A new state law intended to protect homeowners from mortgage fraud has local real estate agents and brokers saying they may no longer be able to help sellers at risk of foreclosure.

The law, called the “distressed property law,” went into effect Thursday and prohibits a practice known as equity skimming – a kind of fraud that masquerades as assisting a homeowner unable to make mortgage payments but instead takes what equity there is and leaves the homeowner in even worse financial shape.

Distressed homeowners, according to the legislation, are those in various stages of losing a home, from foreclosure to contemplating not making a mortgage or property tax payment. And a professional who discusses such a property with its owner could be considered “a distressed home consultant,” which includes real estate agents and brokers.

Not only must such a consultant act in the best interest of the homeowner – a potential conflict if an agent is representing a buyer – but the consultant also has a fiduciary duty that if not fulfilled carries a fine of up to $100,000.

To cover their bases, real estate companies have worked up additional paperwork for home sellers to determine whether they are distressed. Some are recommending that active listing agreements signed before Thursday be resigned.

The law likely will chill buyers’ interest in foreclosures, which in the past have drawn bargain hunters, said Chris Nye, president of MLS4owners.com. The University Place company sent 500 e-mails to its sellers informing them of the new law and the additional paperwork and asking if any of them are distressed.

Similar laws in other states have exempted real estate agents, said Nye, who wonders why such an exclusion didn’t make it into this law.

“I know in talking to a lot of agents and brokers, they want to know how it happened,” he said.

Phil Harlan, Washington Realtors’ immediate past legislative steering chairman, said Thursday that the trade group was aware of the legislation, which was requested by the attorney general’s office. Harlan said he could not explain why agents and brokers are not exempt but said the law was passed with some unintended consequences.

The association has trained more than 1,500 real estate brokers on the law.

“It’s unfortunate it affected the normal real estate transaction,” Harlan said. “We’re going to have input with the attorney general as much as we can to make the necessary adjustments to of course keep whole the integrity of the bill, to make sure the consumer is protected, and to get some of these conflicts with the regular real estate transaction resolved.”

Kristin Alexander, spokeswoman for the attorney general’s office, said changes in the law will be requested in the next session to address agent and broker concerns.

“We’ll be meeting with Realtors in July to work on a draft,” she said.

Windermere agent Andrew Welch said limits imposed by the law will mean homeowners who could sell and avoid foreclosure won’t get the help they need as agents avoid the liability now tied to a potentially distressed property.

“Just writing an offer on a house that’s going to be foreclosed on can be seen as not acting in the best interest of a distressed homeowner. It’s a messed-up law,” he said.

Devona Wells: 253-597-8652

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