California Notice of Default Law

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A great questionI was just asked this question and had to look it up.
I figured it was worthy of a post.

In California,
if the property is in Notice of Default (NOD),
and the purchaser does not occupy the property (Investor),
the transaction becomes what is called an Equity Purchase.

That's important because there are specific rules that need to be applied and adhered to.

Here's the actual question:
"I plan on buying a home that is in foreclosure and flip it, But I just heard the seller (homeowner) has a 2 year right of rescission. What does that mean? Do I have to hold the property for two years before I can sell?"
As I mentioned, I had to look this up to make sure I had the correct information.
Here's what I found...

Once the sale has closed, the investors title is subject to the seller in foreclosure's Two Year Right of Rescission due to any unconscionable advantage the Investor might have imposed on the transaction.

So does that mean the homeowner can get their property back?

Not quite. Assuming the investor has already sold the property to an unknowing buyer, the remedy would be a recovery of the money the original homeowner was out.

That figure would be determined by the value of the property at the time of resale, less the old loan amounts, less any funds received (good faith money) in the original transaction from the investor.

Interestingly, if it was a sale rent back,
where the homeowner never left but instead started to pay the new owner rent,
they will not be able to recover any of the rent paid - NONE.

They will however, get paid 10% interest on the equity they lost from the start of the violation.

Where did I find this information?
California Civil Code 1695.10 and 1695.14

Buying a foreclosure and planning on living in it?
These rules don't apply to you.

Remember, always work with a professional. Always!


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Jason Grams
none - Roseville, CA
Great post, I have been well aware of this law for quite some time, funny how the foreclosure "gurus" taking money from people to attend seminars don't mention that you may end up losing big time buying a home in default!
Feb 20, 2008 02:31 PM #1
Mike Mueller
Tech and Social Media Consultant - Walnut Creek, CA

Thanks Jason!   -  I just realized I didn't answer the other question,

Does he have to wait 2 yrs to sell?

The answer is no.  He can sell the next day.  It should be pointed out that the new buyer should be a bona fide purchaser with no knowledge of the NOD or they too will be dragged into the mess. 


Feb 20, 2008 03:11 PM #2
Marc Grossman
Marc It Sold! - Longwood, FL
GRI, Greater Orlando Real Estate Broker
Mike,  It's interesting to find out how things work in different parts of the country.  Thanks for the info.
Feb 20, 2008 05:04 PM #3
Fran Gatti
RE/MAX Coastal Redwoods - Crescent City, CA
Realtor, CDPE, RDCPro - Crescent City CA Real Esta


I felt like I just read Greek.  I will have to reread the post a few times.

Feb 20, 2008 11:13 PM #4
Mike Mueller
Tech and Social Media Consultant - Walnut Creek, CA

Marc - I'd be interested in the what the laws in FL state.

Fran - Read it again and again, it still might be hard to understand.  Try reading the civil code!

Here's what you need to know.  If you are buying an investment property and the homeowner is NOD, they'll have a two year period in which they can recover their equity (if not the actual property) if certain conditions apply.


NOD?  Investor?  Buyer Beware!


Feb 20, 2008 11:22 PM #5
Marc Grossman
Marc It Sold! - Longwood, FL
GRI, Greater Orlando Real Estate Broker
Mike,  I would have to check, but I've never heard of anything of this sort before and I've dealt with foreclosures in the past. 
Feb 21, 2008 09:36 PM #6
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