Frequently, when homeowners are dealing with financial difficulties, equity purchasers may induce homeowners to sell their homes for a fraction of the price. An “equity purchaser” is anyone who acquires title to any residence in foreclosure, with some exceptions. (Cal. Civ. Code § 1695.1(a)). The California legislature believed that homeowners were losing their homes to foreclosure due to “fraud, deception, and unfair dealing by home equity purchasers.” (Cal. Civ. Code § 1695). To combat these instances of deceit, the Legislature implemented the Home Equity Sales Contract Act, found in Title 5 of the California Code of Civil Procedure, Chapter 2.5, sections 1695.1-1695.16.
The goals of the Act are to provide homeowners with the information they need to make an informed decision regarding the sale of their home to an equity purchaser, to require that sales agreements be in writing, to protect the public against deceit and financial hardship, to encourage fair dealing in the sale and purchase of homes in foreclosure, to prohibit homeowners from being misled, to restrict unfair contract terms, to give homeowners a reasonable opportunity to rescind sales to equity purchasers, and to preserve home equities for the homeowners of California. (Cal. Civ. Code § 1695).
What Does the Home Equity Sales Contract Act Restrict?
Until the time in which the equity seller may cancel has fully lapsed, the equity purchaser shall not accept from any equity seller an execution of, or induce any equity seller to execute, conveyance of any interest in the residence in foreclosure; record with the county recorder any document; transfer or encumber or attempt to transfer to encumber any interest in the residence in foreclosure to any third party; or pay the equity seller any consideration. (Cal. Civ. Code § 1695.6(b)(1)-(4)).
If a notice of cancellation is given in accordance with sections 1695.4 and 1695.5, the equity purchaser shall return without condition any original contract and any other documents signed by the equity seller. (Cal. Civ. Code § 1695.6(c)).
Additionally, the equity purchaser shall make no untrue or misleading statements regarding the value of the residence, the amount of proceeds the equity seller will receive after a foreclosure sale, any contract term, the equity seller’s right and obligations from the sale, the nature of any document which the equity purchaser induces the equity seller to sign, or any other untrue or misleading statement connected to the sale of the residence to the equity purchaser. (Cal. Civ. Code § 1695.6(d)).
If the equity purchaser holds title because of a transaction where the equity seller grants the residence by an absolute conveyance and reserves or is given by the equity purchaser an option to repurchase the residence, the equity purchaser shall not cause any encumbrance or encumbrances to be placed on the property or grant any interest in the property to another without the consent of the equity seller (Cal. Civ. Code § 1695.6(e)).
The Act also prohibits any person to initiate, enter into, negotiate, or consummate a transaction that involves a residence in foreclosure if such person takes unconscionable advantage of the property owner in foreclosure (Cal. Civ. Code § 1695.13).
What Are the Remedies for a Violation of the Act?
Equity sellers may bring actions for recovery of damages or other equitable relief if an equity purchaser violates any of the subdivisions in section 1695.6, or section 1695.13. (Cal. Civ. Code § 1695.7). Criminal penalties could also be sought when an equity purchaser’s actions are considered to be fraud or deceit upon an equity seller. (Cal. Civ. Code § 1695.8).
Rescission is also an option. Under section 1695.14, if an equity purchaser violates section 1695.13, the transaction is considered voidable, and the property owner may rescind the transaction within two years of the date of the recordation of the conveyance of the property.
What is An Example of How this Works?
“Shawn” is the business of purchasing homes in foreclosure and “Julie” unfortunately is a property owner who is about to lose her home to foreclosure. Shawn contacts Julie and offers to buy her home but give her the option to buy it back in the future. In exchange for the option, Julie would need to accept a low price on the property. They come to an agreement where Julie will transfer title to Shawn with the option. However, this agreement was never put into writing.
After some time, Julie becomes financially successful and wants to use the option to buy back the property. Shawn however refuses and instead plans to sell the home to the highest bidder.
Julie brought an action to court for an injunction to prevent Shawn from selling the home, and recession of their oral agreement with restoration of title to her. She alleged that Shawn violated the Home Equity Sale Contract Act. The agreement that she made with Shawn never met the written requirements of the Act, and if he sold the property to someone else, it would be without the consent of the equity seller – in this case, Julie. The court ruled in favor of Julie and restored title to her subject to her returning the amount Shawn had given her.
How the Attorneys at Underwood Law Firm Can Help
Property owners need to be aware of their rights when selling their home in times of financial crisis, especially when they are facing a foreclosure. The Home Equity Sales Contract Act was implemented because so many property owners were being misled by potential purchasers. The Act exists to protect property owners and help them make informed decisions before decided to sell their residence.
As each case is unique, litigants would be well-served to seek experienced counsel familiar with the ins and outs of real estate transactions and the law surrounding them. At the Underwood Law Firm, our knowledgeable attorneys are here to help. If you are seeking to sell your property, are worried about whether you are handling the transaction properly, or if you just have questions, please do not hesitate to contact our office.
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