Equity Skimming and Washington State law

4 Replies

BP Community,

Ever so often we come across investors whose tactics don't give us the "warm and fuzzy".  While each state has its own legislation and case law, it is important that we all, in our continued efforts to source great "deals", maintain an ethical and moral stance.  Loopholes in fiduciary responsibility do not justify predatory methods.  And in the fallout of the real estate crash, perceived wrongdoing on the part of investors is taken seriously, and can paint our entire industry in a negative light.  When working with a potential seller, ensure they understand the importance of third party review.  While this may seem counter to "scoring" the best deal, it will keep us all out of hot water, legally, and otherwise.  

Here are some resources related to Washington State law. I am eager to hear of anyone who has seen changes/restrictions/guidance in Washington related to sourcing off-market deals, as it is a constantly evolving topic. 

WA Supreme Court Decision, 2/6/14, Jametsky v. Olsen, No. 88215-1

http://rowleylegal.com/washington-state-investors-buying-distressed-residential-properties/

http://souderslawblog.com/?tag=distressed-property-conveyances-act-washington

http://www.kolerlaw.com/2008/06/11/washington-distressed-property-law/

http://www.kolerlaw.com/tag/equity-skimming/

How does this law affect the act of buying pre-foreclosure homes in Washington State?  Given a property in pre-foreclosure is by definition distressed, does this law affect buyers of pre-foreclosure distressed homes if the seller moves out of the property after the sale and thereby avoids foreclosure while the buyer avoids 'predatory lending' practices?  I keep seeing advice that Washington investors avoid pre-foreclosure home sales due to this law.  Is there a work-around that you all use in practice to avoid litigation or do you entirely avoid making offers on pre-foreclosure in Washington State? 

@James Work The new Washington pre-foreclosure law is the most punitive in the country. Up to 6 years from the sale you can be sued for three times damages and the then current ARV. The seller only has to say they "think" you took advantage of them. Nice, eh? I no longer even think about them. Besides, there is more money to be made with Subject To with a lot less hassle or liability.

If your buying a property correctly, meaning you are making an offer and following standard closing processes and payments, no matter the agreed price, then "Equity Skimming" does not apply. If you take closer look at equity skimming and what is really is, it is built around predatory lending that was designed to force people into foreclosure to liquidate their homes. Somehow people have started confusing equity skimming with buying homes below fair market value.

Outside of the banking industry, the most common type of scam that people link with equity skimming, is a type of foreclosure fraud. It's where someone offers to stop foreclosure by transferring the property to them via a quick claim, even sometimes renting the house back to the owner as part of the scam. The owner never really stops the debt, but end up giving their home away unknowingly. Most states have written laws for this type of fraud, as it was rather common in the housing bubble.

There is a big old thread on BP that covered this topic once.

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