Lantz bill would crack down on foreclosure rescue scams

Five day right of cancellation among 'ground rules' established in HB 2791

February 4, 2008

Olympia, WA – In stressful times, people sometimes make bad decisions.  When faced with the possibility of foreclosure, many homeowners enter into agreements with unscrupulous companies who claim they can help prevent the foreclosure.  But in fact these companies are preying on the homeowners, according to Rep. Pat Lantz (D-Gig Harbor).  The end result is that the homeowner not only loses his or her home, but also any equity in it as well.  The dramatic increase in home foreclosures in Washington has resulted in a corresponding increase in foreclosure rescue scams, and that's what Lantz wants to prevent by prime-sponsoring HB 2791 this legislative session.

"This is about being kicked when you're down.  It's about overreaching by those in a position of advantage.  And it's about providing protection to families," Lantz said in a recent public hearing on the bill.

The scenario usually unfolds thus:  a family faces eviction from their home because they have fallen behind on their mortgage payments.  In steps the "foreclosure rescue" company, offering to purchase the property from the homeowner and assume the debt.  The resulting deal lets the family remain in the home and lease it back with the option of repurchase.  But the terms of the deal are often vague and unenforceable, and before long the homeowner defaults on the lease payment.  The family is then left homeless, while the purchaser has both the home and the equity.

Lantz's bill would set "ground rules" for contracts between homeowners and purchasers.  It requires that all terms of the contract be in writing, and the purchaser cannot contract if there is a power of attorney.  The homeowner has a five day right of cancellation, and the purchaser must take responsibility for the underlying debt.  Also, the purchaser must pay the homeowner at least 82% of fair market value.

"This bill is based on laws that have already been passed in other states, and is similar to the truth-in-lending principles we already have here in Washington," Lantz said.  "It will crack down on unfair and deceptive practices, and help families who are vulnerable."

The state's Attorney General is supportive of the bill, and Lantz is optimistic that it will pass the House when it comes up for a vote this Wednesday, February 6.  If it passes, it goes on to the Senate.