking the money and disappearing). The lender of that higher priority lien can then foreclose and take the home.
Further, even doing this just once or twice doesn't get you a felony conviction. You have to do it 3 times during a 3 year period.
I think these actions are obviously fraudulent and easily avoided by an honest, ethical investor.
Next 61.34 makes an important distinction between a "distressed home consultant" and a "distressed home purchaser", and between a "distressed home consulting transaction" and a "distressed home conveyance".
The overwhelming majority of the onerous restrictions in 61.34 appear to apply only to the "distressed home purchaser" and the "distressed home conveyance". The restrictions that are also applicable to the "distressed home consultant" and the "distressed home consulting transaction" are relatively straightforward, and are mostly about full disclosure and a legal fiduciary duty to act in the homeowner's best interest.
According to the definitions in 61.34.020, you are only a "distressed home purchaser" if your deal with the homeowner meets the definition of a "distressed home conveyance". If your deal does not meet that definition, then you are merely a "distressed home consultant", even if you are buying the home.
So the definition in 61.34.020 of "distressed home conveyance" seems to me to be the most important and most pivotal part of 61.34.
So what's that definition? In plain language, 61.34.020 defines a "distressed home conveyance" as a deal where ALL of the following occur:
- A homeowner in danger of foreclosure transfers an interest in the home to the investor, AND:
- The investor allows the homeowner to occupy the home, AND:
- The investor does ANY of the following:
- (A) Transfers ownership of the home back to the homeowner, or promises to do do, OR:
- (B) Provides the homeowner with an option to repurchase the home back from the investor at a later date, OR:
- (C) Promises the homeowner any interest in, or any portion of, the proceeds from reselling the home.
So this INCLUDES deals where the investor and homeowner share the proceeds from reselling the home, if the homeowner is allowed to continue to occupy the home after selling it to the investor.
But it does NOT include:
- Plain sales where the investor buys the home outright, with no plan to share the proceeds of reselling the home.
- Deals where the homeowner is NOT allowed to occupy the home after selling it to the investor.
So if you want to avoid the restrictions on deals defined as “distressed home conveyances”, you can buy the home outright with no plan to share proceeds from reselling it, and/or disallow the homeowner from occupying the home after you buy it. Just remember the deal is still a “Distressed home consulting transaction”; see 61.34.50 & 61.34.60 for the requirements for those.
Of particular note is that the requirement that the homeowner be paid at least 82% of what the fair market appraised value was at the time they vacated (in cases where there is no plan to transfer title back to them) appears to apply only to “distressed home conveyances”, and not to "distressed home consulting transactions".
Did I get that right? Have I missed something important?
There are other things I don't understand about 61.34:
61.34.020 defines "homeowner" as someone who not only owns the home but also has lived in it during the last 180 days. That would seem to exempt from 61.34 deals where the owner has not lived there in the last 180 days.
But the definition there of "distressed homeowner" does not reference that definition of "homeowner" (instead it just says "owner"). "Homeowner" other than "distressed homeowner" is mentioned only a few seemingly random times in 61.34, and not in places that seem to have any relevance to occupancy of the home in the last 180 days.
So I'm unclear on exactly how this 180 days bit really figures into 61.34.
Also, I'm confused about 61.34.080 - 61.34.100. They are about reconveyance, which I think means transferring the title of the home back to the homeowner (after they have, for example, paid off a loan provided by the investor), after the investor has the title for some time. But 61.34.100 requires the investor to inform the homeowner that "You may cancel this contract for the sale of your house". That doesn't sound like transferring ownership back to the homeowner. What are these 3 sections about?
Oh -- I have no sympathy for the investor in the 2014 case that went to the WA Supreme Court. They were obviously trying to blatantly, egregiously defraud the homeowner, and they deserved to lose the case. That said, it was probably best for the plaintiff that the defendant tried to defraud him. Because otherwise probably no one would have been willing to help, and he would have gone through foreclosure.
