It’s to be expected that a non-judicial process that divests a defaulting property owner of their title to real property would be closely regulated to insure fair dealing and uniform application throughout the state.
California is one of the toughest. Even in states where there are no specific foreclosure protection laws in place, there’s plenty of power within the state Attorney General or County District Attorney’s office to prosecute a real estate investor.
The following four civil codes are the main statutes controlling foreclosure involvement in California. They have been parsed out of the main civil code compilation to facilitate your familiarity and ready reference.
If you intend to buy foreclosure properties from defaulting owners, before the trustee’s sales occur, you should thoroughly familiarize yourself with the three codes dealing with rent skimming, home equity purchasing and acting in the capacity of a foreclosure consultant.
On the other hand, if you just intend to specialize in buying at the trustee’s sales then you should thoroughly read all four of the codes. That’s because, despite your original intentions, you will occasionally find yourself in a situation where you are wheeling and dealing with an owner before the sale. So be smart and safe rather than ignorant of the law and subsequently sorry.
Since these laws are being continually modified and fine tuned by our busy legislators, you’d be smart to download them annually to insure you’re referencing the current law, with all its changes, rather than continuing to rely on older, out-of-date versions. Here’s a simple routine to keep up-to-date. Pick a recurring date that you’ll remember, such as your birthday, and on that day each year log onto the California Law web site <http://www.leginfo.ca.gov/calaw.html> for the current version of each code.
Here’s a link to an actual case where someone got in serious trouble. Click here to read it.
Further advice you need to know the law to stay out of trouble:
GET ALL AGREEMENTS IN WRITING
Oral agreements are not good in real estate. Even if the owner gives you a deed- don’t stop there. You legally own the property at that point but make sure you go though escrow.
Use the proper California form for all homeowners who are officially in the foreclosure process. Just because they are late does not mean the Notice of Default has been slapped on them. That’s why you have to know for sure. California requires an “Equity Purchase contract” that spells out the disclosures once the foreclosure process has officially started.
These disclosures include the fact that the owner is losing his property, his equity, and his right to any proceeds from the home. Although giving a deed should make this obvious, some people truly think that they are entitled to something more because they are still living in the house. Always document every agreement you have with the seller in writing.
EXPLAIN THINGS IN PLAIN ENGLISH
Even though you have a good written disclosure, explain everything clearly to the seller so he understands the implications of the deal. If you are not paying off the loan, make him sign a form spelling it out fully. The seller must go into the transaction with his eyes wide open. Imagine that you are standing in front of a judge explaining your position.
DON’T OFFER THE SELLER A RIGHT TO REPURCHASE
Although you can offer the seller a lease-back with an option to re-purchase at a later time, this kind of arrangement rarely works out. Federal laws restrict this kind of agreement with a cap on the profit you can make on such a deal, which all but makes it impractical. A homeowner can claim such an arrangement was a “disguised” loan and get the property back by filing a lawsuit. Worst case scenario, you could end up in federal prison under RICOH racketeering laws. Once you solve their problem by making stopping the foreclosure, someone will tell them you screwed them and you are in trouble.
Click here to read a legal case where someone got into real trouble with the law.
DON’T BE A SHARK
If there is a lot of equity, make a deal where you give them some money either at closing, monthly payments or a lump sum later. Of course the longer they wait for the money, the more they get. You don’t want to have to explain “unconscionability” to the judge.
DON’T MAKE UP ANY PAYMENTS UNTIL:
- You have the title report and there is nothing you did not know about.
- They have moved
- You have inspected the house
- The 5 day right of recession has passed.
- You have a notarized deed.
What else do you not know about what you don’t know that can get you in trouble. Make sure you attend my all day bootcamp, July 21st to make sure you know what is REALLY happening in today’s real estate market.
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