Real Estate Investors Association of Washington 

Real Estate Investors Association
                                of Washington

         
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REIA Law & Rule Updates

  

Links to additional information that REIA receives regarding legislation and law
along with contact information for our lawmakers are available on this website

 

Legislative, Law and Rule Changes and Enforcement

  
The most commonly discussed Washington State laws are the Distressed Property Conveyance Act, which generally applies to preforeclosures, changes to the Contractors Registration Law and Rules, which typically requires rehabbers to become contractors, and Rental Property Registration and Inspection.  All are listed below.
 

City of Seattle - August 2016

Seattle's new ordinance is designed to end discrimination against renters, stop providing employer-related discounts and more.  Read the bill:  City of Seattle, Council Bill 118755


Contractors Registration for Washington Flippers
 

Substitute House Bill 1843, and the resulting law, requires "property owner developers", including flippers, to be registered and bonded as general contractors. This Bill is said to have been introduced to protect consumers by enabling a means of getting monetary relief for negligent or poor quality workmanship by making a claim on the renovator / contractor's bond. Law changes resulting from SHB 1843 affects entities of ALL SIZES.

The affect of SHB 1843 is to require that all flippers have a licensed, bonded contractor on title of each and every flip.  For more information contact the Washington State Department of Labor & Industries, visit the Washington State Legislature website to review RCW 18.27 by linking below or here, read the Department of Labor & Industries Memo by clicking here and consult with the real estate attorney and/or insurance professional on your team!

Now comes Washington State House Bill 1749.  HB 1749 appears to be on the way to eliminating the requirement for a licensed, bonded general contractor - typically the investor themselves - to be on title.

On March 30, 2015 the bill passed to the Rules Committee for a second reading.  The bill appears to be unopposed and well on its way to passage.  Please comment on the bill using this link, Comment on SHB 1749 and encourage your elected official to PASS THE BILL.

Additional information is available on this website on the following page: Contractors Registration for Flippers


Is YOUR Rental Property Registered?
 

Many of Washington's cities - including the City of Seattle - require, or will require in the near future, registration and inspection of all rental units.  Ordinances not only apply to larger complexes but all the way down to single family residences that are used as rental units.  The City of Seattle schedule requires that all properties with 10 or more units register by 09/30/14 all all properties with 5-9 units register by 03/31/15.  Single family, duplex, triplex and four-plex properties with rental units must be registered during 2015 and 2016 with specific due dates dictated by zip code.  Registration costs start at $175 per property every 5 years in addition to the cost of inspections, which can be formidable depending on the number of units being inspected, "at least" once every 10 years. 

For additional information in Seattle read the document  City of Seattle - Registering Your Rental Property and review the City's Inspection ChecklistREIA strongly recommends that landlords in all jurisdictions verify their local requirements! 

Additional information is available on this website on the following page: Is Your Rental Property Registered?

Additional Seattle Landlord / Tenant Information is available on the following PDF document: City of Seattle - Seattle Laws on Property Owner and Tenant Rights and Responsibilities

Seattle Landlords also see the following PDF document: City of Seattle - Memo re Tenant Relocation Assistance Ordinance


City of Bellevue Ordinance 6223 - Rooming Houses

Bellevue City Council has unanimously amended the Bellevue Land Use Code to prohibit dormitory-style rentals in single-family neighborhoods.  Effective dates and restrictions are available from the City of Bellevue.  City of Bellevue Ordinance 6223


Distressed Property Conveyance - Opinion Issued 02/06/14

The Washington State Supreme Court issued a new opinion on February 06, 2014.  This opinion stems from litigation related to the Distressed Property Conveyance Act and acknowledges the statutory provision of RCW 61.34 that includes properties that are either (1) "in danger of foreclosure or at risk of loss due to nonpayment of taxes" or (2) "in danger of foreclosure or...in the process of being foreclosed to a default under the terms of a mortgage."  Additional information is available from REIA by clicking here.  Read the opinion by clicking here.

Additional information is available on this website on the following page: Distressed Property Conveyance Act


RCW 61.34: Distressed Property Conveyances (formerly Equity Skimming) 

The Legislative Findings of RCW 61.34 are as follows:

"The legislature finds that persons are engaging in patterns of conduct which defraud innocent homeowners of their equity interest or other value in residential dwellings under the guise of a purchase of the owner's residence but which is in fact a device to convert the owner's equity interest or other value in the residence to an equity skimmer, who fails to make payments, diverts the equity or other value to the skimmer's benefit, and leaves the innocent homeowner with a resulting financial loss or debt." 

Much of this law applies to owner-occupied preforeclosures including lease-backs, subject-to's and "saving" homeowners from foreclosure.  A full description can found in the RCW itself on the Washington State Legislature website or by clicking here.

Attorneys tell us "the penalty for engaging in a "pattern" of equity skimming that is set forth in the Distressed Property Conveyances Act is found in RCW 9.94A, as a Class B Felony, Level II offense", which can include confinement in a state correctional institution, fine or both.  We are also told that the law cannot be avoided by disclosures.

This law is wrought with issues, many of which focus on the great number of preforeclosures that are now generally "off limits" to real estate investors who previously made direct contact with homeowners.  We believe the harsh "new" laws are more of a disservice to those in foreclosure than not.  We also firmly believe that the majority of real estate investors worked honestly and toward everyone's best interest - including and especially the homeowner in distress.

That said, whether we agree or not we all have an obligation to comply.  As an Association, REIA will not offer support for those working in the preforeclosure arena including through education related to preforeclosures, short sales, subject-to's (as related to preforeclosures) or loss mitigation.  National speakers who speak at REIA Events are informed of the Washington laws in advance of their visit but, while speakers attempt to comply with law in their presentation, they do not rewrite home study courses or reformat their bootcamps with Washington law in mind.

REIA STRONGLY recommends that real estate investors READ THE LAW and work with
the real estate attorney on their team BEFORE involving themselves in any of the
areas the law covers. 
 

Additional information is available on this website on the following page: Distressed Property Conveyance Act


HUD Anti-Flipping Waiver
The HUD so-called "Anti-Flipping" regulatory waiver largely removed barriers for flippers to resell a rehab to a buyer who utilized an FHA backed mortgage within 90 days of purchase.  According to HUD, the waiver was extended through February 2014, as you can read here.  We find no further extensions to the waiver as of September 2014.

Seller Financing Restrictions

It is said that nearly 1/3 of U.S. properties owned free and clear - in other words without a mortgage - creating an opportunity for seller financing that gets deals done.  Many buyers are struggling to buy a first home or get into a home of their own post-foreclosure or with other credit issues that are perfect fits to owner financing and a chance to get on, or back on, their feet.  Though many of believe that government intervention in what should, largely be a matter between the buyer and seller seems inappropriate, related "consumer protection" laws are now in place that can present a barrier to providing seller financing.  The responsibilities related to the laws are the onus of the seller, not the buyer.

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008, or S.A.F.E. Act, focuses on verification of a buyer's ability to pay the mortgage.  For information click here.

The Dodd-Frank Act of 2014 amends the S.A.F.E. Act and includes provisions that require "mortgage originator license."

Financing residential real estate is regulated at both the State and Federal levels and many laws beyond what we quote here will likely impact seller financing.  In Washington, we find the Consumer Loan Act, RCW 31.04 and WAC 208-620, regulates lending money, including as the seller / financier. 

Exemptions are available and are often discussed at the REIA Main Meeting during the annual REIA Laws Update. 

If you plan to offer seller financing we strongly recommend that you review
the related laws and consult with a Washington licensed attorney for additional information.


Are Landlords an IRS Target?

From the Treasury: "...August 2008, the Government Accountability Office stated that “at least 53 percent of individual taxpayers with rental real estate activity for Tax Year 2001 misreported their rental real estate activity, resulting in an estimated $12.4 billion of net misreported income.”  The overall objectives of this review were to evaluate the IRS’s coverage of individual tax returns with rental real estate activity and identify changes to aid in the identification, selection, and examination of tax returns with rental real estate activity."  Read the full report at Treasury Inspector General for Tax AdministrationThe associated implementation went into effect on August 15, 2011.


Rental Property Owner Reporting Requirement

From the Washington Examiner: "...Thus, rental income recipients making payments of $600 or more to a service provider in the course of earning rental income are required to provide an information return (typically, Form 1099-MISC, Miscellaneous Income) to the IRS and to the service provider. This provision will apply to payments made after Dec. 31, 2010, and will cover, for example, payments made to plumbers, painters or accountants in the course of earning the rental income.
 
While rental property owners will not actually issue the required 1099s until early 2012, they need to start keeping adequate records of payments starting Jan. 1, 2011, so they will be prepared to issue correct 1099s. They will also need to obtain the name, address and taxpayer identification number of the service provider, using Form W-9 or a similar form."  More information is available at the Journal of Accountancy.  The associated record keeping requirements went in to effect on January 01, 2011.


Fair Housing Act Enforcement

From the United States Dept.of Justice: "...Fighting illegal housing discrimination is a top priority of the Justice Department. The federal Fair Housing Act prohibits discrimination in housing on the basis of race, color, religion, sex, familial status, national origin and disability."   The link to the December 2010 DOJ statement discusses their settlement of a Disability Discrimination case - based on a complaint filed by ONE tenant with HUD - of $1,195,000 plus costs and more.


Washington State Carbon Monoxide Detector Requirements - RCW 19.27.530

"The legislature recognizes that carbon monoxide poses a serious threat. According to national statistics from the centers for disease control, carbon monoxide kills more than five hundred people and accounts for an estimated twenty thousand emergency department visits annually. Specifically, Washington state has experienced the dire effects of carbon monoxide poisoning. In the storms that struck Washington in December 2006, it was estimated that over one thousand people in the state were seen at hospital emergency rooms with symptoms of carbon monoxide poisoning, and eight people reportedly died of carbon monoxide exposure. It is the intent of the legislature to implement policies to prevent similar tragedies from occurring in the future."  Implementation of the law for new residential construction began January 01, 2011 and on January 01, 2013 for existing dwellings. 

The "new" Washington State law requires, in part, that carbon monoxide detectors must be in ALL rental housing units - whether the unit has a source of Carbon Monoxide or not - by July 01, 2011.  Requirements are also in place for new construction and "...any owner-occupied single-family residence that is sold on or after July 26, 2009...". Please visit the SBCC (State Building Code Council) website by clicking here to review these changes.


Environmental Protection Agency Rule on Lead in Paint, Dust and Soil: Renovation, Repair & Painting

The U.S. EPA Rule requirements, in part: "Common renovation activities like sanding, cutting, and demolition can create hazardous lead dust and chips by disturbing lead-based paint, which can be harmful to adults and children.

To protect against this risk, on April 22, 2008, EPA issued a rule requiring the use of lead-safe practices and other actions aimed at preventing lead poisoning. Under the rule, beginning in April 2010, contractors performing renovation, repair and painting projects that disturb lead-based paint in homes, child care facilities, and schools built before 1978 must be certified and must follow specific work practices to prevent lead contamination."    

The EPA web page, available by clicking here, further states that "After April 22, 2010, property owners who perform these projects in pre-1978 rental housing or space rented by child-care facilities must be certified and follow the lead-safe work practices required by EPA's Renovation, Repair and Remodeling rule."
 
Please refer to the EPA website by clicking here or the NAHB (National Association of Home Builders) website  by clicking here for additional information.  This law will likely apply to most of us at some time and should be taken very seriously...if only in consideration of the fact that the EPA can access as much as $37,500 per violation, per day. 


Real Estate Excise Tax (REET)
As was discussed at past REIA meetings, Members of the REIA Board of Directors attended a meeting with the Washington State Department of Revenue (DOR) pertaining to the interpretation of laws that dictate the collection of REET pertaining to Short Sales.  The topic, and the meeting, have been controversial in light of some of the current economic conditions.  The DOR has since reversed their position on application of REET to Short Sales.  More information is available from the DOR in the link at the bottom of this page, including the possibility of refunds to those who paid REET on the difference between the ("shorted") purchase price and the amount of the debt.  DOR notification of changes was issued on January 13, 2009 and can be viewed here.

Septic Inspection and Recording Requirement
Seattle and King County requires all sellers of properties with onsite sewage systems to have their on-site septic system inspected by a King County licensed On-Site System Maintainer.  Before closing the seller must record a Notice of On-site Sewage System Operation and Maintenance Requirements (OSSM) at King County Office of Records and Elections.  The document acknowledges the property is served by a septic system and describes the owner's responsibilities for maintaining the system.  For more information click here. For information about requirements in other jurisdictions, please contact the appropriate jurisdiction.
 

More coming...

 
This page will be updated as warranted, so check back often!
  
REIA Legislative update pages include commentary from REIA, updates on legislation and related links but IS NOT intended to serve as legal advice and does not include ALL changes OR all information related to the changes listed.
 
For additional information about working with homeowners in - or at risk of - foreclosure, please visit the Distressed Property Conveyance Act page on this website.
 
For a complete list of Legislative Issues that affect real estate investors, including landlords and rehabbers, please visit the Lawmakers & Links page on this website and click through to the Washington State Legislature, check other Local and Federal websites and consult with an attorney licensed in Washington State.
 
  
 

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