Foreclosure Fairness Act

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As of July 22, Washington state’s new foreclosure mediation program, established by the Foreclosure Fairness Act (FFA), provides a mechanism for borrowers facing foreclosure to pursue modified loan agreements with the help of a professional advocate and a neutral mediator. For beneficiaries, trustees and their agents, the mediation program is an opportunity to further explore alternatives to foreclosure, but it also establishes additional requirements that must be fulfilled before a foreclosure can be completed.

Under Washington’s Deeds of Trust Act (RCW 61.24, et seq.), which governs nonjudicial foreclosures, the beneficiary or its authorized agent must send the borrower an initial contact letter at least 30 days before issuing a notice of default. Under the FFA amendments, this letter must now inform the borrower that if he or she responds within 30 days, he or she will have an additional 60 days to meet with the lender before a notice of default is issued. This letter must also advise the borrower of the right to contact an approved housing counselor or an attorney.

Significantly, borrowers cannot institute the mediation process on their own. If the housing counselor or attorney determines that mediation is appropriate and no notice of sale has been recorded, he or she may send a request for mediation to the state Department of Commerce. Within 10 days of the request, the department will notify the beneficiary, borrower, trustee and referring counselor or attorney of the selected mediator and the documents and information they must provide in advance of the mediation. Once the mediator is selected, mediation must occur within 45 days, unless the parties agree upon a later date. Before the mediation, the homeowner must provide a financial statement and future income information, debts and obligations, and the past two years’ tax returns. The beneficiary must provide the loan balance, an itemized list of fees and charges, payment history and other requested documents.

The goal of mediation is to avoid foreclosure by reaching a mutually satisfactory agreement. This may include reinstatement, modification of the loan, restructuring of the debt or some other workout plan. The parties must consider the borrower’s current and future income, debts and financial obligations, as well as the net present value of receiving modified payments compared to the anticipated net recovery following foreclosure. They must also consider any loan modification and net present value calculations required under the Home Affordable Modification Program or other applicable federal mortgage relief programs. Within seven business days of the mediation, the mediator must certify that mediation occurred. The certification must include basic information (e.g., time, date and place of mediation), as well as whether the parties mediated in good faith, the conclusion reached and a description of the net present value test used.

Participants in the mediation program must mediate in good faith, and a violation of this requirement may give the homeowner a defense to the foreclosure action. Violations of this duty include failure to timely participate, provide required information, or to designate a representative with sufficient authority to negotiate on the beneficiary’s behalf. A mediator’s certification that the net present value of a modified loan exceeds the anticipated net recovery from a foreclosure also provides a defense to the foreclosure. However, if the borrower defaults on a modification agreement, the beneficiary’s lack of good faith is no longer a defense. If the parties do not come to a new agreement, the existing loan agreement remains in place. Once the trustee receives a certification that the mediation has been completed, it may record a notice of sale.

It remains to be seen how effective the mediation program will be in promoting modified loan agreements that work for both parties. What is certain is that borrowers, beneficiaries, trustees and the attorneys who represent them must adapt to the program’s impact on the nonjudicial foreclosure process and related litigation.

JOHN S. DEVLIN is a shareholder at Lane Powell, chair of the firm’s Mortgage and Consumer Finance Litigation Industry Team, and a member of the Securities Class Action and Financial Institutions Practice Groups. He can be reached at devlinj@lanepowell.com or 206.223.6280.

ANDREW G. YATES  is an attorney at Lane Powell and a member of the firm’s Mortgage and Consumer Finance Litigation Industry Team and Financial Institutions Practice Group. He can be reached at yatesa@lanepowell.com or 206.223.7034.

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Legal Briefs: Navigating Environmental Regulations

Legal Briefs: Navigating Environmental Regulations

Tips for staying in compliance.
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Our state’s ever-changing regulatory environment makes it hard to stay on the right side of the law. Here are some simple steps to help keep your business in compliance:
 
1. Ignorance Is Not Bliss. Take time to research which environmental regulations apply to your operations. Consider all relevant media — air, water and land. For example:
 
• Does your facility emit air pollutants? Consult with the local air pollution control agency.
• Are you planning construction near a shoreline or wetland? Consult with the Washington Department of Ecology’s Shorelands and Environmental Assistance Program.
• Do your operations require a stormwater permit? Consult with the Washington Department of Ecology’s Water Quality Program. 
 
As a starting point, review the Regulatory Handbook prepared by the Governor’s Office for Regulatory Innovation and Assistance (oria.wa.gov). When in doubt, it is best to consult experienced environmental counsel to determine which regulations apply. Once you have this information, you can develop the appropriate compliance programs.
 
2. Uncover Your Property’s History. Under the Model Toxics Control Act, RCW 70.105D, a business that owned or operated a facility where hazardous substances have come to be located may be liable for cleaning up the property. To manage this risk, it is essential to conduct due diligence before entering into a lease or buying a commercial or industrial property. A reputable consulting firm can assist. If any notable conditions arise, a subsurface investigation may be warranted. Frequently, businesses negotiate environmental indemnity agreements to address this kind of liability, but it is important to do so before you lease or buy, not after.
 
3. Identify Your Waste Streams. Every business generates waste, whether from an office building or a manufacturing facility. Be sure to review your local rules, since some jurisdictions mandate recycling. It is also critical to determine whether a waste is “dangerous” under WAC 173-303. This is more common than you think. Most businesses generate some type of dangerous waste, including adhesives, aerosol cans, paints, solvents, fertilizers and cleaners. You can start by taking a look at the materials you use and the wastes that remain. If you have products labeled “DANGER,” “FLAMMABLE,” “WARNING” or “POISON,” they may become a dangerous waste if discarded or mixed with other wastes. Electronic waste, such as batteries, mercury-containing equipment and light bulbs, are also regulated. If used oil, batteries and other wastes are recycled, they may be partially or fully exempt from the regulations.
 
4. Recordkeeping Is Essential. You should live by the mantra: “If you don’t write it down, it never happened.” The key to compliance is meticulous recordkeeping. Keeping records up to date, organized and readily available for an inspector is critical. Create easy-to-use logs to track internal inspections, monitoring programs and the use of best management practices.  
 
5. Violation Issued. Now What? If you get a notice of violation from an agency or a citizens’ suit notice, immediately take note of the deadlines to respond and any procedures for contesting or appeal. Contact a lawyer to discuss your rights, whether there may be other parties at fault and settlement options. Once you have established the deadlines and determined the best course of action, evaluate what circumstances led to the violation. Plan a debriefing session with your employees to discuss how to prevent future violations. Establish what changes can be implemented to ensure compliance, which may involve enhanced training requirements or the development of an internal auditing program. Use this as a learning opportunity for your business.
MICHAEL A. NESTEROFF is a member of Lane Powell’s Construction and Environmental Practice Group and has handled numerous environmental claims and litigations. Reach him at 206.223.6242 or nesteroffm@lanepowell.com, or follow him on Twitter @MikeNesteroff. 
JULIE S. NICOLL is a member of Lane Powell’s Construction and Environmental Practice Group and has extensive experience advising clients on environmental compliance matters. Reach her at 206.223.7118 or nicollj@lanepowell.com.