Know Your Rights if You Are in Pre-Foreclosure

It's an unfortunate fact that certain loan borrowers have been unable to make their payments. On this blog there are many searches about information on foreclosure and pre-foreclosure.

If you're in this situation, please see my earlier post What Happens If You Are In Foreclosure?.

It's important for you to know that certain California statutes regulate the sale of homes on which a Notice of Default has been filed, that if you list your home with a California agent you should make sure your agent is aware of using the Home Equity Sales Contract form when a buyer presents an offer. This form specifically addresses particular issues as required by the California Civil Code Sections 1695-1695.17 which are designed to protect the seller from fraud and deception by unscrupulous buyers. Among other things, a sales contract under these circumstances would include the following language to prevent you from signing over the rights to your home under undue pressure:

"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."

Read the Code sections linked above (they're not that difficult to go through) because they carefully spell out what the equity purchaser (your buyer) must do if you already have a Notice of Default filed on your property. An equity purchaser convicted of fraud under these laws is subject to damages and other penalties including jail time, and the seller has certain rights to bring action. If you are in doubt about someone you are dealing with, or have questions before you list your home, please take the time to get a second opinion from a qualified REALTOR, or seek advice from an attorney who specializes in real estate law and foreclosures.

October 12, 2007 addition from October CLTA News concerning rescission of a sale of a pre-foreclosure property:

"REMINDER --- DISTRESS SALES ARE HIGHLY REGULATED

"Homeowners facing foreclosure and buyers wanting a deal would seem a perfect match. But these matches face obstacles that both buyers and sellers may not fully understand. This is because the California Legislature stepped in a few years ago to crack down on fraud and created a whole new set of laws dealing with the sale of property in foreclosure. The law provides far-reaching protection to homeowners facing foreclosure. Once a notice of default is filed the law applies and sellers have specific legal protections, including the right to cancel a contract to sell up to five business days after signing a contract to sell the property. Not only can a seller cancel the contract before the sale but under certain circumstances the owner may rescind the sale within two years if a court finds the sale unconscionable. In addition, a court may award the seller damages and the purchaser could be criminally prosecuted.

"A representative of the seller is also treated harshly if they do not comply with the law. These representatives must have a valid real estate sales license and a bond. [MY NOTE: USING THE REALTOR'S HOME EQUITY CONTRACT FORM CORRECTLY ADDRESSES THE BOND ISSUE.] Both the purchaser and seller must be given a statement by the representative that they have the license and bond. Failure to comply means the seller may choose to treat the sales contract as void and can seek damages. There is some relief from all of these pitfalls. If a purchaser is going to use the property as their personal residence or the purchaser is the spouse or blood relative of the homeowner then the law does not apply. The bottom line in all of this is that both buyers and sellers and their agents should be aware of the law. With all of the attention devoted to sub-prime mortgages and foreclosures it is likely that the failure to strictly comply with the law will lead to serious title problems."

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