Mortgage Brokers and Loan Originators are exempt from becoming a “Distressed Home Consultant” when helping Distressed Homeowners refinance, unlike real estate agents who are subject to increased liability under the new Distressed Property Law. My question is, SHOULD mortgage brokers and loan originators be exempt? Please read this blog post and share your opinion. I know that no brokers or loan originator is going to automatically jump up and vote for increased liability, but do you see a possible loophole for LOs to target market and prey on distressed homeowners? Have you heard of anything like this happening in your market area?
60 thoughts on “Distressed Property Law”
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The Distressed Property Law as written is very poor.
Some real Estate Agents will gladly take on the distresed home fiduciary role as it is a potentially healthy revenue stream for them.
I believe that real estate agents should understand more about the fiduciary process because I have dealt with an agent who was working with such a client and was useless in terms of guiding them as to what their rights/options were and the timelines that needed to be met. I felt that the agent should have referred the client to a more knowledgeable person, but they refused so I found myself (an LO) giving recommendations that I felt the RE Agent should have done.
In response to the distressed property law, I’m not sure that mortgage brokers and/or originators should be exempt. I’ve heard of a few situations where even the LO has avoided a foreclosure or short-sale situation because of this law, not wanting involvement in this type of transaction. If an LO is avoiding a foreclosure situation, when they’re exempt, it leads me to believe that the fear that’s come over the real estate agents has made its way to the originators as well. But why the fear? Possibly because brokers or originators are involved in these types of purchase transactions, or are even given the refinance referrals by real estate agents?
I agree with Rita’s post, real estate agents should fully understand the law before entering into this type of transaction. But, I also don’t think that as an LO, I’d counsel the seller if the agent was not adequately performing their job – those matters should be left to their own attorney.
I feel mortgage brokers & LO’s should be exempt from the distressed property law. First off, in this current environment getting a refinance that makes sense for a distressed homeownwer would be difficult given the current guidelines. So, to me, this is more of a concern for RE agents. I know a few agents that do not want anything to do with a distressed home owner because of this new law and potential liability, which I agree with Rita, is poorly written.
I am both a RE Agent and a mortgage broker. The law was poorly written and I believe it will be cleaned up in future sessions. I am not too worry about the liability for RE Agents mostly because I went through all of this in CA in the ’90s. We handled short sales everyday. I actually get frustrated when there are agents doing a short sale with no idea what they are doing. I am educating them! As far as LO’s being added to the law. I think if we are going to help refi them out of a foreclosure situation – we should have some liability. There are LOs out there that have no idea how to protect borrowers who are in that situation and will tack advantage of them. So, because of the bad apples, I think there should be some additional liability.
AS a loan officer I feel like who ever is doing the negotiations with the distressed home owner and is in the position to make money off the distressed home owner should be covered under the new law. It is not the mortgage brokers or loan officers job to negotiate contracts between two parties. Therefore it is fine they are exempt.
I believe the law is on the right track in attempting to protect homeowners from potential “scammers” that are just trying to capitalize on their unfortunate predicament. What has become apparant during this crisis is that regulation in the housing and mortgage industries is necessary to prevent situations like we currently have. I am typically a big proponent of free market principals, but I even agree that there are certain situations where regulation is a good thing. As we have learned, the housing market is a huge part of our economic health, so we must try to protect homeowners. I am concerned that many agents will try to stay away from distressed properties altogether, but they will do so at their own peril, as that is going to be a growing segment for some time ahead.
As for loan officers, I don’t feel they should be included in this particular legislation because it is more geared towards those involved in the actual transfer of real estate ownership. Instead, I believe that regulations preventing predatory lending are needed and loan officers dealing with distressed homes will need to adhere to the same code of conduct and fiduciary duty expected of them when dealing with a non-distressed home. If the laws are clearly written in regards to loan officers disclosing fees properly and providing the right program for their clients, then the law would include protection automatically for distressed homeowners that are refinancing rather than selling.
I do agree that the law was poorly written but at least there was an attempt to protect the homeowners. I believe that when they write the law, they need to seek advice from all parties, Realtors, Loan Officers, Brokers and distressed homeowners. We are in this predicament because of unscrupulous lending and inflated values. If our profession would have had more stringent regulations for LO’s to adhere to, the market might not have taken the drastic dive it has taken. I am not opposed to tighter compliance for LO’s. It would keep the good ones around and weed out the bad.
It is the Realtor’s job to write the contract but they often do not know much about the fudiciary responsiblities, that is when the LO should also be held responsible during the transaction.
I know a RE who just works with forclosures, it’s her “new thing”, she advertises it. I also know a LO who is helping people with foreclosures, it is what has carried her through some tough times. I feel if an LO wants to make it there priority to do forclosers they need to have the same rules as an RE. Other than that I feel LO’s should be exempt. I agree with Michael when he said
“who ever is doing the negotiations with the distressed home owner and is in the position to make money off the distressed home owner should be covered under the new law” If an LO wants to specialize in foreclosures they should not be exempt, other wise leave it up to the RE.
This law was very poorly written. However a loan officer can direct other clients about distressed homeowners. If a loan officer fails to do the correct research and fails to offer all options it could cost the borrower their home.
Helping a borrower with a negotitation with a lender doesn’t put the loan officer in equity scam position necessarily. However if you have unscrupulous brokers/loan officer the loop hole is there.
It truly is a catch 22. If a broker/lo is adhereing to fiduciary duty then that is regulation enough.
I agree that the intention of this legislation is sound, to protect the home owner. As we are very aware, this is a very significant component of our economic stability. I would hope that the effect of this law and others like it is not that the parties involved do not help these home owners in hard times, but to encourage them to educate themselves and adhere to the laws enacted.
I also agree that this law, as I try to understand it, does seem to pertain to those parties involved in the negotiation process of the transfer of real estate ownership. This particular law may not apply to LOs, however in correspndence to the idea of protecting the home owner, the increase in legislation that we are seeing regarding predatory lending is better focused and more effective.
When this legislation was passed the situation was much different than it is now. First of all, the declining home prices are putting a lot more homeowners into the “distressed” category. Secondly, the extreme tightening of underwriting standards is preventing many of them from seeking refinancing which would have been the most beneficial avenue for most.
Now we are seeing a host of “loan modification” programs being offered. Some are real… some are not. My email is bombarded with offers for me as a Loan Originator to buy leads for loan modifications.
So… who’s going to do all these loan modifications? And, aren’t those people doing them giving advice to distressed property owners. All financial institutions should have been covered under this law.
The “intent” of this law is good, but major revisions are needed. I don’t think the “offenders” are a particular licenced group (RE, LO, Brokers, Title, etc.) but rather licenced (or unlicensed) individuals operating in an illegal, unethical manner with intent to take advantage of these homeowners.
2 key pieces needing change –
*Add the same protections for Owner’s in condo units in buildings with more than 4 units
*Re-work “Exempt” entities. RE Agents are the only “key” player in transactions which are not exempt even though all entities are bound by specific fiduciary and/or statutory duties to our clients. DHC staus needs to be an all or none…
Agents are required to provide “reasonable care and skill” in all transactions, with no excuse (legally or ethically) for failing to delivery appropriate services to all parties, including potential and actual distressed homeowners. A major campaign, including training and many new forms occured earlier this year in response to this law.
Im not real sympathetic either way. Greed has been and will continue to be a primary motivating force for both sides of mortgage transactions. That is the the provider and the client. I avoid these loan types and I am very selctive about who I work with.
Having participated in sub-prime lending in the past, I ALWAYS counceled clients on the realty of their loan type. That was always a priority. Make a plan and execute it –
Sure the laws are written poorly-as are most when hastily thrown together- regarding responsability for realtors now but most all Brokers have a disclosure further exonerating them from getting caught up in distressed home consultant issues.
I’m not sure which way to lean on this subject. As it was said above, this should apply to the parties involved in the negotiation of transfering the property – not necesarily the originator. But then again, it all comes down to fiduciary duties and doing whats best for your client and being knowledgeable. If all parties involved were subject to the liability – thats not a bad thing. If people are so worried – then they should bot get involved in these transactions – however some people are out to make a buck and dont care.
The laws should not be directed toward segments of professionals in the real estate industry because it may wrongfully exclude or include certain actors. The laws could be written in the same spirit that the MBPA is written (Anyone who offers mortgage loans in WA…) It could simply state that anyone who provides services to sellers in default, etc must register with DFI, must satisfy certain background checks, competencies, etc.
The laws should be simple and straightforward and should not allow potential predators to avoid compliance because they are not part of a certain professional segment. This is what allowed mortgage brokers to engage in harmful practices in the state of Washington for several years.
Undoubtedly there will be many changes to this law in the future as the current foreclosure crisis continues to grow. I have no problem with Mortgage Brokers and LO’s being exempt as long as they restrict themselves to providing the financial services requested. What is bothersome is that some LO’s, sensing an opportunity to create additional revenue, may decide to provide services or offer advice that would mirror that of a “distressed property consultant” without subjecting themselves to the regulatory restrictions or liability of this new legislation. Big loophole in my opinion and not “if” but “when” it happens they will re-write this law and it will be all inclusive.
Your question – no one should be exempt. I think that everyone is responsible and no one is exempt including the purchaser and buyer. The market is bad. I live in Kent and in a townhouse – I know that people are selling to get out of their unit for whatever reason but the public needs to quit buying into the economic hardship and stop trying to live like the Jones…. I saw a guy on TV going to get presents from a support program … he has given up … there are jobs out there because my 17 year old is washing dishes … is that beneath people, have they lived like the Jones so much that they can’t handle the situation. This is where mortgages where given to anyone and the people accepted living for the house note verse just living. My house has lost equity but I still have equity in it … $5000 so I know that I can’t do anything more but wait and make sure that I have a savings and the house is paid … I know people who are using this distressed market issue to allow their mortgage to go and get a lower interest rate …. It worked.
I agree that the law is poorly written. And because of this it has been interpreted in different ways depending on who is being asked about it. I went to a class specifically about this at a title company that they sponsored for realtors and they started walking out saying that it was stupid and no way could it ever be enforced. Now I see those same realtors advertising as experts in the field of short sales.
Accountability is a problem in our industry that is why we have to have fidicuary duty in place. I agree with other posters that if a mortgage broker or LO is going to put themselves out their as a “distressed homeowner consultant” or “foresclosure rescue” company, then yes they need to be included in the law. If they are following through AFTER a contract has come to them and follow the guidelines within their branch of the transaction then they should remain exempt.
This is such a complicated and missunderstood law. When it first came out everyone was afraid to get involved in a distressed situation and rightfully so. I believe the problems with this law will be fixed in the next session, however, we are stuck with what we have until then. As both a real estate agent and a mortgage broker I look at this law from both sides. I understand the need for RE agents to be held accountable for proper disclosure in these situations, but the law is too vague and has no real timeframes in place. This allows for loopholes when someone sees the opportunity. Especially that distressed seller, once they have gotten back on their feet and want to get back some of what they lost. They can then cry “taken advantage of”. When at the time they just wanted out of the obligation.
As for the mortgage broker, I feel they should be exempt. I agree with Deborah Cook in that if brokers are just handling the financing once a purchase and sale agreement comes in then they have nothing to do with the terms of that purchase. The broker has a fuduciary responsiblity to the buyer to obtain them the best option for financing on that property. They are not responsible for the agreements made with the seller. They just need to present the p/s to the lender as it is written with all attachments. The end lender can decide whether they want to lend on that property and that buyer.
My thoughts on this are that the homeowner is not being taken care of whether it be by a “Distressed Home Consultant”, Mortgage Broker or Loan Officer. I believe that there should be a government program, as set up for student loans, borrower can refi with the Government, pay the government the interest and let the big banks close like the rest of the small guys. I believe in order to get the economy, we must start out at ground level. Let the borrower pay off the bank with the government loan and have a fixed payment with no value given with a more affordable payment. It will be a win, win, win situation!~
I think that the bill was written poorly and very complicated to understand.
I belive Brokers and LOs should be exempt form the law as long as they don’t provide any legal advise. Mortgage Brokers and Loan Officers job is to provide the best loan possible for their client. They should not advise clients on issues best left to qualfied Attorneys and Realtors. This doesn’t mean the Brokers and LOs shouldn’t be aware of the issue involved and educate themselves about distressed home transactions.
Yes I do believe Lo’s should be exempt, but that is not to
say they should not have the usual fuduciary resposility to
their client. This is such a complicated law and issue and in my
opinion can only be resolved with clearer laws and regulations
in place. I would advise my client to seek legal advice even if
a knowedgeable Realtor is involved in the transaction.
My thoughts on this is that if loan originators and brokers are performing their fiduciary duty, then there most likely wouldn’t be anything to worry about with the increased liability. Yes, it could cause some clients to be deprived of the help of a good LO because some would want to avoid taking on these cases. But, in my opinion, a good LO wouldn’t avoid a case simply because it is distressed. I agree with Chuck Robillard that loophole will be exploited, not a matter of if but when.
If you want to work with distressed home owners , you should be abe sensitive to the homeowners issues in the unfortunate situation . Maybe have a Psychology degree Greed has caused the problems , trickle down economy does not work ,
While looking into the bill and taken a look of what had happened in the market practice, it is clear that a RE Agent is in a position to take advantage of a distressed customer and his/her property in forcolsure. I heard histories in the past of RE Agents who will advice a customer to sell cheap and haveing themselfs buying the same property for their purchasing clients or themselves. That is a shame!!. LO’s are not likely to be in such position in the first place and have not an easy access to buy and sell. As the bill allows for the distresed seller of a forcloasure property to stay and possible share the profits, its all in the advantage of the RE Agents and therefore they have to be monitored very close to avoid more harm to a distressed customer.
I beleived that the law is trying to protect the homeowners. But LOS who follow State and Federal Laws, and are not greedy to hurt more of these already misfortunate homeowners, and are willing to do their fiduciary duties toward their clients, and LOS that are expericence enough to help with this kind of situation, then they should not be exempt.
I believe that any one individal or any entity that take on a task of doing a loan modification should be responsible for the oucome . If the one doing the task feels unqualified or does not have the skills he or she should not take it on . There is an obtion! The mortgage company or the lo , however , should not be exempt from the law ,because the home owmer deserves a qualified person that is hired .
Why do we have different laws and standards for dealing with distressed homeowners than regular homeowners? I don’t think the solution is to have another law governing these transactions as much as enforcing the consumer protection policies that are already in place. We all have a responsibility to do our jobs to the best of our abilities, to make a fair wage, and to educate our clients on their options. In order to do this, we have to be held accountable for our actions, and we have to be educated ourselves.
People lose perspective when they are doing a “transaction” for the sake of a “transaction” rather than for the good of those involved.
Gail is spot on – advise the client to seek legal counsel. Check into the agents / the lo’s…anyone else who is involved. Deal with reputable people, ask for references.
Every one should probably note that at the top of the purchase and sale agreement it recomends that buyers and sellers consult an attorney. Seems like we might be headed that way with a loan app. I think I will do more prospecting for qualified borrowers. It’s wonderful to help a fellow American when you can, but risk and pain must be cosidered.
Increased liability does not bother me providing there are clear guidelines as to the actions to take. The lack of rules and over site helped open the door to the subprime meltdown. Lets work the business right according to the guide lines and protect the future of of industry and the nation.
Jim LaLone notes that the real estate P&S recommends that the parties consult with an attorney. Stop and think about why this is recommended. If the buyer consults an attorney, he is consulting a professioanl that has fiduciary responsibility to use his education and experience to serve the interests of the buyer. They buyer may then rely on the unbiased advise to direct him through a transaction that the buyer is otherwise unconfident about. Jim suggests taht we might be headed that way with a loan app. Jim – we are there. Mortgage brokers (in Washington) have fiduciary responsibilty to the borrower. The mortgage broker is obligated by law to utilize his training, knowledge, and experience in the mortgage origination process to serve the best interests of the borrower. To the estent that the broker industry recognizes this resonsibity and rises to it, borrowers who choose a broker can rely on the unbiased advise of the broker to direct them through a complex loan decision, application, and origination process. According to the law, we are there now. But in practice we have a long way to go.
Predatory practices by some of our counterparts is unfortunately going to occur whether we become exempt or not especially since this law is vague and complicated. Does being non exempt solve this problem? No it will not. If we are adhering to our fiduciary responsibility then our conduct should be held to same standards in EVERY loan we do regardless of the client’s situation.
There is so much to comment on here and so many have commented on all different areas. Whether you agree with this piece of legislation or not is seems hard to defend it’s ambiguity. I think just how many different takes there are on each and every point is a great example of that.
I will choose to comment on a buyer’s side. Not an all cash property investor but a buyer looking for an owner occupied property to move themselves into. It is already a nerveracking experience to place an offer on a distressed house that you don’t know whether or not your offer will be accepted. You also do not know how long it may take for your offer to be reviewed and accepted or denied. From that place you are tied to a property to the extent that you may miss other opportunities that arise as well as riding an emotional roller coaster along with the roller coaster interest rates are often on. Now, introducing the listing agent as a fiducary to the seller and you as the buyer a fiducary to the bank should the property become a REO. To me it sounds like there is a definite potential of this causing the average buyer to run as fast as he/she can, posibbly increasing the chances of an investor coming along and picking up that property without much of any competition for a bargain basement price.
I think originators should not be exempt. The area is so fluid and unstable we should tred very carefully.
I agree that the law is poorly written, we need to do some changes to it but in the mean time, this law is better than not having a law.
In my opinion like someone commented, increase liability it’s ok as long as we have clear and concise guidelines.
I do believe that Loan Officers should be exempt. I have worked with a group of agents in the past that made a point to prey on distressed homeowners. Even though the law was poorly written it has put a stop to at least some of the unethical practices of many agents.
This is a complicated issue and I feel LO’s should be exempt. I’m here to help a distressed homeowner in a ethical way. It’s disturbing to read situations where homeowners are so desperate they have even quit claimed properties or were lead to a rent back situation, Ask for legal counsil or a 2nd opinion.
I think for now Mortgage Brokers and Loan Originators should be exempt. The law, poorly written is a start. We need to continue to improve checks and balances to protect distressed home owners. Just because there’re a few bad Brokers and Loan originators, we should’nt all be punished. There’re many good LO’s and Brokers that can be a valuable service to distressed home owners.
I think Mortgage Brokers and Loan Officers should be exempt. I have been introduced to several people through friends that were or are in risk of loosing their homes. Although I am unable to help all of them I do try to help when I can.
Again, brokers and LO’s are called to the table to be held at a higher standard. I do think that brokers and LO’s should be exempt. I am sure someday a mandatory class will be required for such REO, short sale, and BPO transactions in the future. I also know many good LO and Brokers out there, but I also know a few LO’s and Brokers who should be nailed to the wall. We have tighten the nuts and bolts here and start self regulating, turn in those LO’s and Brokers, Escrow Officers etc., who are unethical. I used to turn a cheek, but no more.
The law is vague and does not cover it. We do not do contracts for property. I do believe we need to visit our responsibility in the transaction and disclose the choices that a client may have. I do not think distress property law makes sense on the lending industry.
As a Loan Originator I believe I should be exempt; however, I don’t believe that’s the issue. A law was created to protect the consumer in a difficult era of home ownership. Consumer education seems to be the greater issue, passing along helpful resources, put those in the hands of brokers to pass along to LO’s to pass to consumers who via email in this digital age can reach a majority of consumers…that’s one route. There will always be those who look to feed on the uneducated, laws or no laws, the ones that care won’t break the current law as it is and the others will find the loopholes; therefore, it’s wasted time, not helping the consumers at all.
Why on earth should the LO, who is presumably helping the BUYER attain the best terms for financing, be fiduciary to the SELLER of the property?
It is an exceedingly rare situation that an LO will talk to the property seller (I never have).
Honestly, that is just absurd.
What lender will make a new loan to a distressed homeowner these days? Hard money guys, maybe, if the LTV is VERY low, but with very high rates of interest and fees.
Let’s remember who we work for, and not try to be fiduciaries to parties with opposing interests.
I couldn’t agree more with Roger. The law is a poor attempt at regulation. We do have a fiduciary responsibility to act in our client’s best interest. Our client is the borrower. If we get involved with the seller, it seems that we are potentially practicing real estate without a license as well as law. No… the law should not include originators. Our reglulations are sufficient. We each just need to live by the spirit of the law and do the right thing. No degree of regulations will keep the thiefs away. Yes, the law should be re-written.
I am also both a real estate agent and loan originator. As a loan originator I too think we should be exempt. As far as the real estate side, there should be some level of accountability although as many of you posted the law is written so poorly that there are so many loopholes in it.
I agree that this law should not include originators. As an LO, we know what our jobs are and we know what other careers within our industry are for. There’s enough business right now for everybody to work together on turning around this market.
I am also in agreement that LO’s should be exempt. Lo’s are there for the financing advice for the buyer and not the seller. I am however very much for trying to educate the buyer in every way possible at what type of transaction they are getting themselves into. If that means advising them to seek legal advice because their RE agent has not informed them fully, then do it.
It seems natural that a “distressed homeowner” may seek the service of a broker or originator. Obviously if we can do something to improve the borrowers financial standing we will. If we cannot better their financial our job should be to advise the borrower to seek proper counsel.
I agree with Rand. If I were to go to someone for help with my loan it would be the person who helped me get it. As a consumer I would assume that they would know how to help me. So it would seem to be the right thing to have the proper knowledge and be held to the Distressed Property Laws.
I think that LO should be expempt from this law. I think the more liability there is for LO, the less likly they are to trully help a home owner trully in need of help.