BoyesLegal Blog

Wednesday, November 11, 2015

Foreclosure Scams: Beware of Equity Purchasers!

In the current economic climate, where foreclosures are increasing exponentially, there are those who would try to take advantage of homeowners who find themselves in dire straits.

Often a realtor, broker or other real estate entity (“equity purchaser”) will offer to bring the mortgage, or mortgages, current and to make monthly mortgage payments until the property is re-sold.  In return the homeowner is asked to transfer title to the property to the equity purchaser.  The “agreement” usually also sets forth some terms regarding how much money the homeowner might eventually receive from the equity purchaser.  In addition, the “agreement” often requires that the homeowner vacate the property within a couple of weeks.

Unfortunately, once title is transferred, the equity purchaser is likely to inform the homeowner that it is not going to honor the “agreement” to pay them the agreed upon funds.  If the homeowner then refuses to vacate the property, the equity purchaser can file a Complaint for Unlawful Detainer and force the homeowner from the property.

However, California law provides a powerful weapon to assist homeowners who are victims of this type of activity.

Civil Code § 1695 et seq., also known as the Home Equity Sales Contract Act (“HESCA”), was enacted to protect homeowners whose residences are in foreclosure from being subjected to fraud, deception, and unfair dealing by home equity purchasers.  (Spencer v. Marshall(2008) 168 Cal.App. 4th 783.)

“The Act sets forth a number of requirements aimed at protecting the homeowner (§§ 1695.2-1695.6). “The contract must include the 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; and 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. (§§ 1695.3-1695.5.) The equity purchaser must provide, and complete, the contract in conformity with these terms. (§ 1695.6, subd. (a).) [¶] During the `cooling off’ period, the equity purchaser cannot take title to the property by written instrument or recordation thereof; transfer or encumber any interest in the property; or pay the seller any consideration. (§ 1695.6, subd. (b).) Moreover, the purchaser cannot make untrue or misleading statements about the value of the property, any foreclosure proceeds, or the terms of sale. (§ 1695.6, subd. (d).)”  (Spencer v. Marshall, supra, at 794.)

In addition, Civil Code § 1695.7 states that, “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.”

Furthermore, if the equity purchaser engages in fraud or deceit as a part of the conduct that violates HESCA, the courts will readily apply criminal penalties to the purchaser that are provided in HESCA.  Civil Code § 1695.8 provides that “any person 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 $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.”  (People v. Shetty (2009) 174 Cal.App. 4th 1488.)

In sum, equity purchasers who violate Civil Code § 1695 can be found liable for the homeowner’s actual damages, exemplary damages, court costs and attorneys’ fees.  Moreover, the homeowner may be able to cancel the contract and have title to the property restored to the homeowner.

If you believe that you have been the victim of this type of activity, you should contact an attorney as soon as possible to determine what relief you may be entitled to under California Civil Code § 1695.

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