Foreclosed Homeowners Beware

If you’ve been foreclosed and you’re home has been sold at public auction vis-à-vis a sheriff’s sale, chances are you are being contacted by real estate investors. Watch out. They have a bottom line and meeting their bottom line is their primary concern. Fortunately, for Washington Residents are legislature enacted the Distressed Property Conveyance Act, RCW 61.34 et Seq., to address “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.”

In order to facilitate the equity skimming schemes, a real estate investor, who is typically the one who purchased your home at auction may threaten to evict you. They may tell you, “I purchased your home at a sheriff’s sale, I will file a writ of assistance or an unlawful detainer action to forcibly remove you, unless you sign over your rights.” What rights?

Homeowners who occupied the foreclosed property as their homestead i.e. their primary residence, have the right to occupy the property for the redemption period (either 8 months or one year) without paying rent.[1] While the homestead protection was designed to alleviate the stress that the foreclosure process places on homeowners, many real estate investors disregard the law and use the foreclosed owner’s lack of knowledge against them, pressing empty threats of eviction to obtain their rights.

Another right a foreclosed homeowner has is the right of redemption, both equitable and statutory. See RCW 6.23. et seq. The Redemption Act allows a foreclosed homeowner, known as a “judgment debtor”, to pay the amount bid for at auction plus interest. The equitable right of redemption applies before the property is sold at a public auction and allows a homeowner to pay the judgment amount to avoid a decree of foreclosure.

Your redemption rights are extremely valuable to “real estate” investor because the right of redemption is rooted in your interest in the property. Therefore, under the current status of the law, in order to obtain redemption rights, a real estate investor, if they know what they’re doing, will ask you to sign a quit claim deed conveying all of your interest in the property to them. This is one way to effectively transfer redemption rights.

By signing a quit claim deed, the real estate investor succeeds your entire interest including various rights such as excess funds. Excess funds are any amount of surplus over the judgment amount that results through competitive bidding at public auctions. For example, the lender forecloses for $200,000.00, which is the opening bid amount at auction. But because of the equity in the property, the property sells for $250,000.00. Assuming there are no prior liens (a subject for a later post), then the judgment debtor is entitled to receive the $50,000.00 over and above the judgment amount.

But if you quit claim your redemption rights vis-à-vis a quit claim deed, then you essentially pass the right to collect these funds to the real estate investor. You may even compromise your right to occupy the property free of rent. Do not do this without consulting an attorney. In fact, if you’re a judgment debtor undergoing foreclosure, we will give you a free consultation. We know this practice backwards and forward and can inform you of your rights and what you stand to lose if you decide to sign over your rights to a real estate investor.

On a personal note, I have seen too often unknowing judgment debtors sign over their rights for next to nothing to a real estate investor, only to realize later down the road they could have received thousands more. It pains me to see people taken advantaged of. We are here to help inform you of your rights, and if necessary litigate on your behalf. Call us.

[1] See RCW 6.23.110. This does not excuse you from paying other real property obligations such as mortgage payments, taxes and other assessments.