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Purchasing Home Equity in California
CIVIL CODE
SECTION 1695-1695.17
1695. (a) The Legislature finds and declares that homeowners whose residences are in foreclosure have been subjected to fraud, deception, and unfair dealing by home equity purchasers. The recent rapid escalation of home values, particularly in the urban areas, has resulted in a significant increase in home equities which are usually the greatest financial asset held by the homeowners of this state. During the time period between the commencement of foreclosure proceedings and the scheduled foreclosure sale date, homeowners in financial distress, especially the poor, elderly, and financially unsophisticated, are vulnerable to the importunities of equity purchasers who induce homeowners to sell their homes for a small 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.
(b) The Legislature declares that it is the express policy of the state to preserve and guard the precious asset of home equity, and the social as well as the economic value of homeownership.
(c) The Legislature further finds that equity purchasers have a significant impact upon the economy and well-being of this state and its local communities, and therefore the provisions of this chapter are necessary to promote the public welfare.
(d) The intent and purposes of this chapter are the following:
(1) To provide each homeowner with information necessary to make an informed and intelligent decision regarding the sale of his or her home to an equity purchaser; to require that the sales agreement be expressed in writing; to safeguard the public against deceit and financial hardship; to insure, foster, and encourage fair dealing in the sale and purchase of homes in foreclosure; to prohibit representations that tend to mislead; to prohibit or restrict unfair contract terms; to afford homeowners a reasonable and meaningful opportunity to rescind sales to equity purchasers; and to preserve and protect home equities for the homeowners of this state.
(2) This chapter shall be liberally construed to effectuate this intent and to achieve these purposes.
1695.1. The following definitions apply to this chapter:
(a) "Equity purchaser" means any person who acquires title to any residence in foreclosure, except a person who acquires such title as follows:
(1) For the purpose of using such property as a personal
residence.
(2) By a deed in lieu of foreclosure of any voluntary lien or encumbrance of record.
(3) By a deed from a trustee acting under the power of sale
contained in a deed of trust or mortgage at a foreclosure sale
conducted pursuant to Article 1 (commencing with Section 2920) of Chapter 2 of Title 14 of Part 4 of Division 3.
(4) At any sale of property authorized by statute.
(5) By order or judgment of any court.
(6) From a spouse, blood relative, or blood relative of a spouse.
(b) "Residence in foreclosure" and "residential real property in foreclosure" means residential real property consisting of one- to four-family dwelling units, one of which the owner occupies as his or her principal place of residence, and against which there is an outstanding notice of default, recorded pursuant to Article 1(commencing with Section 2920) of Chapter 2 of Title 14 of Part 4 of Division 3.
(c) "Equity seller" means any seller of a residence in
foreclosure.
(d) "Business day" means any calendar day except Sunday, or the following business holidays: New Year's Day, Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'Day, Thanksgiving Day, and Christmas Day.
(e) "Contract" means any offer or any contract, agreement, or arrangement, or any term thereof, between an equity purchaser and equity seller incident to the sale of a residence in foreclosure.
(f) "Property owner" means the record title owner of the residential real property in foreclosure at the time the notice of default was recorded.
1695.2. Every contract shall be written in letters of a size equal to 10-point bold type, in the same language principally used by the equity purchaser and equity seller to negotiate the sale of the residence in foreclosure and shall be fully completed and signed and dated by the equity seller and equity purchaser prior to the execution of any instrument of conveyance of the residence in foreclosure.
1695.3. Every contract shall contain the entire agreement of the parties and shall include the following terms:
(a) The name, business address, and the telephone number of the equity purchaser.
(b) The address of the residence in foreclosure.
(c) The total consideration to be given by the equity purchaser in connection with or incident to the sale.
(d) A complete description of the terms of payment or other
consideration including, but not limited to, any services of any nature which the equity purchaser represents he will perform for the equity seller before or after the sale.
(e) The time at which possession is to be transferred to the
equity purchaser.
(f) The terms of any rental agreement.
(g) A notice of cancellation as provided in subdivision (b) of Section 1695.5.
(h) The following notice in at least 14-point boldface type, if the contract is printed or in capital letters if the contract is typed, and completed with the name of the equity purchaser, immediately above the statement required by Section 1695.5(a):
"NOTICE REQUIRED BY CALIFORNIA LAW
Until your right to cancel this contract has ended,
_______ or anyone working for _______
(Name) (Name)
CANNOT ask you to sign or have you sign any deed or any other
document."
The contract required by this section shall survive delivery of any instrument of conveyance of the residence in foreclosure, and shall have no effect on persons other than the parties to the contract.
1695.4. (a) In addition to any other right of rescission, the
equity seller has the right to cancel any contract with an equity purchaser until midnight of the fifth business day following the day on which the equity seller signs a contract that complies with this chapter or until 8 a.m. on the day scheduled for the sale of the property pursuant to a power of sale conferred in a deed of trust, whichever occurs first.
(b) Cancellation occurs when the equity seller personally delivers written notice of cancellation to the address specified in the contract or sends a telegram indicating cancellation to that address.
(c) A notice of cancellation given by the equity seller need not take the particular form as provided with the contract and, however expressed, is effective if it indicates the intention of the equity seller not to be bound by the contract.
1695.5. (a) The contract shall contain in immediate proximity to the space reserved for the equity seller's signature a conspicuous statement in a size equal to at least 12-point bold type, if the contract is printed or in capital letters if the contract is typed, as follows:
"You may cancel this contract for the sale of your house without any penalty or obligation at any time before _______________________________________________________________ ______.
. (Date and time of day)
See the attached notice of cancellation form for an explanation of this right."
The equity purchaser shall accurately enter the date and time of day
on
which the rescission right ends.
(b) The contract shall be accompanied by a completed form in
duplicate,captioned "notice of cancellation" in a size equal to 12-point bold type, if the contract is printed or in capital letters if the contract is typed, followed by a space in which the equity purchaser shall enter the date on which the equity seller executes any contract. This form shall be attached to the contract, shall be easily detachable, and shall contain in type of at least 10-point, if the contract is printed or in capital letters if the contract is typed, the following statement written in the same language as used in the contract:
"NOTICE OF CANCELLATION
_______________________________________________________________ ____ (Enter date contract signed)
You may cancel this contract for the sale of your house, without any penalty or obligation, at any time before _______________________________________________________________ ____.
(Enter date and time of day)
To cancel this transaction, personally deliver a signed and dated
copy of this cancellation notice, or send a telegram
to _______________________________________________________________,
(Name of purchaser)
at _______________________________________________________________
(Street address of purchaser's place of business)
NOT LATER THAN _______________________________.
(Enter date and time of day)
I hereby cancel this transaction _______________________________.
(Date)
___________________________________"
(Seller's signature)
(c) The equity purchaser shall provide the equity seller with a
copy of the contract and the attached notice of cancellation.
(d) Until the equity purchaser has complied with this section, the
equity seller may cancel the contract.
1695.6. (a) The contract as required by Sections 1695.2, 1695.3,
and 1695.5, shall be provided and completed in conformity with those
sections by the equity purchaser.
(b) Until the time within which the equity seller may cancel the
transaction has fully elapsed, the equity purchaser shall not do any
of the following:
(1) Accept from any equity seller an execution of, or induce any
equity seller to execute, any instrument of conveyance of any
interest in the residence in foreclosure.
(2) Record with the county recorder any document, including, but
not limited to, any instrument of conveyance, signed by the equity
seller.
(3) Transfer or encumber or purport to transfer or encumber any
interest in the residence in foreclosure to any third party, provided
no grant of any interest or encumbrance shall be defeated or
affected as against a bona fide purchaser or encumbrancer for value
and without notice of a violation of this chapter, and knowledge on
the part of any such person or entity that the property was
"residential real property in foreclosure" shall not constitute
notice of a violation of this chapter. This section shall not be
deemed to abrogate any duty of inquiry which exists as to rights or
interests of persons in possession of the residential real property
in foreclosure.
(4) Pay the equity seller any consideration.
(c) Within 10 days following receipt of a notice of cancellation
given in accordance with Sections 1695.4 and 1695.5, the equity
purchaser shall return without condition any original contract and
any other documents signed by the equity seller.
(d) An equity purchaser shall make no untrue or misleading
statements regarding the value of the residence in foreclosure, the
amount of proceeds the equity seller will receive after a foreclosure
sale, any contract term, the equity seller's rights or obligations
incident to or arising out of the sale transaction, the nature of any
document which the equity purchaser induces the equity seller to
sign, or any other untrue or misleading statement concerning the sale
of the residence in foreclosure to the equity purchaser.
(e) Whenever any equity purchaser purports to hold title as a
result of any transaction in which the equity seller grants the
residence in foreclosure by any instrument which purports to be an
absolute conveyance and reserves or is given by the equity purchaser
an option to repurchase such residence, the equity purchaser shall
not cause any encumbrance or encumbrances to be placed on such
property or grant any interest in such property to any other person
without the written consent of the equity seller. Nothing in this
subdivision shall preclude the application of paragraph (3) of
subdivision (b).
1695.7. An equity seller may bring an action for the recovery of
damages or other equitable relief against an equity purchaser for a
violation of any subdivision of Section 1695.6 or Section 1695.13.
The equity seller shall recover actual damages plus reasonable
attorneys' fees and costs. In addition, the court may award
exemplary damages or equitable relief, or both, if the court deems
such award proper, but in any event shall award exemplary damages in
an amount not less than three times the equity seller's actual
damages for any violation of paragraph (3) of subdivision (b) of
Section 1695.6 or Section 1695.13; or the court may award a civil
penalty of up to two thousand five hundred dollars ($2,500), but it
may not award both exemplary damages and a civil penalty. Any action
brought pursuant to this section shall be commenced within four
years after the date of the alleged violation.
1695.8. Any equity purchaser who violates any subdivision of
Section 1695.6 or who engages in any practice which would operate as
a fraud or deceit upon an equity seller shall, upon conviction, be
punished by a fine of not more than twenty-five thousand dollars
($25,000), by imprisonment in the county jail for not more than one
year, or in the state prison, or by both that fine and imprisonment
for each violation.
1695.9. The provisions of this chapter are not exclusive and are in
addition to any other requirements, rights, remedies, and penalties
provided by law.
1695.10. Any waiver of the provisions of this chapter shall be void
and unenforceable as contrary to the public policy.
1695.11. If any provision of this chapter, or if any application
thereof to any person or circumstance is held unconstitutional, the
remainder of this chapter and the application of its provisions to
other persons and circumstances shall not be affected thereby.
1695.12. In any transaction in which an equity seller purports to
grant a residence in foreclosure to an equity purchaser by any
instrument which appears to be an absolute conveyance and reserves to
himself or herself or is given by the equity purchaser an option to
repurchase, such transaction shall create a presumption affecting the
burden of proof, which may be overcome by clear and convincing
evidence to the contrary that the transaction is a loan transaction,
and the purported absolute conveyance is a mortgage; however, such
presumption shall not apply to a bona fide purchaser or encumbrancer
for value without notice of a violation of this chapter, and
knowledge on the part of any such person or entity that the property
was "residential real property in foreclosure" shall not constitute
notice of a violation of this chapter. This section shall not be
deemed to abrogate any duty of inquiry which exists as to rights or
interests of persons in possession of the residential real property
in foreclosure.
1695.13. It is unlawful for any person to initiate, enter into,
negotiate, or consummate any transaction involving residential real
property in foreclosure, as defined in Section 1695.1, if such
person, by the terms of such transaction, takes unconscionable
advantage of the property owner in foreclosure.
1695.14. (a) In any transaction involving residential real property
in foreclosure, as defined in Section 1695.1, which is in violation
of Section 1695.13 is voidable and the transaction may be rescinded
by the property owner within two years of the date of the recordation
of the conveyance of the residential real property in foreclosure.
(b) Such rescission shall be effected by giving written notice as
provided in Section 1691 to the equity purchaser and his successor in
interest, if the successor is not a bona fide purchaser or
encumbrancer for value as set forth in subdivision (c), and by
recording such notice with the county recorder of the county in which
the property is located, within two years of the date of the
recordation of the conveyance to the equity purchaser. The notice of
rescission shall contain the names of the property owner and the
name of the equity purchaser in addition to any successor in interest
holding record title to the real property and shall particularly
describe such real property. The equity purchaser and his successor
in interest if the successor is not a bona fide purchaser or
encumbrancer for value as set forth in subdivision (c), shall have 20
days after the delivery of the notice in which to reconvey title to
the property free and clear of encumbrances created subsequent to the
rescinded transaction. Upon failure to reconvey title within such
time, the rescinding party may bring an action to enforce the
rescission and for cancellation of the deed.
(c) The provisions of this section shall not affect the interest
of a bona fide purchaser or encumbrancer for value if such purchase
or encumbrance occurred prior to the recordation of the notice of
rescission pursuant to subdivision (b). Knowledge that the property
was residential real property in foreclosure shall not impair the
status of such persons or entities as bona fide purchasers or
encumbrancers for value. This subdivision shall not be deemed to
abrogate any duty of inquiry which exists as to rights or interests
of persons in possession of the residential real property in
foreclosure.
(d) In any action brought to enforce a rescission pursuant to this
section, the prevailing party shall be entitled to costs and
reasonable attorneys fees.
(e) The remedies provided by this section shall be in addition to
any other remedies provided by law.
1695.15. (a) An equity purchaser is liable for all damages
resulting from any statement made or act committed by the equity
purchaser's representative in any manner connected with the equity
purchaser's acquisition of a residence in foreclosure, receipt of any
consideration or property from or on behalf of the equity seller, or
the performance of any act prohibited by this chapter.
(b) "Representative" for the purposes of this section means a
person who in any manner solicits, induces, or causes any property
owner to transfer title or solicits any member of the property owner'
s family or household to induce or cause any property owner to
transfer title to the residence in foreclosure to the equity
purchaser.
1695.16. (a) Any provision of a contract which attempts or purports
to limit the liability of the equity purchaser under Section 1695.15
shall be void and shall at the option of the equity seller render
the equity purchase contract void. The equity purchaser shall be
liable to the equity seller for all damages proximately caused by
that provision. Any provision in a contract which attempts or
purports to require arbitration of any dispute arising under this
chapter shall be void at the option of the equity seller only upon
grounds as exist for the revocation of any contract.
(b) This section shall apply to any contract entered into on or
after January 1, 1991.
1695.17. (a) Any representative, as defined in subdivision (b) of
Section 1695.15, deemed to be the agent or employee, or both the
agent and the employee of the equity purchaser shall be required to
provide both of the following:
(1) Written proof to the equity seller that the representative has
a valid current California Real Estate Sales License and that the
representative is bonded by an admitted surety insurer in an amount
equal to twice the fair market value of the real property which is
the subject of the contract.
(2) A statement in writing, under penalty of perjury, that the
representative has a valid current California Real Estate Sales
License, is bonded by an admitted surety insurer in an amount equal
to at least twice the value of the real property which is the subject
of the contract and has complied with paragraph (1). The written
statement required by this paragraph shall be provided to all parties
to the contract prior to the transfer of any interest in the real
property which is the subject of the contract.
(b) The failure to comply with subdivision (a) shall at the option
of the equity seller render the equity purchase contract void and
the equity purchaser shall be liable to the equity seller for all
damages proximately caused by the failure to comply.
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