A selling broker representing an EP investor does not advise the seller-in-foreclosure of a one-to-four residential property occupied by the seller that he is bonded since he is not. After the sale closes, the seller-in-foreclosure claims the purchase agreement is void and makes a demand on the EP investor to return the property to the seller since the selling broker representing the EP investor did not provide either a written declaration or any proof that he was bonded.

The equity purchase bonding provision does not address:

  • the total amount of the bond;
  • the number of bonds, be it one blanket bond for at least the fair market value of any property the broker dealt or a separate bond for each transaction;
  • the type of bond;
  • who are to be the beneficiaries of the bonds; and
  • the terms, conditions, delivery, or acceptance requirements of the mandated bond or bonds.

Here, the seller-in-foreclosure cannot rescind the sale to the EP investor and the investor retains ownership of the property. The statutory bonding originally required of selling brokers when representing an investor on purchase agreement offers controlled by equity purchase laws was voided in December of 2007. It was held to be too vague. Thus, a selling broker does not need a bond when representing an investor and the seller-in-foreclosure of their principal residence cannot recover their home following a sale to an investor when the broker is not bonded. [Schweitzer v. Westminster Investments (2007) 157 CA4th 1195; Calif. Civil Code §§1695 et seq.]

The HESCA otherwise remains enforceable

Even though the bonding requirement has been declared void, the remainder of the Home Equity Sales Contract Act (HESCA) provisions remain enforceable. [CC §1695.11]

While a broker representing the EP investor no longer needs to provide proof he is bonded, he still needs to:

  • provide evidence to the seller-in-foreclosure that he has a valid, current California real estate license; and
  • provide a written statement under penalty of perjury to all parties to the EP transaction, and do so prior to the transfer of any interest in the property that:
    • he has a valid, current California real estate license; and
    • that he has provided proof of this fact to the seller-in-foreclosure. [CC §1695.17]

The selling agent employed by the buyer’s broker must also provide both the evidence he is licensed and a written licensing declaration. [CC §1695.15(b); see first tuesday Form 156, §14]

The license disclosure code does not state what evidence constitutes proof of licensure. However, a print-out from the Department of Real Estate’s (DRE’s) Real Estate License Lookup on their website will suffice. A photocopy of the official license, both front and back, will also work. If the seller-in-foreclosure wants something more official looking, the DRE’s Current License Status Request Form can be filled out and submitted to the DRE, who will then send an official print-out to the seller-in-foreclosure via mail. [//www2.dre.ca.gov/PublicASP/pplinfo.asp; RE 291]

Failing to provide both the evidence of licensure and the written licensing declaration can result in the seller-in-foreclosure voiding the EP agreement and the EP investor liable to the seller-in-foreclosure for all damages caused by the broker’s nondisclosure. [CC §1695.17(b)]

However, the EP investor who is not at fault for the broker’s failure to comply with the HESCA disclosures, but liable to pay for the seller-in-foreclosure’s losses created by his broker’s nondisclosure, is entitled to indemnity from his broker for any judgment against him, plus attorney fees. [San Francisco Examiner Division, Hearst Publishing Company v. Sweat (1967) 248 CA2d 493]

Proposed reinstatement of the bonding requirement

Two different bills were put forth during the prior 2007-2008 session of the California Legislature:

  • Assembly Bill (AB) 1356 authored by Assemblyman Guy Houston; and
  • Senate Bill (SB) 1242 authored by State Senator George Runner and State Senator Tom Harman.

Both bills had their first hearings in committee canceled at the request of their respective authors, and so were not voted on or passed during the 2007-2008 session.

Both bills proposed similar changes. Due to the vagueness which plagued the voided original incarnation of the bonding requirement, the two bills both addressed the deficiencies.

The proposed bond requirements were as follows:

  1. A bond is required for each EP contract in an amount equal to at least one-third of the median home price for the metropolitan area or county the property is located.
  2. The bond must be made in favor of the homeowner or, if the homeowner cannot be found, to the State of California for the benefit of a homeowner for damages resulting from any statement made or act committed by the representative:

· in connection with the EP investor’s acquisition of property;

· in receipt of any consideration or property from or on behalf of the seller-in-foreclosure; or

· the performance of any act prohibited by the HESCA.

The median home price charts are generated from DataQuick Information Systems. The bills contain no instructions on what to do if the median home price chart is unavailable for the month the parties enter into the EP agreement.

The proposed bills also give an alternative to obtaining a surety bond. Professional liability (errors and omissions) coverage equal to $1,000,000 will suffice in lieu of obtaining a bond.

It is unknown whether either or both of these proposed bills will be resurrected during the 2009-2010 session of the California State Legislature.