McKenna Called Out on Controversial Foreclosure Bill

The attorney general says he wasn’t part of the bill’s changes. Sen. Weinstein begs to differ.

Since the Distressed Property Law took effect on June 12, it has facilitated zero lawsuits but much finger-pointing. The law, designed to quash nefarious foreclosure-rescue schemes, has realtors uncomfortable because, they say, it burdens them with undue liability. Meanwhile, Attorney General Rob McKenna, who once declared ownership of the bill, now disavows it, instead siding with the realtors (see “Home Flipper,” SW, July 23).

As the law stands, an investor who approaches a homeowner within 20 days of foreclosure must act in the homeowner’s best financial interest. The law also applies to third parties, which in many cases are realtors. In a video appearing on the Washington Realtors Web site, McKenna says that “the state Senate added a lot of language that we never intended and that we actively opposed with our friends in the realtor community.” The solution, he says, is to roll back the law in favor of the original one drafted by his office.

McKenna’s spokesperson, Kristin Alexander, says the troublesome language appeared in the bill only hours before state lawmakers voted on it, so there was little time to review the bill. She also claims that when Assistant Attorney General Jim Sugarman appeared before the Senate Consumer Protection and Housing Committee on Jan. 25, he had less than a minute to testify.

Balderdash, says Sen. Brian Weinstein (D-Mercer Island), one of the bill’s sponsors. He claims the attorney general’s office was involved in every phase of crafting the final law. Weinstein, the chair of the Consumer Protection and Housing Committee, oversaw Sugarman’s testimony. Speaking for about eight minutes, Sugarman compared two versions of the bill: SB 6431, the version the attorney general’s office helped draft, and SB 6695, a more complex version that Weinstein co-sponsored. In his testimony, Sugarman noted that 6431 regulates the transaction itself, while 6695 defines the duties of the investor and defines a foreclosure consultant.

At the end of the hearing, Sugarman told the committee, “I just wanted to emphasize that all three of these bills are very positive in terms of helping people. I think they need to be conformed in terms of definitions and applying to both mortgages and tax sales.” (The other bill discussed that day, SB 6383, states that if a homeowner wants to evict a tenant, the homeowner must disclose to the court whether that tenant ever owned the home.) The Distressed Property Law eventually combined elements of all three bills.

The attorney general’s other complaint surrounds exemptions to the law. According to McKenna’s office, similar laws in other states exempt realtors. “While we had no objection, in principle, to the concept of foreclosure consultant legislation as enacted in other states (which all exempted real estate agents), no one mentioned this significant departure from the model used in other states,” said Alexander in a comment posted on in response to the aforementioned story.

Yet Weinstein maintains that of the 22 states that have enacted variations of the Distressed Property Law, Massachusetts, Indiana, Idaho, and Hawaii have no exemptions for realtors (nor does the District of Columbia). Furthermore, Weinstein disputes the attorney general’s contention that the law as it stands was dumped on McKenna’s office at the last minute, leaving inadequate time to review it. As proof, Weinstein’s office offers a March 10 e-mail between Sugarman and Bruce Neas of Columbia Legal Services, in which the two men discuss whether an exemption for licensed mortgage brokers would weaken the bill (the exemption was eventually included). The bill passed both chambers on March 13, a day before the legislature adjourned. Gov. Chris Gregoire signed it into law on March 31.

“The controversial language was in the bill on Jan. 31 and discussed in Weinstein’s committee on Jan. 25,” says Syd Locke, a legislative assistant to Weinstein. “My point is that the AG’s office was involved with this bill all the way through the process. They had every opportunity to raise concerns about any part of the bill.”

But Sugarman claims he was not aware that the Distressed Property Law would take its current form until he walked into Weinstein’s committee Feb. 29 to testify a second time. “The second hearing, I had signed in in support of the bill, and the reason I did that was because I didn’t realize it was a striker (substitute),” says Sugarman. “In other words, I thought I was testifying in favor of our bill.”

As for the e-mails with Neas, Sugarman says he was trying to draft another bill with housing advocates—”[The potential legislation] would bring in some of the things they wanted to do with some of the things we wanted to do,” he says—rather than address the legislation that eventually became the Distressed Property Law.

What’s more, Sugarman claims his participation in the first hearing was to make sure the bills would not overlap one another. And with the end of the legislative session drawing near, Sugarman wanted to make sure a bill was passed.

“I wanted to get there and make sure we [were] all copacetic with the fact that we’re both trying to achieve positive things here,” he says.

Weinstein believes that already has happened. “I don’t think the realtors are liable to anyone here unless they cooperated with a distressed home consultant who was taking advantage of somebody going into foreclosure,” he says.

Nevertheless, the legislation likely will be revisited when the legislature reconvenes in January.

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