Dilemma:
Susan has been unable to keep up on her mortgage payments on her primary residence in California. Susan's lender has properly recorded a notice of default. Rick is intereted in purchasing Susan's property as an investment. He wants to pay Susan fair market value for the home before the foreclosure sale occurs. Susan is elated at the offer and knows this will help minimize the damage to her credit. Rick asks his REALTOR to be the agent for the transaction. His REALTOR agrees.
Has the REALTOR violated any laws by becoming Rick's agent in this transaction?
Yes! In order for the REALTOR to represent Rick, under the Home Equity Sales Contract Act, the REALTOR must have both a valid real estate sales license and a bond from an admitted surety insurer for twice the fair market value of the property. Unfortunately, such bonds are not currently available in California. Since Rick's REALTOR cannot legally comply with the bonding requirement, the REALTOR cannot represent investment buyers in purchasing properties that are in foreclosure if the property is the current residence of the seller. Rick's REALTOR should immediately remove himself as Rick's agent in writing and no longer be involved in this transaction. If the property is listed, his REALTOR may receive a referral fee.
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