There are special laws in the California Civil Code designed to protect a homeowner who receives notice of default.
If you are a homeowner in California you are protected if the property you live in has one to four dwelling units.
California recognizes that homeowners whose residences are in foreclosure are susceptible to fraud, deception, and unfair dealing by home equity purchasers.
During the time period between the commencement of foreclosure proceedings and the scheduled foreclosure sale date, homeowners are vulnerable to equity purchasers who induce homeowners to sell their homes for a small fraction of their fair market values.
They use schemes which often involve oral and written misrepresentations, deceit, intimidation, and other unreasonable commercial practices.
Various scamming schemes are discussed above.
California requires disclosures by equity purchasers. These require the equity purchaser to information necessary to make an informed and intelligent decision regarding the sale of a home to an equity purchaser.
- Requires that the sales agreement be expressed in writing
- Prohibits representations that are untrue or tend to mislead regarding any aspect of the sale, such as the value of your house, the amount of money you may receive after the foreclosure sale, and the nature of the document you sign at the behest of the buyer
- Prohibits or restricts unfair contract terms
- Affords homeowners an opportunity to rescind sales to equity purchasers
- Makes it unlawful to initiate, enter into, negotiate, or consummate any transaction involving residential real property in foreclosure, if the person takes unconscionable advantage of the property owner in foreclosure
- Allows the equity seller the right to cancel any contract with an equity purchaser until midnight of the fifth business day following the day on which the equity seller signs a contract or until 8 a.m. on the day scheduled for the sale of the property pursuant to a power of sale, whichever occurs first.
Until the cancellation right expires, an equity purchaser cannot record any documents signed by the seller.
During that period, the equity purchaser cannot transfer or encumber any interest in the residence to another party.
Finally, during that period the buyer cannot pay you any consideration.
Any transaction in violation of the statute is voidable at the election of the homeowner.
If you exercise the right to cancel the buyer must return any documents you signed within ten days of your notice of cancellation.
The law allows the homeowner to sue the equity purchaser for actual damages as well as punitive damages. The district attorney’s office can pursue criminal charges.
A real estate agent will typically not work for the equity purchaser. Under California law, a real estate agent or other representative cannot act on behalf of the buyer unless a bond is obtained worth twice the value of your home.
Since these bonds are very difficult to obtain, most agent will steer clear of an equity purchaser.
There are no restrictions on an agent working for you, the seller. An agent can represent the buyer prior to the time you receive a notice of default.
The agent can also represent the buyer under certain other circumstances:
- The buyer intends to use the house as a personal residence. some buyers may attempt to mislead and claim that they are going to use the house as their residence. This is fraud and a violation of the California Home Equity Contracts Law.
- The buyer is a spouse, blood relative or in-law.
- Court order, trustee sale or deed in lieu of foreclosure.
California law protects distressed homeowners from scams designed to strip them of their equity. It is helpful in some circumstances, but has limited utility where the homeowner has no equity or is unfamiliar with the protection the statute provides.