E2SSB 5686
SignedSenate
Foreclosure mediation prg.
Expanding and funding the foreclosure mediation program.
How does a bill become law?
- Introduced: The bill is filed and assigned a number.
- Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
- Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
- Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
- Governor: The Governor reviews the bill and decides whether to sign or veto it.
- Signed: The bill has been signed into law.
AI Analysis
This bill expands Washington State’s foreclosure mediation program to include delinquent HOA assessments and adds new requirements for lenders and associations to participate fairly. It creates a $80 fee on most residential mortgages to fund counseling, legal aid, and program administration, and tightens rules around documentation, timelines, and good-faith participation.
- Expands the existing foreclosure mediation program to include delinquent homeowners' association (HOA) assessments—not just mortgage defaults—by adding 'unit owners' as eligible participants.
- Requires housing counselors or attorneys to refer eligible borrowers or unit owners to mediation within strict timeframes (no later than 90 days before a scheduled trustee’s sale, or 25 days before a rescheduled sale).
- Mandates that lenders and associations provide detailed documentation before mediation—including loan balances, payment history, hardship explanations, and proof of authority—and prohibits them from requiring borrowers to waive legal claims as a condition of modification.
- Establishes a $80 'foreclosure prevention fee' on most residential mortgage closings (excluding reverse mortgages for seniors over 61), collected at closing and deposited into the state’s Foreclosure Fairness Account to fund counseling, legal aid, and program operations.
- Strengthens enforcement: if mediation fails, a mediator’s certification that a lender or association acted in bad faith can be used as a legal defense to stop foreclosure, and courts may consider net present value calculations to assess fairness of outcomes.
Who is affected
- Homeowners (borrowers) — Homeowners with mortgages on properties with up to four units who receive a notice of default may be referred to mediation by a housing counselor or attorney to work toward alternatives to foreclosure, such as loan modifications or payment plans.
- Condo/co-op unit owners — Homeowners in condominium or cooperative associations who fall behind on assessment payments may be referred to mediation to resolve delinquency and avoid foreclosure on their unit.
- Lenders and loan servicers (beneficiaries) — Mortgage lenders, banks, and loan servicers must participate in mediation when referred, provide required documentation, and negotiate in good faith—or risk legal consequences including injunctions on foreclosure.
- Homeowners' associations — Homeowners' associations (HOAs) and property managers must participate in mediation when a unit owner is referred, provide documentation on delinquent assessments, and negotiate resolution options.
- Housing counselors and attorneys — Approved housing counselors and attorneys help homeowners prepare for and navigate mediation, refer eligible borrowers to the program, and must act in good faith to avoid liability.
Pro/Con Analysis
Stronger case for benefits
Potential Benefits (5)
The $80 fee funds housing counseling (50%) and legal aid (16.5%), directly expanding access to no- or low-cost representation and advice for homeowners facing foreclosure—especially low-income families, seniors on fixed incomes, and non-English speakers. These services are proven to increase successful outcomes in mediation and reduce wrongful foreclosures.
HousingPeopleRef: Sec. 8 ($80 fee) & Sec. 9 (50% of revenue to housing counseling); Sec. 9 (16.5% to civil legal aid)By requiring referrals only from approved housing counselors or attorneys (not self-referral), and prohibiting lenders from demanding waiver of future legal claims as a condition of modification, the bill reduces lender coercion and ensures that only trained professionals assess eligibility—protecting vulnerable borrowers from predatory tactics and procedural traps.
Rights & LibertiesPeopleRef: Sec. 2(3) (housing counselor or attorney may refer to mediation); Sec. 3(1) (eligibility triggered by referral, not self-initiation); Sec. 3(11)(d) (prohibition on requiring waiver of future claims)The bill introduces objective financial standards (e.g., net present value comparison of modified loan vs. foreclosure recovery) and a statutory bad-faith standard, which courts can use to enjoin foreclosures when lenders or associations refuse reasonable modifications. This deters abusive practices and increases accountability, especially for repeat offenders.
Public SafetyPeopleRef: Sec. 3(15)(c) (net present value test as basis for injunction); Sec. 3(15)(a) (mediator’s bad-faith certification as defense); Sec. 3(11)(d) (prohibition on requiring waiver of future claims)By expanding the program to include delinquent HOA/condo assessment foreclosures, the bill protects condo and co-op owners—many of whom are seniors, low-income, or disabled—from losing their homes over relatively small assessment balances (often under $10,000). This addresses a disproportionate risk faced by owners in aging or financially struggling associations.
HousingPeopleRef: Sec. 1 (definition of 'Unit owner'); Sec. 2–3 (mediation eligibility for delinquent HOA assessments); Sec. 3(5)(b) (association documentation requirements for delinquency mediation)The requirement that mediation be completed before a trustee’s sale proceeds (when mediation is initiated) provides breathing room for borrowers to explore alternatives and avoid immediate displacement. Even when mediation fails, the bad-faith defense may prevent unjust foreclosures, preserving housing stability for families.
HousingLean peopleRef: Sec. 3(17)(a) & (b) (mediation delays sale); Sec. 3(15)(a) (bad-faith certification as defense)
Potential Concerns (5)
The $80 fee on most residential mortgage closings (excluding reverse mortgages for seniors over 61) increases closing costs for homebuyers, disproportionately affecting low- and middle-income borrowers who may already be stretched thin on down payments and closing costs. Although the fee can be financed into the loan, this increases total debt and long-term interest payments, especially for borrowers with limited credit access or lower credit scores.
FinancialPeopleRef: Sec. 8 (new $80 fee on most residential mortgages)The bill explicitly excludes commercial loans, seller-financed sales, and properties held by partnerships, corporations, or LLCs—effectively limiting program access to owner-occupied, single-family, and small (1–4 unit) residential properties. While this targets the program toward everyday homeowners, it excludes many working-class borrowers in duplexes or triplexes who live in one unit but operate the property as a small business, and excludes investors who may be renting to low-income tenants in four-plexes.
HousingRef: Sec. 4 & 5 (exclusions for commercial loans, non-owner-occupied properties, and entity-owned properties)The tight deadlines (e.g., 23 days for borrower to submit documents, 20 days for lender, 70 days total for mediation) may pressure borrowers—especially those with complex financial situations, limited access to counsel, or language barriers—into rushed decisions or incomplete submissions, potentially undermining the fairness of outcomes. While intended to prevent delay, these timelines may disadvantage vulnerable borrowers who need more time to gather documentation or consult advisors.
HousingRef: Sec. 3(2) & (3)(a) (10-day department referral window); Sec. 3(4) & (5) (document submission deadlines: 23 and 20 days respectively); Sec. 3(7) (70-day mediation deadline)The bill strengthens borrower rights by prohibiting lenders from requiring waiver of future legal claims and creating a statutory defense against foreclosure if mediation is conducted in bad faith. However, these protections only apply when mediation is initiated and completed—meaning borrowers must first navigate the program, which may be intimidating or inaccessible without legal counsel. The net present value requirement also assumes borrowers can understand and challenge complex financial models, which may not be feasible for many.
Rights & LibertiesRef: Sec. 3(11)(d) (prohibition on requiring waiver of future claims as condition of modification); Sec. 3(15)(a) (mediator’s bad-faith certification as foreclosure defense); Sec. 3(15)(c) (net present value test as basis for injunction)By requiring mediation completion before a trustee’s sale can proceed (when mediation is initiated pre- or post-sale), the bill adds procedural delays that may reduce the risk of wrongful or rushed foreclosures. However, these delays do not prevent foreclosure outright—they only delay it, and may increase uncertainty and housing instability for families during the interim period.
Public SafetyRef: Sec. 3(17)(a) (mediation required before notice of sale if referred pre-sale); Sec. 3(17)(b) (sale delayed until mediation completed if referred post-sale)
Who Is Most Affected
Low- and middle-income homeowners facing mortgage delinquency or HOA assessment foreclosure gain access to free or low-cost counseling and legal representation, increasing their odds of avoiding displacement. The $80 fee is modest relative to closing costs and is financeable, but may still burden already-stretched budgets.
HOAs and property managers gain a structured, court-adjacent process to resolve delinquencies without costly litigation, but must now provide detailed documentation and negotiate in good faith—potentially increasing administrative burden and reducing aggressive collection tactics.
Lenders and loan servicers face new documentation, timing, and good-faith obligations that increase compliance costs and reduce flexibility in negotiation. While the program may reduce long-term losses by facilitating earlier resolutions, the requirement to forgo waivers and face bad-faith liability increases legal exposure.
Housing counselors and legal aid attorneys gain new statutory authority and dedicated funding (50% and 16.5% of fee revenue, respectively), expanding their role and reach—but also increasing their liability exposure if they fail to act in good faith.
Condo/co-op unit owners, especially seniors and low-income residents, gain a new pathway to avoid foreclosure over small assessment balances. However, they must still navigate the program and may face pressure to settle under tight deadlines.