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Banks could soon be barred from pursuing deficiency judgments against Washington state borrowers after a short sale.
A Senate committee in the Washington State Legislature will hold a hearing over H.B. 2718, which states that if a bank "writes off debt from the short sale, they can't then subsequently collect this debt from the seller. The bill was modeled after similar action passed in Oregon last summer.
The bill if passed, does not require the lender to accept a short sale offer. It would go into effect with 90 days of being passed.
According to a Washington Realtors alert put out late last week, a borrower would report the write off to the Internal Revenue Service and take a tax deduction for the loss. This same amount is also counted as taxable income for the seller.
"Providing certainty and consumer protections for short sale sellers is critical in the current real estate market," the trade group said. "Successful short sales often prevent foreclosures that would harm consumers, tax revenue and economic recovery."
After the Oregon bill took effect in June, REO numbers became choppy and then began to fall at the end of the year. In September, repossessed homes totaled 1,420, according to RealtyTrac. That number increased to 2,057 the following month then slid to 936 in November and 874 in December.
Some of that could be due to seasonal trends. Most lenders put repossessions on hold during the holiday season, but the December total was down 29% from the same month one year earlier.
Jillayne Schlicke, who teaches REO and short sale training in Washington, said while the bill does take some burden off of homeowners, it would not forge a path to a healthier housing market in the state.
"This particular law is not going to help our economy in Washington State recover any faster. The banks are foreclosing slowly so as not to crash the market with REOs," Schlicke said. "If we really want an economic recovery to happen faster, let the foreclosures commence. We will hit bottom very fast."
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
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