There are many restrictions on purchasing properties currently in default by investors. Agents representing them must abide by the following adopted California ordinance:
Q 14. What does the Code require of a representative of the equity purchaser?
A A representative of the equity purchaser must:
Provide written proof to the equity seller that the representative has:
a valid, current California Real Estate Sales License (broker or salesperson); and
a bond from an admitted surety insurer in an amount equal to twice the fair market value of the property.
Provide a written statement, under penalty of perjury, that the agent:
has the above license;
has the above bond; and
has complied with the above by providing written proof to the equity seller.
The written statement under penalty of perjury shall be provided to both the equity seller and equity purchaser prior to transfer of any interest in the subject real property.
Should these requirements not be fulfilled, the equity seller may choose to render the purchase contract void. Even if the seller cancels, the equity purchaser is liable for all damages caused by the failure to comply with these requirements.
(Cal. Civ. Code Â§ 1695.17.)
Q 15. Are such bonds by an admitted surety insurer available in California?
A Such bonds are not currently available.
Q 16. Why was this apparently impossible bonding requirement placed on licensees?
A The answer to this is somewhat unclear. The bonding requirement may have found roots in a section of the Code concerning the liability of equity purchasers. Under this section, an equity purchaser is liable for all damages resulting from any statement or act committed by his/her representative. Even though the equity purchaser may not always directly control every act of the representative, the law as written places indirect legal responsibility for such conduct on the purchaser of a residence in foreclosure -- a form of strict liability. The equity purchaser is also liable for his/her/their representative's conduct in any manner connected with the acquisition, receipt of any consideration from or on behalf of the equity seller, or the performance or non performance of any act prohibited or required by the Code.
As the legislative history indicates, because some equity purchasers turned to thinly-veiled corporations and independent contractors whom they controlled to circumvent the 1979 law, the legislature in 1990 imposed these requirements on all buyer's representatives.
V. Exemptions from the Home Equity Sales Contract Law
Q 17. Do these laws ever allow a buyer to purchase a residence in foreclosure without placing impossible restrictions on the buyer's representative?
A Yes, when a buyer acquires title in the manner as follows:
For the purpose of using the property as a personal residence;
By a deed in lieu of foreclosure of any voluntary lien or encumbrance of record;
By a deed from a trustee acting under the power of sale contained in a deed of trust or mortgage at a foreclosure sale;
At any sale of property authorized by statute (such as a tax sale);
By order or judgment of any court (such as probate or family law court); or
From a spouse, blood relative, or blood relative of a spouse.
(Cal. Civ. Code Â§ 1695.1(a).)
The Code has specifically excluded these buyers from the definition of an equity purchaser. Stated otherwise, these types of buyers are "non-equity" purchasers.
Q 18. Could you provide examples of these exceptions?
A For example, an equity purchaser is normally not a purchaser at a trustee sale, a foreclosing holder of a trust deed or mortgage (beneficiary) who receives a deed in lieu of foreclosure, a transferee at a sale authorized by statute such as under a probate proceeding, or a transferee under a court-ordered sale such as in a marital dissolution proceeding.
In addition, persons who acquire title from their spouse, a blood relative, or a blood relative of their spouse are not equity purchasers under the Code. The exemption that applies to more situations than any other is that a person acquiring title to a residence in foreclosure for the purpose of making it a personal residence is not an equity purchaser.
Complicated?? Yes. There is currently legislation in place to resolve the obvious issues associated with this new ordinance. Consult your tax advisor or real estate attorney for more specific details. Good luck!