If you have been following my series on buying investment properties in foreclosure and/or you are working within the state of California, then you should definitely familiarize yourself with the Home Equity Sales Contracts Law.
Here is a general summary of the Home Equity Sales Contracts Law (California Civil Code Sections 1695 through 1695.17, referred to as HESC below) special thanks to http://www.car.org.
This law applies only if ALL four of the following conditions are met:
(1) the property being sold is residential one-to-four units;
(2) the owner currently occupies the property;
(3) a Notice of Default (NOD) has been recorded against the property; and
(4) the buyer does not intend to occupy the property (i.e., buyer is an investor).
If any one or more of the four conditions has not been met, then the HESC doesn't apply and none of the conditions or restrictions discussed below apply (e.g., no special contract need be used, there is no special rescission period).
This law was enacted in response to practices that occurred in connection with sales of property in foreclosure. Although many schemes have been used, the ultimate result was that the homeowner lost his/her property and/or equity due to the unscrupulous actions of others. The intent and purpose of this law is to:
- Provide homeowners with information necessary to make informed, intelligent sales decisions;
- Require written sales agreements;
- Safeguard the public against deceit and financial hardship;
- Insure fair dealing in the sale and purchase of homes in foreclosure;
- Prohibit misleading representations;
- Restrict unfair contractual terms;
- Provide homeowners reasonable opportunity to rescind sales to equity purchasers; and
- Protect homeowners' equity.
For all of the details of this law, visit http://www.car.org. Be aware that if your buyer and seller fit into the categories described above, you will need to write a Home Equity Sales Contract, and the seller will have the following legal rights:
- FIVE-DAY CANCELLATION PERIOD: Cancellation of the purchase contract by the equity seller for five full business days from when the equity seller signs the contract or up to 8:00 a.m. of the trustee's sale date whichever occurs first;
- TWO-YEAR CONTRACTRESCISSION PERIOD: Rescission of any transaction found to be unconscionable within two years of recordation of the conveyance (Cal. Civ. Code § 1695.14);
- NO WAIVER BY SELLER: Any waiver of any provision of these laws by the equity seller is void (Cal. Civ. Code § 1695.10); and
- NO LIMITATION ON PURCHASER'S DAMAGES: Any contract provision which attempts or purports to limit the liability of the equity purchaser from damages resulting from the statement or conduct of his/her representative is void (Cal. Civ. Code § 1695.16).
There are so many potential ramifications to this law which may be a good reason to consult with a serious legal team before venturing into a transaction such as this one.
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