By Kay Wilson-Bolton
January 29, 2007
In the cycle of business, adversity for some creates opportunity for others. A common niche today is for REALTORS® and agents to scout for pre-foreclosure properties for investors.
The legislature has enacted laws that prevent brokers and agents from representing purchasers of such properties in some cases. The fines are severe if breached, and brokers need to be aware of the limitations.
Beginning in 1979, the California legislature enacted laws which sought to curb practices that the legislature considered unscrupulous against fraudulent certain individuals and firms (equity purchasers) who acquired homes in foreclosure from the owners (equity sellers).
These laws were amended in 1990, 1997 and 2003. These transactions are entitled “Home Equity Sales Contracts,” and the requirements are codified in California Civil Code Sections 1695 – 1695.17 (“Code”) to strictly regulate the activities of an equity purchaser and his/her/their “representatives.”
Although a variety of schemes were used, the results of such practices were generally the same. For example, loans, offers of services or sales contracts often involved an unsophisticated homeowner under financial duress signing complex documents with contractual terms, which were financially impossible to meet. They frequently included transferring title to the equity purchaser at the same time as the contract was signed, giving the seller no opportunity to consider the transaction. Sometimes, by way of clandestine financial structuring or by hidden transfer language, the homeowner’s equity and/or title was mistakenly transferred without the owner’s intention to do so. The ultimate result was that the homeowner lost his/her property and/or equity to these unscrupulous individuals.
Here are the rules. Agents can not represent investor buyers under the following circumstances:
The property is 1 to 4 dwelling units; the buyer does not intend to reside in the property; there is an outstanding notice of default, and the owner occupies one of the residences.
There is a particular form designed by the legal staff of California Association of REALTORS® that agents can give such buyers, but the buyer has to complete the form. The buyer cannot be represented by an agent. The form must be given directly to the agent representing the seller and the buyer has to remain unrepresented in the transaction.
The selling agent can offer compensation as a referral for introducing the buyer to the property. While this circumstance seems odds, it is one way for the REALTOR® community to provide a form which protects all parties.
More information can be obtained from http://qa.car.org
Kay Wilson-Bolton is the owner of CENTURY 21 Buena Vista and CENTURY 21 Ability. She brings a regional perspective to local issues. She can be reached at 805.340.5025. Her website is http://www.readysetkay.com