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Home Equity Sales Contract


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With property values consistently increasing in California, nefarious individuals realized that they could swindle homeowners in the foreclosure process out of their property’s equity by convincing borrowers to sell. The fear of losing one’s home and the uncertainty of foreclosure proceedings put many borrowers in a precarious position, ultimately making many borrowers in foreclosure susceptible to fraud and to making bad decisions.

To avoid foreclosure, many desperate homeowners tried to sell their home through a home equity sales contract. Under this scenario, a homeowner who is in foreclosure would sell his or her home to another party along with its equity. The buying party would be entitled to the already built equity, thereby forfeiting the equity rights of the seller.

To combat this ever-growing problem, the government passed legislation, called the Home Equity Sales Contract Act, to help consumers avoid the dangers associated with home equity sales contracts.

Home Equity Sales Contract Act Provisions

The contract must have a clause which states that borrowers who hold the equity have the right to cancel the home equity sale.

The seller of the equity has the right to revoke the contract up to five business days after the sale of the equity.

The contract must use a font 10 size.

If the equity buyer fails to adhere to standards, he or she can be prosecuted and sentenced up to one year in jail or may also be fined up to $10,000. If found guilty, the buyer could be held responsible for damages, including but not limited to, attorney and trial costs.

Furthermore, the contract must meet the following additional requirements in order for the terms of such an agreement be deemed valid.

The owner/landlord resides on one of the buildings units.

Building/property consists of up to 4 family sized units.

Individual who makes the purchase, cannot utilize the property for personal purposes.

All late payments and defaults must be acknowledged and addressed in a legal matter.

Also, in the event a judge decides the equity buyer took advantage of the seller, the transaction can be rescinded within two years of the sale of equity. Because many people have been taken advantage of using equity sales contracts, the law is on the side of the seller with respect to these occurrences.

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