Home Equity Sales Contracts

by Ben Hamburg - Hamburg Law Corporation

THIS COMMUNICATION IS NOT INTENDED TO PROVIDE LEGAL ADVICE AS TO ANY PARTICULAR TRANSACTION, AND IS INTENDED SOLELY FOR GENERAL INFORMATION.

YOUR RECEIPT OF THIS INFORMATION DOES NOT CREATE ANY ATTORNEY-CLIENT RELATIONSHIP. YOU SHOULD CONSULT WITH AN ATTORNEY OF YOUR OWN CHOOSING BEFORE RELYING ON ANY OF THE STATEMENTS MADE.

I am writing relating to an issue that may become important to you, as a real estate agent or real estate buyer (or someone who may represent them), as residential mortgage foreclosures increase. In particular, there are important and little-known California statutes that relate to purchases of residential, owner-occupied properties that are in foreclosure that place significant restrictions on the buyer and the buyer’s agent, and provide important protections for a seller that require the use of specialized forms.

In California, would-be real estate investors who are seeking to take advantage of a foreclosure situation to obtain a deal on residential, owner-occupied property, and those who might be asked to represent them, must be mindful of Civil Code sections 1695-1695.17. These statutes set forth a number of very strict requirements that are designed to protect homeowners facing foreclosure. The statutes relate to sales to “equity purchasers”, i.e. THOSE WHO DO NOT INTEND TO LIVE IN THE HOME, but instead are buying it with the belief that they can flip it and make money at the expense of the seller who is being forced to sell. SALES TO BUYERS PURCHASING THE HOME AS THEIR PRIMARY RESIDENCE ARE EXEMPT. Also excluded from the statute are those who acquire the property from a spouse, blood relative, or blood relative of a spouse.

The statute imposes restrictions and contractual requirements on both the prospective buyer and on an agent for the BUYER who does not plan to live in the home. Among other things, a sale contract or an offer to purchase between the seller and purchaser must comply with specific provisions of the law. General forms used in residential sales are not sufficient. For example, if the transaction has been negotiated in a language other than English, the contract must be written in that language. Moreover, the agreement must contain a provision allowing the seller to cancel, without penalty, until midnight on the fifth business day following the day the contract was signed, or until 8:00 A.M. of the day scheduled for the foreclosure sale, whichever occurs first. The rescission period cannot be reduced through offers made by the purchaser to the seller.

Of particular significance is a provision that requires the purchaser’s agent to not only be licensed, but also to have a bond. The latter requirement essentially makes it impossible for a licensed real estate agent to represent the buyer since the required bond is not available in California. The California Association of Realtors has apparently been working on a solution to this dilemma, consisting of a form by which the selling agent disclaims any right to commission and instead obtains a referral fee.

Any person looking to buy a residential home in foreclosure for investment purposes or any agent who wants to represent such a purchaser should go over the matter carefully with his or her broker and an attorney. Violations of the above-discussed provisions can result in criminal penalties including jail time and substantial fines. In situations where a purchaser has taken unconscionable advantage of the seller, the seller may have a right to rescind the sale for up to two years. Furthermore, an agent’s failure to comply with the statute could result in rescission, leading to potential liability on the part of the agent to the purchaser.

If you have any questions about the above, please let me know.

Ben Hamburg
Hamburg Law Corporation
2625 Alcatraz Avenue, #500
Berkeley, CA 94705
Tel: (510) 985-2600
Fax: (510) 985-2666
Web: www.hamburglawcorp.com

One should consult with a qualified mortgage professional prior to implementing any mortgage strategies.

If you are a tax, insurance, financial or financial planning professional receiving this newsletter, please call our office and introduce yourself to us. We are always seeking to grow our referral network and expose more service professionals to our client base.