More on Law Against Flipping

I attended the Real Estate Investors Association of Washington meeting on Monday night.  This meeting was about Landlord / Tenant law presented by Verna Cameron of L/T Services.  The first meeting was, however, dedicated to a discussion about the SR 1843 revision to the contractor law.

There were several people who were asked to talk a bit about the law and its effects:

• Dean Dretske (Me) – I related a story I heard from another realtor (‘Steve’) in my office.  Steve was talking with a client (who I will call ‘Bob’ for clarity) about a property that Bob was interested in buying.  Steve thought that Bob might be thinking about flipping / leasing the property and asked Bob it he was aware of the SR 1843 changes in the law.  Bob said that he was very aware because he had been recently visited by a representative from the Department of Labor and Industries – L&I is responsible for enforcing the contractor laws.  This representative visited a worksite of Bob’s and reviewed each person on site to make sure that tey were all licensed contractors – including Bob since he was the owner of a property being updated with the intent of selling.  The representative had already visited Bob’s personal residence and other properties as well.  Bob did not know what brought him to L&I’s attention – whether it was a complaint from the ‘public’ or just the amount of property transactions with which he has been involved.  The L&I representative told Bob that he was going to be fined $1000 and needed to take steps to comply with the law.  Bob is currently consulting with his attorney to see what steps he is required to make.  There are some people who have been saying that L&I will not enforce this law until some clarity is reached on the intentions of the law – this anecdote indicates that L&I is already enforcing the law.
• Larry Restalrig-Logan from Farmer’s Insurance talked about the insurance / bonding requirements for getting licensed as a contractor.  A general contractor needs a $12,000 bond (or equivalent) and insurance.  Larry indicated that for a person with good credit and fairly small amount of transactions per year (sales volume), this will probably cost approximately $2500 per year (for each entity that owns property that it ‘flips’).  The bond will cost around $350 – $4500 depending on the persons credit rating.  The insurance premium will depend on volume of sales and type of work that the contractor will attempt / perform.  He also noted that most people do not understand how a bond works – the bond supplier pays on the claim and then comes to the contractor to recover the payment (the bond supplier does not lose money).
• Clayton Hall from Choice Lending talked a bit about financing these kinds of properties.  I did not hear much of his presentation – I got quite a few questions from surrounding audience members.  My impression is that there are not any changes to financing from this change to contractor law.  The big aspect will be how the change affects entity structuring for the purposes of asset protection.  Since financing is dependent on what kind of entity owns the property, the way it is structured will have an effect.
• A couple of blogs were mentioned that have more information on these contractor changes.  Rain City Guide has several posts (including Eileen’s) as does Eastside Business .  Check them out.
• Two lawyers then came up to give their opinions on the changes to contractor law.  Robert Penfield (of Kelley Penfield, PLLC) and Mike Essig (of O’Brien, Barton, Wieck & Joe, PLLP) have both been reviewing the changes.  They both indicated that until the law has been taken to the appeals court or WA supreme court, there will be various attorney opinions.  Robert indicated that he reads the law as applying to homeowners who update their property prior to sale – which applies to almost every sale of real estate in Washington.  He also agreed that the law will probably apply to all of the examples that I listed in the earlier posts (Law Against Flipping and September REAPS and the Law against Flipping).

Verna started her presentation – unfortunately, I missed almost all of her presentation while I took part in follow up conversations regarding the contractor changes.  These conversations took place outside of the room.  I will watch for notes on Verna’s persentation and will link to them.

Update (10/9/07):

I just got an email with a link to another lawyer that agrees that this law will apply to many homeowners who are selling their residence.  The article is titled: Attention Washington property owners and developers: You may be a general contractor without knowing it