The California Legislature has enacted the Home Equity Sales Contract Act (HESCA) to help distressed homeowners who are subject to foreclosure properties due to fraud, unfair dealing and deception.
Basically, the law protects distressed homeowners from home equity purchasers, these are investor buyers of foreclosure properties occupied by owners who have received notice of default.
One example of the law’s application is a case before the California First Appellate District Court of Appeal. The case involved a troubled homeowner who filed a bankruptcy and whose property was acquired by a real estate agent for $220,000.
Under the agreement between the homeowner and buyer, the latter allowed the former to remain in the foreclosure properties under a 12-month leaseback deal. Also, the buyer granted an option to the homeowner to buyback the foreclosure properties for about $260,000.
The win-win deal provided the homeowner a way to pay his debt and allowed him to stay in his property. On the case of the buyer, he would have a positive cash flow and an option to profit on foreclosure properties.
However, the deal becomes favorable only on both parties if the homeowner continues to meet his monthly mortgage payment. In case the homeowner becomes delinquent again on his payment, he could not qualify for a mortgage loan.
After a year and the expiration of the repurchase option, the broker offered the foreclosure properties to the homeowner for $315,000 which the latter could not possibly purchase. The broker would then list the foreclosure properties for about $369,950 and give the homeowner a 60-day notice to leave the property.
This case invoked HESCA which is designed to help distressed homeowners make an intelligent and informed decision about the sale of their foreclosed homes.
The law also protects the public against financial difficulties and deceit. It encourages and promotes fair and honest dealing in the purchase and sale of foreclosure properties and discourages any false representations.
Mortgage fraud is becoming rampant in California due to the state’s high foreclosure rate. California foreclosures in 2007 were 84,600 and rose dramatically in 2008 to 237,200. And in 2009, the state’s foreclosures are expected to reach 253,600 and 450,000 in 2010.
Industry experts anticipated California foreclosures to peak this year, surpassing 2008 by 16,000.
