Washington State Law
RCW 61.34
In Plain Language

This is my non-expert, not-a-lawyer effort to translate Washington State law RCW 61.34 to plain language, for the purpose of helping me to fully understand it as a prospective preforeclosure flipper (a law-abiding, honest, ethical, and responsible one). Also at the end is my summary of the 2014 Washington State Supreme Court case about RCW 61.34.

If you have any comments, please send them to me at greglove@oz.net.

THIS IS NOT LEGAL ADVICE.
IF YOU WANT ADVICE ABOUT RCW 61.34
YOU SHOULD CONSULT A LAWYER.

But first, my own summary:

RCW 61.34 generally identifies 3 categories of actions and actors. The first one it defines as a crime. The other two are legal, and the first of those is a subset of the other:

1. Equity skimming:
   • This category can get an unscrupulous investor (and perhaps a merely ignorant or careless one) convicted as a FELON.
   • A cautious investor can unambiguously avoid this category by only buying homes outright; never entering into a deal where the homeowner will continue to make payments of any kind related to the home, and never entering into a deal that involves seller financing by the homeowner.
   • See 61.34.020(1), 61.34.020(14), 61.34.030, & 61.34.040.
2. Distressed home consultant & distressed home consulting transaction:
   • These are defined very broadly and include virtually any conceivable variation on preforeclosure flipping.
   • The main requirements are laid out in 61.34.050 & 61.34.060. Every preforeclosure flipper should study these thoroughly and follow them to the letter.
     • Importantly, 61.34.060 imposes a fiduciary duty on the preforeclosure flipper toward the homeowner. The preforeclosure flipper should learn what this really means, beyond simply reading 61.34.060.
   • Although consultant and consulting may sound like merely providing advice, this category can include purchasing the home from the homeowner.
   • This category is a subset of the next one, distressed home purchaser & distressed home conveyance. Any scenario which fits that category by definition fits this one too.
   • See 61.34.020(3), 61.34.020(4), 61.34.040, 61.34.045, 61.34.050, 61.34.060, & 61.34.070.
3. Distressed home purchaser & distressed home conveyance:
   • These hinge on the definition of distressed home conveyance at 61.34.020(5) (see below under 61.34.020). If the deal doesn’t meet that definition, then the scenario is just distressed home consultant & distressed home consulting transaction, even if the investor is buying the home.
   • This category:
     • Has onerous requirements that may not be worthwhile to any reasonable investor.
     • Has requirements that are difficult even for industry experts to understand and to know how to abide by. I have not come across a post by anyone who claims to understand them. It may be that no one really understands them. Knowledge of how to fully abide by them may have to wait until when and if a case about them reaches the Washington State Supreme Court where they would decide what it really meant.
     • Is a superset of the previous one, distressed home consultant & distressed home consulting transaction. A scenario that fits this category must also abide by the requirements in that category.
   • See 61.34.020(5), 61.34.020(6), 61.34.030, 61.34.040, 61.34.045, 61.34.070, 61.34.080, 61.34.090, 61.34.100, 61.34.110, & 61.34.120. But also 61.34.050 & 61.34.060 because they apply too.

Here’s the law:

http://apps.leg.wa.gov/rcw/default.aspx?cite=61.34

Here’s my effort at a translation of RCW 61.34 into plain language. Again I am NOT AN INDUSTRY EXPERT, NOT A LAWYER, and this is NOT LEGAL ADVICE:

RCW 61.34.010 – Legislative findings

The legislature finds [in 1988] that there is a lot of fraudulent equity skimming going on and therefore establishes this law to criminalize it.  

RCW 61.34.020 – Definitions

Many of the definitions in 61.34.020 are circular; i.e. two or more definitions refer to each other and therefore possibly logically meaningless. However, the legislative intent is in all cases clear enough, and that’s what counts here.

“Person” is defined as:

• Any natural person, corporation, joint stock association, or unincorporated association.

“Dwelling” is defined as:

• Anything legally recognized as a human dwelling. Even if no title for it exists.

“Mortgage” is defined as:

• A mortgage, mortgage deed, deed of trust, security agreement, or anything else that secures a mortgage loan and constitutes a lien on or security interest in housing.

   
“Act of equity skimming” is defined as:

1. A “person” buying a “dwelling” with a promise to take over the “mortgage” payments, but then failing to make those payments yet gaining value from the home.
2. Seller financing secured by lien that is lower priority than another lien placed on the “dwelling” by the buyer, and the buyer defaults on that higher priority lien while gaining value from it. I.E. takes out a loan secured by the home and absconds with the loan money, where the lender of that loan can foreclose and take the home from the seller.

Note that this definition does not depend on any of the definitions below about the buyer, seller, the home, or the deal.

“Pattern of equity skimming” is defined as:

• Engaging in at least three “acts of equity skimming” within a three-year period.

Note that 61.34.030 below defines this as a FELONY.

“In danger of foreclosure” is defined as:

• The homeowner is in default on a mortgage on the home, OR:
• The homeowner is at least 30 days delinquent on any loan secured by the property, OR:
• The homeowner believes they will default on the mortgage in the next 4 months due to lack of funds AND they have said so to ANY of the following:
  • The mortgagee, OR:
  • A person who does credit services, OR:
  • A mortgage broker, OR:
  • A real estate broker or managing broker, OR:
  • A lawyer, OR:
  • A mortgage counselor or other credit counselor, OR:
  • Any party to a distressed home consulting transaction.

“Distressed home” is defined as:

• A “dwelling” that is in danger of foreclosure or loss due to nonpayment of taxes or default on a mortgage.

In a 2014 decision, the WA supreme court defined “at risk of loss due to nonpayment of taxes” very broadly and plainly, not dependent on any technical terms or conditions. In particular, it can apply even if no certificate of tax delinquency has been served:

• https://www.memberize.net/clubportal/clubdocs/1127/DPCA Opinion - No 882151--20140206.pdf

A local hard money lender cautioned me in a conversation on Monday 11/5/2018 that local lawyers have told him that effectively everyone in Washington State with a mortgage is considered a “distressed homeowner”, and their home is a “distressed home”, according to RCW 61.34. Unless they are absentee; not living in the home.

“Homeowner” is defined as:

• A person who owns and has occupied a “dwelling” as their primary residence within 180 days of the letter of conveyance or mutual acceptance of an agreement to convey an interest in the “dwelling”, whether or not there is any mortgage, deed of trust, or other lien.

The definition for “distressed homeowner” does not reference this definition of “homeowner” (instead it just references “owner”, which is not defined here in RCW 61.34).

So how does this definition of “homeowner” figure into 61.34? 61.34 references “homeowner” other than  “distressed homeowner” only in these three places, which seem random and not really relevant to occupancy of the home in the last 180 days:

• 61.34.10 (the rationale for passing 61.34)
• 61.34.020(11) (the definition of “In danger of foreclosure”)
• 61.34.070(2) (waiver of rights provided by 61.34 is unenforceable)

A local hard money lender told me in a conversation on Monday 11/5/2018 that local lawyers have told him that buying preforeclosures from absentee owners is safe under RCW 61.34 because they are not considered “distressed homeowners”. Which suggests that even though it isn’t shown in the definition of “distressed homeowner” at 61.34.020(7), the definition of “homeowner” is included in the definition of “distressed homeowner”.

QUESTIONS:

Does this definition of “homeowner” apply to the definition of “distressed homeowner”? If the homeowner has not lived in the home in the last 180 days, do they not qualify as a “distressed homeowner” under 61.34?

If this definition of “homeowner” does NOT apply to the definition of “distressed homeowner”, how does this definition of “homeowner” figure into 61.34?

“Distressed homeowner” is defined as:

• An owner of a “distressed home”.

This definition does not reference the definition of “homeowner” above. Instead it just references “owner”, which is not defined here in RCW 61.34.

A local hard money lender told me in a conversation on Monday 11/5/2018 that local lawyers have told him that buying preforeclosures from absentee owners is safe under RCW 61.34 because they are not considered “distressed homeowners”. Which suggests that even though it isn’t shown in the definition of “distressed homeowner” at 61.34.020(7), the definition of “homeowner” is included in the definition of “distressed homeowner”.

“Financial institution” is defined as:

• See the definition in 61.34.020(9). It generally means what you think but also includes some licensees.

“Nonprofit credit counseling service” is defined as:

• A nonprofit organization described under section 501(c)(3) of the internal revenue code, or similar successor provisions, that is licensed or certified by any federal, state, or local agency.

“Distressed home consultant” is defined as:

• Anyone who helps, or claims to help, or systematically contacts, people in danger of foreclosure. Includes every possible variation on preforeclosure flipping. Does NOT include “financial institutions”, “nonprofit credit counseling services”, lawyers, and others; see 61.34.020(3).
   

“Distressed home consulting transaction” is defined as:

• Any agreement between a “distressed homeowner” and a “distressed home consultant” in which the latter represents or offers to do any of the things that define one as a “distressed home consultant”.

“Resale” is defined as:

• A bona fide market sale of the “distressed home” subject to the “distressed home conveyance” by the “distressed home purchaser” to an unaffiliated third party.
   

“Resale price” is defined as:

• The gross sale price of the “distressed home” on “resale”.

This definition is not used anywhere in 61.34.

“Distressed home conveyance” is defined as:

• Any transaction in which ALL of the following occur:
  • A “distressed homeowner” transfers an interest in a “distressed home” to a “distressed home purchaser”, AND:
  • The “distressed home purchaser” allows the “distressed homeowner” to occupy the “distressed home”, AND:
  • The “distressed home purchaser” (or anyone working with or for them) does ANY of the following:
    • Conveys or promises to convey the “distressed home” to the “distressed homeowner”, OR:
    • Provides the “distressed homeowner” with an option to (re)purchase the “distressed home” at a later date, OR:
    • Promises the “distressed homeowner” an interest in, or portion of, the proceeds of any “resale” of the “distressed 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 sharing of 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 laws restricting deals defined as “distressed home conveyances”, you can buy the home outright with no sharing of 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.

      The definitions of  “distressed home purchaser” and  “distressed home conveyance” refer to each other. But the legislative intent of their meanings is clear, and it’s still possible to determine whether the deal is a “distressed home conveyance” and whether the buyer is a “distressed home purchaser”:

      • The first part of the definition of  “distressed home conveyance” 61.34.020(5)(a), clearly depends on the meaning of “distressed home purchaser”. 61.34.020(5)(a) not disputed; every foreclosure flipper meets the description of 61.34.020(5)(a). But to be defined as a “distressed home conveyance”, the deal must also meet the descriptions of both 61.34.020(5)(b) and 61.34.020(5)(c).
      • In the second part of the definition of “distressed home conveyance”, 61.34.020(5)(b), no matter what the meaning of “distressed home purchaser” is, the description of 61.34.020(5)(b) is not met if the person buying the home, whoever or whatever they are, does not allow the “distressed homeowner” to occupy the “distressed home”. So if the person buying the home does not allow the “distressed homeowner” to occupy the “distressed home”, then the deal is not defined as a “distressed home conveyance” -- no matter what the meaning of “distressed home purchaser” is.
      • In the third part of the definition of “distressed home conveyance”, 61.34.020(5)(c), no matter what the meaning of “distressed home purchaser” is, the description of 61.34.020(5)(c) is not met if the person buying the home, whoever or whatever they are, does NOT do ANY of the following: (1) transfer title of the “distressed home” back to the “distressed homeowner”, or promise to do so, or (2) provide the “distressed homeowner” with any option to repurchase the “distressed home”, or (3) promise the “distressed homeowner” any interest in, or any portion of, the proceeds from reselling the “distressed home”. So if the person buying the home simply buys the home outright and resells it on the market, offering no option for the “distressed homeowner” to buy it back, and offering the “distressed homeowner” nothing from the proceeds of reselling the home, then the deal is not defined as a “distressed home conveyance” -- no matter what the meaning of “distressed home purchaser” is.

      QUESTION:

      Does “not allowing the homeowner to occupy the home” mean that the buyer needs the homeowner to vacate the home before buying it? Or is there an amount of time before they have to vacate? If so, how much time?

“Distressed home purchaser” is defined as:

• Any person who acquires an interest in a “distressed home” under a “distressed home conveyance”. Also includes anyone working with or for them. But does NOT include “Financial institutions”.

This definition makes the important distinction that the investor is only a “distressed home purchaser” if the deal fits the definition here of a “distressed home conveyance”. If the deal does not fit that definition, that the investor is merely a “distressed home consultant” (even if buying the home), and the deal is a “distressed home consulting transaction”.

The definitions of  “distressed home purchaser” and  “distressed home conveyance” refer to each other. But the legislative intent of their meanings is clear, and it’s still possible to determine whether the deal is a “distressed home conveyance” and whether the buyer is a “distressed home purchaser”:

• No matter what the meaning of “distressed home conveyance” is, the description of “distressed home purchaser” is not met if the deal is not defined as a “distressed home conveyance”. So if the deal is not a “distressed home conveyance”, then the buyer is not defined as a “distressed home purchaser” -- no matter what the meaning of “distressed home conveyance” is.

RCW 61.34.030 – Criminal Penalty

Willfully engaging in a “pattern of equity skimming” is a FELONY. Each act of equity skimming is a separate offense for the purpose of determining the sentence.  

RCW 61.34.040 – Application of consumer protection act—Remedies are cumulative

The damages awarded to the plaintiff may be doubled or tripled, up to $100,000.

This applies to EVERYTHING in 61.34.

RCW 61.34.045 – Arbitration not required

You cannot require the distressed homeowner to accept arbitration. If it’s in the contract, it’s unenforceable.

RCW 61.34.050 – Distressed home consulting transaction—Requirements—Notice

A “distressed home consulting transaction”:

• Must be in at least 12-point font.
• Must be in the same language as principally used by the “distressed home consultant” to describe their services to the “distressed homeowner”.
  • If that language is other than English, the “distressed home consultant” must cause the agreement to be translated into English and shall deliver copies of both the original and English language versions to the “distressed homeowner” at the time of execution.
  • Any ambiguities or inconsistencies between the English language and the original language versions of the written agreement must be construed in favor of the “distressed homeowner”.
• Must fully disclose the exact nature of the distressed home consulting services to be provided, including any “distressed home conveyance” that may be involved and the total amount and terms of any compensation to be received by the “distressed home consultant” or anyone working in association with them.
• Must be dated and signed by the “distressed homeowner” and the “distressed home consultant”.
• Must contain the complete legal name, address, telephone number, fax number, email address, and internet address if any, of the “distressed home consultant”. And if the “distressed home consultant” is serving as an agent for any other person, the same information for the principal.
• Contain the notice shown in 61.34.050(1)(f), in bold-face font of at least 14-point, and must be initialed by the “distressed homeowner”.
• At the time of execution, the “distressed home consultant” must provide the distressed homeowner with a copy of the written agreement. If the agreement is in more than one language, this applies to both languages.
• The “distressed home consultant” must keep a separate copy of the written agreement on file for at least five years following the completion or other termination of the agreement. If the agreement is in more than one language, this applies to both languages.

RCW 61.34.060 – Distressed home consultant—Fiduciary duties

A “distressed home consultant” has a fiduciary relationship with the “distressed homeowner”, and is subject to all requirements for fiduciaries otherwise applicable under state law. These duties include, but are not limited to:

• To act in the distressed homeowner’s best interest and in utmost good faith toward the distressed homeowner, and not compromise a distressed homeowner’s right or interest in favor of another’s right or interest, including a right or interest of the “distressed home consultant”.
• To disclose to the “distressed homeowner” all material facts of which the “distressed home consultant” has knowledge that might reasonably affect the “distressed homeowner’s” rights, interests, or ability to receive the “distressed homeowner’s” intended benefit from the residential mortgage loan.
• To use reasonable care in performing his or her duties.
• To provide an accounting to the “distressed homeowner” for all money and property received from the “distressed homeowner”.

Importantly, this fiduciary duty locks in the moment you solicit or initiate contact with the homeowner in danger of foreclosure. Even if you don't make any agreement with them, in fact even if they never respond to your solicitation, you still have this fiduciary duty toward them. Something to keep in mind if they go through to foreclosure and you buy their home at the foreclosure auction. Would it have any impact on what you are required to do for them as the new owner of the foreclosed home? What if you were in discussion with them, and they allowed you to inspect the home interior, but then no agreement was made and you buy at auction, being at an advantage compared to other buyers because you've inspected the interior? Probably no one really knows.

Fiduciary duty is serious business. No preforeclosure flipper should take it lightly. Besides reading 61.34.060 (not just this translation but also the actual law), read more about it online. Wikipedia is a good place to start. Also google it, and also google “Washington State” and “Fiduciary Duty”. A person should have a good sense of what fiduciary duty really means before taking it on.

Would fiduciary duty have any impact on how much money an investor can legally make on a deal? Here’s an interesting case where a Washington State appeals court decided that an employee with fiduciary duty to their employer “is not generally bound by a fiduciary duty ... when negotiating his or her own compensation with the client-employer”:

• https://www.winston.com/en/executive-compensation-blog/officer-s-fiduciary-duty-when-negotiating-his-her-own.html

It certainly seems to make sense that a person with fiduciary duty to a client is not bound by that fiduciary duty when negotiating how much money to charge the client for their own services. Because acting in the client’s best interest, and not compromising the client’s interest in favor of the fiduciary’s interest, would mean working for the client for free. Or even paying for the privilege of working for them.

I think a fiduciary, when setting their own fee or negotiating their own salary with their client, would still have the fiduciary duty to be scrupulously honest and open about it. No sneakiness or sleight of hand. No hidden fees. No surprises. The homeowner should be made well aware of how much money, to the best of your knowledge, you’re likely to make on the deal.

QUESTION:

Would fiduciary duty have any impact on how much money an investor can legally make on a deal? Or is it enough to fully disclose that to the homeowner?

RCW 61.34.070 – Waiver of rights

A person may not induce or attempt to induce a “distressed homeowner” to waive his or her rights under 61.34.

Any waiver by a homeowner of the provisions of 61.34 is void and unenforceable.

RCW 61.34.080 – Distressed home reconveyance—Requirements

A “distressed home purchaser” shall enter into a “distressed home” reconveyance in the form of a written contract. The contract must be written in at least twelve-point boldface type in the same language principally used by the “distressed home purchaser” and “distressed homeowner” to negotiate the sale of the “distressed home”, and must be fully completed, signed, and dated by the “distressed homeowner” and “distressed home purchaser” before the execution of any instrument of conveyance of the “distressed home”.

(Reconveyance means transferring title back to the distressed homeowner after they have, for example, paid off a loan. Does not apply if the agreement does not include transferring title back to them, such as if reselling the home on the market.)

Remember “distressed home purchaser” does not apply to:

• Plain sales where the investor buys the home outright, with sharing of the proceeds of reselling the home.
• Deals where the homeowner is NOT allowed to occupy the home after selling it to the investor.

QUESTION:

Reconveyance means transferring title back to the homeowner, after the homeowner has fulfilled all obligations for it such as paying off a loan. Why would they need a new contract to do that? Does this section just mean that the terms of the reconveyance must be included in the contract for the conveyance of title from the investor to the homeowner? Does “enter into a distressed home reconveyance” really mean “enter into a CONTRACT THAT INCLUDES TERMS FOR A distressed home reconveyance”?

RCW 61.34.090 – Distressed home reconveyance—Entire agreement—Terms—Notice

The contract required in 61.34.080 must contain the entire agreement. See details at 61.34.090.

RCW 61.34.100 – Distressed homeowner’s right to cancel

The homeowner can cancel any contract with a “distressed home purchaser” within 5 days with no penalty. Any written notice is adequate to cancel the contract.

Remember “distressed home purchaser” does not apply to:

• Plain sales where the investor buys the home outright, with no sharing of the proceeds of reselling the home.
• Deals where the homeowner is NOT allowed to occupy the home after selling it to the investor.

RCW 61.34.110 – Notice of distressed homeowner’s right to cancel

Detailed requirements of how the contract in 61.34.080 must inform the homeowner of their right to cancel within 5 days with no penalty.

The contract in 61.34.080 is about reconveyance. Here it requires that contract to say “You may cancel this contract for the sale of your house”. That doesn’t sound like transferring ownership back to the distressed homeowner. Need to ask.

Remember “distressed home purchaser” does not apply to:

• Plain sales where the investor buys the home outright, with no sharing of the proceeds of reselling the home.
• Deals where the homeowner is NOT allowed to occupy the home after selling it to the investor.

RCW 61.34.120 – Distressed home purchaser—Prohibited practices

A “distressed home purchaser” shall not:

(Remember that “distressed home purchaser” does not include an investor who buys the distressed home outright with no plan to ever transfer title back to the distressed homeowner AND no sharing of the proceeds from reselling the home with the distressed homeowner.)

• Enter into, or attempt to enter into, a “distressed home conveyance” with a “distressed homeowner” unless the “distressed home purchaser” verifies and can demonstrate that the “distressed homeowner” has a reasonable ability to pay for the subsequent conveyance of an interest back to the “distressed homeowner”.
• Enter into repurchase or lease terms as part of the distressed home conveyance that are unfair or commercially unreasonable, or engage in any other unfair or deceptive acts or practices.
• Represent, directly or indirectly, that (a) the distressed home purchaser is acting as an advisor or consultant, (b) the distressed home purchaser is acting on behalf of or in the interests of the distressed homeowner, or (c) the distressed home purchaser is assisting the distressed homeowner to save the distressed home, buy time, or use other substantially similar language. •
• Misrepresent the “distressed home purchaser’s” status as to licensure or certification.
• Perform any of the following until after the time during which the distressed homeowner may cancel the transaction has expired:
  • Accept from any distressed homeowner an execution of, or induce any distressed homeowner to execute, any instrument of conveyance of any interest in the distressed home.
  • Record with the county auditor any document, including any instrument of conveyance, signed by the distressed homeowner.
  • Transfer or encumber or purport to transfer or encumber any interest in the distressed home.
  • Fail to reconvey title to the distressed home when the terms of the distressed home conveyance contract have been fulfilled.
  • Enter into a distressed home conveyance where any party to the transaction is represented by a power of attorney.
  • Fail to extinguish or assume all liens encumbering the distressed home immediately following the conveyance of the distressed home.
  • Fail to close a distressed home conveyance in person before an independent third party who is authorized to conduct real estate closings within the state.

A “distressed home purchaser” must do one of the following:

(Remember that “distressed home purchaser” does not include an investor who buys the distressed home outright with no plan to ever transfer title back to the distressed homeowner AND no sharing of the proceeds from reselling the home with the distressed homeowner.)

• Ensure that title to the “distressed home” has been reconveyed to the “distressed homeowner”, OR:
• Make payment to the “distressed homeowner” so that the “distressed homeowner” has received consideration in an amount of at least 82% of the fair market value of the property as of the date of the eviction or voluntary relinquishment of possession of the “distressed home” by the “distressed homeowner”.
  • Unless proven otherwise in court, an appraisal by a person licensed or certified by an agency of the federal government or Washington State to appraise real estate constitutes the fair market value of the distressed home.
  • “Consideration” means:
    • Any payment or thing of value provided to the “distressed homeowner”, including unpaid rent owed by the “distressed homeowner” before the date of eviction or voluntary relinquishment of the “distressed home”.
    • Reasonable costs paid to independent third parties necessary to complete the “distressed home conveyance” transaction.
    • The payment of money to satisfy a debt or legal obligation of the “distressed homeowner”.
    • The reasonable cost of repairs for damage to the “distressed home” caused by the “distressed homeowner”.
  • “Consideration” does not include:
    • Amounts imputed as a down payment or fee to the “distressed home purchaser” or someone working with or for them.

In 2014 a case about RCW 61.34 reached the Washington State Supreme Court. Here’s their decision:

https://www.memberize.net/clubportal/clubdocs/1127/DPCA%20Opinion%20-%20No%20882151--20140206.pdf

And here’s my effort at a summary of it:

A homeowner lost his job in 2008. He already owed King County over $10,000 in unpaid property taxes on his house which he had inherited from his grandfather. He had learning disabilities and limited education, and was unable to read or understand legal documents. He sought help getting a loan secured by his equity in the home.

He was introduced to a mortgage broker. He thought he was being offered a $100,000 loan, and agreed to it. But in fact the deal was for him to sell his house for $100,000 and lease it for 18 months with a buy-back option. His house was worth about $230,000 at the time. After paying off liens, and excessive fees by those helping him get the loan, he received only $4,697 from the sale. Fees for those “helping” him totaled $10,000.

When the homeowner realized what the deal really was, he sued for violation of RCW 61.34. He lost the case because the lower court said his house did not meet the definition in 61.34 of a “distressed home”, because King County had not issued a certificate of tax delinquency. The court of appeals agreed. So he took it to the Washington State Supreme Court.

The Supreme Court found that RCW 61.34 does not define “at risk of loss due to nonpayment of taxes”. Both parties agreed that it was “due to nonpayment of taxes”. At issue was the meaning of “at risk of loss”.

The defendants argued that “at risk of loss” should be defined as having received a certificate of tax delinquency from the county as described in RCW 84.64.050 of the lien foreclosure act. The plaintiff argued that “at risk of loss” should have it’s plain, dictionary meaning.

The attorney general agreed with the plaintiff. The attorney general was an “amicus” in the case (a non-litigant with a strong interest in the subject matter), and per standard procedure his opinion was given “great weight” because his office was charged with enforcing RCW 61.34.

The Supreme Court found that:

• Per standard procedure, the Supreme Court assumes that the legislature wrote RCW 61.34 “with full knowledge of existing laws“. RCW 61.34 has a lot of references to other laws, and if the legislators who wrote it had intended for “at risk of loss” to be defined in reference to RCW 84.64.050, they would have written it so.
• RCW 61.34 is a remedial consumer protection statute, and so must be interpreted liberally in favor of the consumer where the text of the law itself is ambiguous; it must be “construed to offer homeowners more rather than less protection”.
• RCW 84.64.050 does not shed any light on the legislative intent of RCW 61.34.

Based on those findings, the WA Supreme Court assigned the text “at risk” it’s plain dictionary meaning of “vulnerable”, noting that this was consistent with the use of that phrase in other Washington State statutes. They vacated the lower courts’ decisions that it depended on receiving certificate of tax delinquency from the county, and sent the case back to them to try again based on this decision.

The WA Supreme Court recognized that the precedent this decision sets has “practical difficulties”, requiring relatively laborious “case-by-case determinations” dependent in part on a person’s resources and ability to get a loan, but noted that it was “faithful to the legislature’s intent” and that “trial courts are well equipped to conduct the requisite case-specific factual inquiries to determine whether a property is sufficiently ‘at risk’ to be characterized as distressed”.

So what can a foreclosure flipper do to avoid getting in trouble over this Washington State Supreme Court decision? Assume that if the homeowner has unpaid back taxes, and is interested in financial help, then the home probably fits the description of a “distressed home” at RCW 61.34.020(2)(a), and proceed in conformance to the requirements in 61.34.

More broadly, don’t deceive and cheat your clients. The defendants in that case thought they had found a loophole, combined with a client who couldn’t understand legal contracts, that allowed them to cheat him out of $130,000. The court set them straight on that, but in a statute as tangled and murky as RCW 61.34, there may be other loopholes. So what? Don’t use them. Instead, sell seminars and books telling other people how to use them (just kidding).

Except where quoting Washington State law, this page is Copyright © Greg Lovern 2018. All rights reserved.