California Foreclosure Update

As I have discussed, there is a pathetic Civil Code Section 1695 that affects foreclosure sales in California. If a real estate agent has an investor client interested in a one - four owner-occupied property that has a “Notice of Default” filed, there are many problems.

First, the owner must be given a written five-business day right to cancel and be told in 12-point type that no documents can be signed during that period. The written contract for sale must be very complete in 10-point type and be in the language in which the sale was negotiated. Even if you follow all the rules the sale can be rescinded up to two years from date of recording if unconscionable advantage had been taken of the seller. Finally, the agent must show written proof to the seller of a valid real estate license plus the agent must make a written statement that he or she has a bond equal to twice the value of the property.

There is one ridiculous aspect of this code. The bond can?t be purchased anywhere. The law was passed in 1979 and generally disregarded in previous foreclosure surges. In 2005 the California Association of Realtors (CAR) published two forms addressing this subject:

1. Home Equity Explanation and Agency Agreement ? HEAA
2. Notice of Default Purchase Agreement ? NODPA

Basically, NODPA incorporates the contract requirements and expands the regular CAR agreement from eight to ten pages. HEAA addresses the bond problem and states that the agent with the buyer won?t be an agent; they are to be considered a ?Referral Licensee?. This form is difficult to understand and to implement. If the bond is not presented (it is impossible to do so) ?at the option of the seller the contract can be rendered void and the buyer shall be liable for all damages.?

Because of these terms, uncertainty, and a potential of severe liability, many brokers have decided consciously perhaps or subconsciously not to sell foreclosure (NOD) properties to investors. This removes many possible buyers from the market for NOD properties. This law was designed to help the public but in fact it hurts the NOD owner by lowering their chance of sale. Also, real estate investors are shut out and real estate companies will have less income. This is a bad law for everyone.

At a recent CAR director?s meeting it was announced that they would sponsor a bill to try to get the bond requirement removed from the law.
It is a most fortunate time to consider this change. Foreclosure notices in the last quarter of 2006 numbered 37,273 compared to 15,196 in the last quarter of 2005. Simple math states that is an increase of
22,077 or 146%. People are going to be losing their houses and no one seems to realize that this code will cause more Trustee Sales because owners won?t be able to sell.

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