In California, The Home Equity Sales Contract Act is a comprehensive set of statutes designed to protect homeowners in default from unfair purchases of their home equity. The California legislature recognizes the equity value of a residence can be lost to an unscrupulous purchaser whenever a homeowner facing foreclosure succumbs to a proposal to sell his or her home for a fraction of its value.

Homeowners whose residences are in foreclosure are subject to fraud, deception, and unfair dealing by home equity purchasers.

The recent rapid escalation of home values, particularly in urban areas, has resulted in significant increases in home equity.

During the time from the beginning of foreclosure proceedings and the scheduled foreclosure sale date, homeowners in financial distress, especially the poor, elderly, and financially unsophisticated, are vulnerable to the schemes of equity purchasers who induce homeowners to sell their homes for a fraction of their fair market values through the use of schemes which often involve oral and written misrepresentations, deceit, intimidation, and other unreasonable commercial practices.

California statutes regulate transactions between an equity purchaser and an equity seller resulting in the sale of residential real property in foreclosure.

The statutes require a written agreement which includes:

Total consideration given;

Terms of payment and terms of any rental agreement;

A conspicuous statement of the right to cancel within five business days or until 8 a.m. on the day scheduled for foreclosure, with an attached notice of cancellation;

A conspicuous notice that until the right to cancel has ended, the equity purchaser cannot ask the seller to sign a deed or any other document.

Not all property is covered by the statute. Property subject to the statues must be one- to four-family dwelling units, one of which is owner occupied, and against which there is an outstanding notice of default.



Not everyone who purchases property from a distressed homeowner is covered.The statute carves out specific exceptions. Those excluded are people who acquire title:

for use as a personal residence

by deed in lieu of foreclosure of a voluntary lien or encumbrance of record;

by deed from a trustee acting under the power of sale in a deed of trust; by any sale authorized by statute;

by court order; or

blood relative of a spouse.

During the five day 'cooling off' period, the purchaser cannot:

take title to the property;

transfer or encumber any interest in the property;

pay the seller any money or other consideration;

make untrue or misleading statements about the value of the property, any foreclosure proceeds, or the terms of sale.

The purpose of the legislation is to prevent equity purchasers from taking advantage of the property owner in foreclosure. Violations of the law can result in cancellation of the transaction (rescission) and damages--including punitive damages.

California attorney and broker Ralph Oliver Thompson is author of "Dreams Foreclosed, A Homeowners Guide to Foreclosure." http://www.forecloseddreams.com

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