Washington Residential CORE

Transcription

1 Washington Residential CORE Legislative/Legal Updates Objectives Upon completion of this section the student should be able to: 1. Recognize that language in RCW was updated in the statute to reflect the licensing law revisions that occurred in Explain how to refer consumers to information sources for learning about landslide hazards and other geographic perils as identified in Senate Bill Explain that consumers can obtain information online from the Washington State Department of Natural Resources (DNR). 4. Discuss the CFPB's new rule affecting the Truth in Lending Act and the Real Estate Settlement Procedures Act effective Oct. 3rd, Explain that the Loan Estimate Form replaces the Good Faith Estimate and Truth in Lending Act Disclosure Form. 6. Explain how a borrower's 3-day review of the lender's disclosure may impact transaction timelines, like the closing date, especially if there are multiple closing disclosures. 7. Explain why escrow/closing agents are not licensed to practice real estate and cannot present transaction forms to buyers or sellers for signatures and/or initials and that licensees must present transaction forms to buyers or sellers for signatures and/or initials. 8. Discuss the sale of floating homes or floating on-water residences by brokers (House Bill 1309). 9. Explain and refer consumers to information sources for learning about changes to the National Flood Insurance Program (NFIP) and how flood insurance rates may be going up significantly for properties, especially those located in hazard areas defined as A and V Zones. Understand how to refer clients and customers to flood agents for flood insurance coverage and not to be the source of rate information. 1

2 Licensing Law Revisions On July 1, 2010 Washington became a broker only state for real estate licensees. It used to be real estate licensees were known as agent (now broker) and broker (now managing broker and designated broker). While there are 3 titles in Washington, there are only two types of license, broker and managing broker. A designated broker is a title that is given to the responsible managing broker in a real estate office, and there can only be one per office. There were additional updates done to RCW 18.85, which covers license law, where clarification or titles weren t completely updated in 2010 to reflect the changes. Also in 2013, RCW 18.86, which covers the law of agency was changed to align the codes. Note: RCW is an acronym for the Revised Code of Washington, and it regularly used within the code itself when making references. The changes to the RCW s are in italics: Broker means broker, managing broker, and designated broker, collectively as defined in chapter RCW, unless the context requires the terms to be considered separately. Broker is any licensee working in a firm as a broker, managing broker or designated broker required to operate under the laws as spelled out in the RCW s. They all must comply with the same laws. Some clarification was needed since there could be interpretation where broker only referred to those who had a broker s license and not the managing and designated broker as well. Real estate firm or firm have the same meaning as defined in chapter RCW. This was added to provide consistency to the code. A firm is a sole proprietorship, partnership, limited liability partnership, corporation, limited liability company, or other legally recognized business entity conducting real estate brokerage services as licensed by the department of licensing. The code will use the terms real estate firm and firm interchangeably and this addition was made to clarify that practice. 2

3 Broker s firm has appointed the broker to represent the seller pursuant to a written agency agreement between the firm and the seller, in which case the broker is a seller s agent. The brokerage firm is the party who is the agent of the seller, and it is the brokerage firm not the broker who owns the listing. A broker represents a brokerage firm and is a subagent of the firm. Even though they are a subagent of the firm, when they are the named broker assigned to the listing, the broker is an agent of the seller, not just the firm. Regarding dual agency, there were changes made to provide clarity around the need for dual agency disclosure. Broker s firm has appointed the broker to represent the seller pursuant to a written agency agreement between the firm and the seller, and the broker s firm has appointed the broker to represent the buyer pursuant to a written agency agreement between the firm and the buyer. Firm s designated broker and any managing broker responsible for the supervision of both brokers the designated broker or any managing broker responsible for the supervision of the broker Brokers licensed to the same real estate firm, the firm s designated broker and any managing broker responsible for the supervision of both brokers, are dual agents and each broker solely represents his or her client unless the parties agree in writing that both brokers are dual agents. Agency law allows brokers to represent solely the buyer or the seller or to represent both parties (dual agency) with proper written disclosure. Dual agency is required by the firm if the transaction involves different brokers from the same firm. In that case the managing broker responsible for the supervision of both brokers, is automatically a dual agent, and must obtain the written consent of both parties (buyer and seller). This is also true of not only the managing broker responsible in the firm, but also a broker if they represent both the buyer and seller in the transaction. Changes were made to clarify that the duties of a broker and brokerage firm are not fiduciary in nature, but are statutory duties (responsibilities assigned by government law). 3

4 The duties under this chapter are statutory duties and not fiduciary duties. This chapter supersedes the fiduciary duties of an agent to the principal under common law. This law establishes statutory duties which replace common law fiduciary duties owed by an agent to a principal. Washington state law has changed the duties of a licensee from fiduciary to statutory as found in the states laws (RCW s). In the state of Washington real estate licensees duties are outlined by the state statutes and are no longer considered fiduciary responsibilities or duties. There was a change made back in 1999 that was designed to accomplish this, however there was not clarity until recent decisions by the Washington courts, and the law change here is meant to reaffirm the duties being statutory and not fiduciary. Fiduciary duties are common law duties that carry a higher standard of care for anyone acting as an agent on behalf of a principal. The agency laws in Washington state are written and adopted by the legislature, providing more specific instructions as to the duties and responsibilities of an agent to a principal in the context of real estate. By creating the statutes, Washington state provided clear duties for real estate brokers to their clients (an agency relationship between an agent and a principal). Vicarious Liability. Eliminates the liability of a party for the conduct of the party s agent or subagent, unless the principal participated in or benefited from the conduct or the agent or subagent is insolvent. The buyer or seller is released of liability from any wrongdoing (conduct) of the agent or subagent involved in the transaction. It eliminate liability for things the principal didn t do or benefit from. A benefit may be a financial gain, which would mean that the principal could be held liable if the actions of the broker resulted in a financial gain for the principal. Short sale. Prescribes an additional duty of a firm representing the seller of owner-occupied real property in a short sales. The RCW s require the firm and all brokers in a short sale to disclose to the seller of owner-occupied residential real property when the sale of the listing may be insufficient to cover the costs at closing. The disclosure must be in writing that releasing their interest in the real property for less than the amount owed, does not automatically 4

5 relieve the seller of the obligation to pay any debt or costs remaining at closing. The costs include fees such as the real estate commissions. Sellers needs to know that they may not be released of all their obligations under a short sale. Landslide Hazard Information Senate bill 5088 was passed to expand the duties of the geological survey completed by the Department of Natural Resources. The Department of Natural Resources is required to compile and maintain state information regarding the assessment of seismic, landslide, and tsunami hazards in Washington. This assessment must apply the best practicable technology, including light detection and range mapping to identify and map volcanic, seismic, landslide, and tsunami hazards, and estimate potential hazard consequences, and the likelihood of a hazard occurring. The Geological Survey must: Coordinate with state and local government agencies to compile existing data, including geological hazard maps and geotechnical reports, and informing planning for geological hazards; Acquire and process new data or update deficient data using the best possible technology; Create and maintain an efficient, publicly available database of lidar (using a laser and analyzing reflected light for mapping) and geological hazard maps and geotechnical reports; Provide technical assistance to state and local government agencies on the proper interpretation and application of the results of the geological hazards assessment. Note: LIDAR, which stands for Light Detection and Ranging, is a remote sensing method that uses light in the form of a pulsed laser to measure ranges (variable distances) to the Earth. These light pulses, combined with other data recorded by the airborne system, generate precise, three-dimensional information about the shape of the Earth and its surface characteristics. For more information, brokers can refer their clients to the following website: 5

6 Consumer Finance Protection Bureau The Dodd-Frank Act of 2010 created the Consumer Finance Protection Bureau ( CFPB ), and combined regulatory authority over the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) under this very powerful agency. All federal laws applicable to settlement entities and title insurance providers (RESPA etc.) can be directly enforced by this agency. It also mandated that the CFPB create new disclosure forms. These new forms were designed by the CFPB to: Improve consumer understanding of the terms and costs of their transaction Allow consumers to comparison shop more easily Avoid surprises at closing The proposed rules (consisting of 1,888 pages of regulation) created two disclosure forms. The first is a Loan Estimate (LE) which was to be provided by the lender within 3 business days of loan application. You will notice in the loan estimate example that follows, the language used is clearer than previously used. Also, the layout and appearance lends itself to easier reading.the second is a Closing Disclosure (CD), which must be provided to the consumer 3 business days prior to consummation of the transaction. Before the creation of these new forms, the closing statement was known as a HUD-1 settlement statement. 6

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10 Under the new rules, which became effective October 3, 2015, any qualifying loan application taken on or after that date requires the use of the new Loan Estimate. If the new Loan Estimate is used, then the Closing Disclosure must be used. Not included in the new law: Home equity loans Reverse mortgages Mobile homes if not attached to real property Business, commercial or agricultural loans Cash transactions The rule does apply to construction only loans, and loans secured by vacant land or are 25 or more acres, which is a new requirement since they previously didn t fall under RESPA rules. The new law requires that the lender deliver the Closing Disclosure (CD) to the buyer at least 3 business days prior to consummation. Consummation is considered to be the day the buyer becomes contractually obligated to the lender on the loan, which is the date of signing the loan. If the lender mails the form through the US mail, there is an additional 3 business days added onto this timeframe for presumed receipt. Lenders may authorize settlement agents to prepare & deliver the form, but most lenders will be taking responsibility for this task themselves, due to the potential liability for non-compliance. Note: For purposes of issuing the CD, business days are every day except Sundays and federal holidays. Statewide Purchase & Sale forms have been amended to include a space for the broker to include both their firm license number and their own license number. It is mandatory that the lender insert this information into the Closing Disclosure. For reference and further reading: 10

11 Limited Practice Officer According to the Washington State Bar Association, A limited practice officer (LPO) is a person certified by the Washington Supreme Court under rule 12 of the Admission to Practice Rules. Although not a lawyer, an LPO is authorized to select, prepare, and complete documents in a form previously approved by the Limited Practice Board for use in closing a loan, extension of credit, sale, or other transfer of real or personal property. Forms approved by the Limited Practice Board are broken down in the following sections: Section 1 - Mortgage lending documents Section 2 - Escrow documentation Section 3 - UCC forms Section 4 - Misc tax or government forms (i.e. excise tax, consumer use tax, DOL form) Section 5 - Farmers home administration forms Other than these documents, the LPO officer cannot prepare or cause a buyer or seller to sign real estate transaction forms. They may accept these forms from the listing or selling broker, but cannot obtain signatures of initials on these forms. This activity requires that a person be licensed as a real estate broker. Here is a common scenario: Buyer and seller will be signing closing papers at the escrow office today, therefore, the transaction won t close until tomorrow. Meanwhile, the purchase & sale agreement expires today. One of the broker s in the transaction prepares an extension addendum and sends it over to escrow unsigned and requests the escrow officer give the form to the buyer and seller for their signature. Doing this would mean the real estate broker would be guilty of unprofessional conduct under RCW (9): Aiding or abetting an unlicensed person to practice or operate a business or profession when a license is required. Floating Homes Sometimes a real estate broker is asked to sell a floating home. This sounds great but it has been difficult to determine if they are legally able to. On 1/28/2015 House Bill 1309 was heard and the results attempted to clarify that by stating: 11

12 A real estate broker is licensed to negotiate for others the purchase, sale, exchange, lease or rental of real property, business opportunities, or manufactured homes in conjunction with the land on which the home is located. A real estate broker, managing broker is required to obtain a license from the Department of Licensing. A vessel dealer is a person engaged in the business of selling watercraft used or capable of being used as a means of transportation on the water, not including seaplanes. Vessel dealers must also obtain a license from the Department to sell vessels in Washington. Certain kinds of residential homes float on the water. There are two types of such homes, each treated differently by law. The first is a floating home, defined as a single family dwelling constructed on a float that is moored or anchored in the water. Such homes are not considered vessels, even if they are capable of being towed. The second kind of floating home is a floating on-water residence, defined as a floating residence with detachable utilities whose owner or occupant has held an ownership or leasehold interest in a marina space since at least June 30, So the answer if a real estate broker can sell a floating home is still not totally clear. It depends on the definition of the floating on water residence and the municipality in which the property is located. At the time of this writing, for example, it is still an unresolved issue in the City of Seattle. National Flood Insurance Program (NFIP) Flooding is a major cost when it happens and it is considered to be the #1 natural disaster in the United States. It occurs whenever water or mud inundates property that is normally dry. It can happen because of large amounts of rain, overtopped levees, or broken drainage systems. Regardless of the cause, the cost is a major concern, and therefore insurance plays a critical role. Flood insurance is even mandatory if a property is in a high-risk area and has a mortgage from a federally regulated or insured lender. Due to the enormous costs associated with flooding around the country, Congress created the National Flood Insurance Program (NFIP). Through the program, the government provides a standard flood insurance policy to homeowners. The program is run under the direction of the Federal Emergency Management Agency (FEMA). While 12

13 FEMA is in charge of management, they do not issue many of the policies, which are provided through private insurance companies who write and service the federal insurance policy. FEMA does maintain a direct servicing agent for the insurance program if the agent doesn t write the policy. Since the government is providing the insurance coverage, the standard policy, regardless of the company or if it s from the direct servicing agent includes the same coverage, rates and conditions. Even though coverage rates are the same, they are the same for properties with the same risk of flooding. In order to sort properties into brackets for risk and therefore rate calculations, the insurance provider will assess the type of coverage being purchased, location and flood zone, as well as the design and age of the structure. The location portion of the risk calculation for floods is broken down into zones. There are two high risk zones, A and V, which are considered Special Flood Hazard Areas because they refer to buildings that are below the base flood elevation. Base flood elevation is an area where the elevation is at or below the 100 year flood level. A 100 year flood is a flood that has a 1% chance of occurring each year. Let s look into zone A, V and a couple others that the NFIP uses to classify risk. Zone A The second highest risk category after zone V, zone A includes properties that are at risk of flooding due to rising water levels (e.g. lake, river). There are sub-categories under the A designation, but are just different ways to categorize the type of flooding that may occur. Flood insurance is required for properties located in zone A because of the high risk associated with the location. Zone V Zone V is the most dangerous of the hazard areas because they are typically properties located on the first row of the beachfront and are therefore at risk of high waves. They use the term high velocity waves, thus the zone V. Flood insurance is required in this zone. Other Zones There are two other zones to make note of here, zone X and zone D. X zones are minimal-risk areas where flood insurance is not mandatory. D zones are areas that have not been studied, but where flooding is possible. 13

14 Homeowner Flood Insurance Affordability Act of 2014 There was recent reform regarding the NFIP. On March 13, 2014, Congress amended the 2012 Biggert-Waters law (a flood insurance reform bill) with the Homeowner Flood Insurance Affordability Act, HR President Obama signed the bill into law on March 21, Highlights include: Repeals the Federal Emergency Management Agency s (FEMA) authority to raise flood insurance rates at the time of property sale. Returns to allowing buyers to assume the seller s current rates so the rate stays/transfers with the property, not the owner. Restores grandfathering so properties built and maintained to code in one flood zone are not rated in a higher cost zone, simply because FEMA corrects a mis-rating on a later flood map. Caps premium increases at 18% annually for new properties or 25% for the older ones. Refunds premiums paid by property owners in excess of rates under these amendments. While there are many nice reforms in the bill which are designed to improve the program, consumers should be aware that their rates may go up significantly. Places to Find More Information There are several ways to find out which zone applies to you or your clients. You can determine your flood risk online by visiting floodsmart.gov which is also a great resource for more information about the NFIP changes. You can also go to your town or city hall, where employees responsible for issuing building permits in your area have access to flood zone maps. Also, you can view your flood map by visiting the FEMA Map Service Center website at or by calling (800) Note: Brokers should not advise their customers or clients as to insurance rates for flood coverage. Brokers should always refer them to a local agent that specializes in flood insurance. 14