WA State Legal Changes for Home Selling in Effect June 7th

Legal Bulletin 194

June 2012 Legislative Changes

By Northwest Multiple Listing Service

May 15, 2012

1. Introduction

This bulletin summarizes amendments to the Agency Reform Act (RCW 18.86), the Seller Disclosure Act (RCW 64.06), the State Building Code (RCW 19.27), and the corresponding revisions to “The Law of Real Estate Agency” pamphlet and NWMLS forms. Please read this bulletin carefully.

2. Short Sale Legislation

a. The Law of Real Estate Agency Pamphlet

House Bill 2614 creates new law and revises existing law with regard to short sales of owner-occupied properties. Effective June 7, 2012, RCW 18.86.120 requires an additional disclosure to be made in “The Law of Real Estate Agency” pamphlet (the “Pamphlet”). The revised Pamphlet will include the following disclosure:

Section 12: Short Sale.

When the seller of owner-occupied residential real property enters into a listing agreement with a real estate licensee where the proceeds from the sale may be insufficient to cover the costs at closing, it is the responsibility of the real estate licensee to disclose to the seller in writing that the decision by any beneficiary or mortgagee, or its assignees, to release its interest in the real property, for less than the amount the borrower owes, does not automatically relieve the seller of the obligation to pay any debt or costs remaining at closing, including fees such as the real estate licensee’s commission.

RCW 18.86.030 requires brokers to provide the Pamphlet to all parties to whom the broker renders real estate brokerage services, before the party signs an agency agreement with the broker, signs an offer in a real estate transaction handled by the broker, consents to dual agency, or waives any rights under RCW 18.86. You must give the revised Pamphlet to all of your new clients with whom you establish an agency relationship with on or after June 7, 2012. You do not need to provide the revised Pamphlet to existing clients to whom you have already given the old Pamphlet prior to June 7, 2012. Page 2 of 4

b. The Listing Agreement

The revision to the Pamphlet requires brokers to give a separate written disclosure to sellers stating that a lender’s decision to release its security interest in the property does not automatically relieve the seller’s obligation to pay any outstanding debt. NWMLS will revise its listing agreements (Form 1A (Exclusive Sale and Listing Agreement) and Form 1B (Exclusive Agency Sale and Listing Agreement)) to include this new disclosure. The new disclosure, in Paragraph 4 of the revised listing agreements, provides:

If the proceeds from the sale of the Property are insufficient to cover the Seller’s costs at closing, Seller acknowledges that the decision by any beneficiary or mortgagee, or its assignees, to release its interest in the Property, for less than the amount owed, does not automatically relieve Seller of the obligation to pay any debt or costs remaining at closing, including fees such as Firm’s commission.

By including this new disclosure in the listing agreement, brokers will not need to separately give this written notice to sellers because the notice will be given at the time the seller executes the listing agreement. You must use this revised listing agreement for all listings taken on or after June 7, 2012. Please note that NWMLS Rule 3 requires that all listings be taken on the current version of NWMLS’s listing agreement.

For existing listings, that are or may become short sales, you must give the above notice to your seller clients on or shortly after June 7, 2012. Rather than having your client sign a revised listing agreement, NWMLS will publish a new “Short Sale Disclosure” (Form 22SSD) that you can provide to sellers of existing listings. That form will be available in the “Pamphlet” section of Xpress Forms.

In addition to the new short sale notice in the listing agreement, NWMLS also revised Paragraph 8 of the listing agreements. The revisions in Paragraph 8 are unrelated to the short sale legislation and were made to ensure that NWMLS and its members receive the proper permission to use the listing data and the photographs of the property. For example, members often provide the listing data and photographs to third parties that provide services to the members. The revisions to Paragraph 8 make clearer that NWMLS and its members are permitted to provide this information to those third parties.

c. Other Critical Provisions of House Bill 2614

There are two other noteworthy provisions in House Bill 2614. The first provision requires that a lender in a short sale, upon its “first written notice” to the seller, provide notice that it either “waives” or “reserves” the right to collect the full amount of the debt. The idea behind this requirement is to give the seller notice early in the process about whether the seller will be obligated for any existing debt after closing. Page 3 of 4

The second noteworthy provision shortens the statute of limitations for a lender to bring an action to collect any outstanding debt after releasing its security interest in the property from six years to three years. This means that lenders will have less time to file claims against sellers to pursue any outstanding debt after a short sale.

3. Carbon Monoxide Legislation

a. Seller Disclosure Act – Form 17 and Form 17 Commercial

Senate Bill 6472, effective June 7, 2012, revises the Seller Disclosure Act (RCW 64.06) and requires revisions to Form 17 (Seller Disclosure Statement – Improved Property) and Form 17 Commercial (Seller Disclosure Statement – Commercial Property).

Form 17 will include two new questions in Section 5 (Systems and Fixtures) as follows:

E. Is the property equipped with carbon monoxide alarms? (Note: Pursuant to RCW 19.27.530, Seller must equip the residence with carbon monoxide alarms as required by the state building code.)

F. Is the property equipped with smoke alarms?

Form 17 Commercial will include one new question in Section 5 (Systems and Fixtures) as follows: “Are there any defects in the following systems? If yes, please explain. . . . (5) Carbon monoxide alarms.”

The revised forms should be used as follows:

 Sellers should use the new version of Form 17 (rev. 6/12) or Form 17 Commercial (rev. 6/12) for transactions where the parties reach mutual acceptance on or after June 7th.

 Sellers should use the prior version of Form 17 (rev. 7/11) or Form 17 Commercial (rev. 6/10) for transactions where the parties reach mutual acceptance before June 7th and the seller provides Form 17 or Form 17 Commercial to the buyer before June 7th.

 Sellers should use the new version of Form 17 (rev. 6/12) or Form 17 Commercial (rev. 6/12) for transactions where the parties reach mutual acceptance before June 7th, but the seller does not provide Form 17 or Form 17 Commercial until June 7th or later.

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b. Brokers Not Liable for Seller’s Failure to Install Carbon Monoxide Alarms

In addition to the revisions to the Seller Disclosure Act, Senate Bill 6472 modifies the section of the Washington State Building Code related to carbon monoxide alarms (RCW 19.27.530). Effective June 7th, RCW 19.27.530 will provide:

Real estate brokers licensed under chapter 18.85 RCW shall not be liable in any civil, administrative, or other proceeding for the failure of any seller or other property owner to comply with the requirements of this section or rules adopted by the building code council.

This means that, in addition to the protections in the NWMLS purchase and sale agreement related to the installation of carbon monoxide alarms, real estate brokers also have a statutory exemption from liability.

4. Availability of Revised Forms

The revised listing agreements, Form 1A and Form 1B (rev. 6/12), the revised seller disclosure forms, Form 17 and Form 17 Commercial (rev. 6/12), and the new Short Sale Disclosure (Form 22SSD) are currently available for order and distribution in hard-copy. The Pamphlet is currently available for order and will be available for distribution in hard copy soon.

The revised forms, including the Pamphlet and the new Short Sale Disclosure, will be available on Xpress Forms on May 31, 2012, a week before the new laws are effective. NWMLS will remove the old version of the forms at the same time.

PLEASE NOTE: You must not use the old listing agreements, the old Pamphlet, or the old seller disclosure forms after June 6, 2012. You should recycle your old forms to prevent any inadvertent use. You may, however, use any of the new forms or the revised Pamphlet before June 7, 2012.