Purchasing Property In Foreclosure With Home Equity Sales Contract

The sale of certain properties in foreclosure requires special handling under the Home Equity Sales Contracts Act, which was enacted in 1979. The purpose of this law is to protect homeowners in foreclosure and their equity from unscrupulous people. Homeowners experiencing the financial hardship of foreclosure may be induced to sell their homes for a small fraction of the fair market value through fraud, deceit, or unfair dealings.

Not all properties in foreclosure fall under the home equity sales law. The requirements of the home equity sales law only apply when all four of the following conditions are met:

The property is one-to-four family dwelling units.
The current owner occupies one of the units as a principal residence.
There is an outstanding notice of default recorded.
The buyer will not use the property as a personal residence. (The buyer in this situation is called an “equity purchaser”.)

All four of the above conditions must be met to tigger the home equity sales law. In the typical situation where a buyer of a property in foreclosure will be occupying the property as a personal residence, the home equity sales law does not apply.Transactions falling within the scope of the home equity sales law must meet certain requirements. The contract itself must be in 10-point bold font and in the same language principally used by the parties to negotiate the sale. It also must contain certain contractual provisions. Most notably, the seller must be given a notice of the right to cancel within five business days after signing the contract (or by 8:00 a.m. of the day of the trustee’s sale, if sooner.)Under the home equity sales law, a buyer’s agent generally cannot represent an equity purchaser. A “representative” fpr purposes of this law is anyone who solicts, induces, or causes an owner (or a member of the owner’s family or household) to transfer title to the equity purchaser, Among other things, the representative of the equity purchaser must provide proof of a valid California real estate license and be bonded by an admitted surety insurer for twice the value of the property. This bond is difficult, if not impossible, for an agent to obtain. This bonding requirement applies to a buyer’s agent or dual agents, but not a listing agent representing the seller exclusively.

A violation of the home equity sales law can be very serious. Equity purchaser who violate the home equity sales law may be convicted of a crime punishable by one year imprisonment, plus a $25,000 fine, for each violation. Furthermore, in a civil court, the seller can recover actual damages, exemplary damages of at least three times the actual damages (or a $2,500 civil penalty), attorney’s fees, and costs. The seller also may recover equitable relief, including the rescission of an unconscionable contract up to two after conveyance of the property.

If you are interested in purchasing any of the properties you find featured on our Foreclosure Listings page we have highly qualified agents ready to assist you. 

If you need to discuss the possibility of a short sale on a home you now own, we have experienced short sale agents on our staff. 

Bob Taylor Properties, Inc.
5526 North Figueroa Street,
Los Angeles, CA 90042
323.257.1080
bobtaylorproperty@gmail.com
DRE# 01304057