Before You Buy California Foreclosures Through a Realtor(r)

The California Home Sales Contract Act may still affect REALTORS(R) seeking to represent California foreclosure buyers, despite the California Supreme Court's recent denial of certiorari in Schweitzer v. Westminster Investments (2007).

The California Home Equity Sales Contract Act was enacted to protect defaulting homeowners from being negotiated out of their homes by slick talking foreclosure consultants representing investors. The terms of the act required that in order to represent an investor in a foreclosure equity purchase of a 1-4 unit primary residence in default, you had to have a license and put up a bond twice the amount of the fair market value of the property.

The catch? Because the bond is unavailable through any existing insurance companies, it's essentially illegal for REALTORS(R) to represent foreclosure investors in California.

In Schweitzer, a REALTOR(R) did just that, and was slapped with a seller lawsuit on the basis that he failed to post the bond. The REALTOR(R) was protected by the Fourth District Appellate Court's view of the bond requirement as unconstitutionally vague.

On March 26, 2008, the California State Supreme Court denied review of the case - effectively telling the plaintiff to go away and leaving the ruling undisturbed.

What does it all mean? Are REALTORS(R) able to start banking on the foreclosure crisis in lieu of all the business they're missing in this slow market? Not so fast.

Firstly, declining review is not tantamount to upholding the decision. In fact, all the ruling actually means is that in the Fourth Appellate District that lower courts will be prevented from following the legislation as drafted due to controlling precedent.

The Appellate Court in the 4th district may still change its own ruling subsequent to this decision. Not to mention, in all five other jurisdictions in the state, the Home Equity Sales Contract Act is still controlling.

Likely the reason the Supreme Court did not hear the case is that currently, there are no conflicting appellate court decisions on the issue. Supreme Courts are in the business of resolving conflicts among departments on the lower level, rather than spending time on undisputed matters of first impression. In short, the fight is far from over.

However, if you are a REALTOR(R) who finds yourself in this position, you have now been given a great defense, with all of the arguments already written for you and an influential appellate decision to boot.

In the long run, if the Supreme Court does rule the law unconstitutional as drafted, the legislature will know the reason is that bond requirement is too vague. The legislature is perfectly capable of going back to the drawing board, making a clearer bond requirement, and passing it all over again.

Therefore, if I was a REALTOR(R) (which I am) and I wanted to stay as far as possible on this side of the law (which I do) I'd still steer clear of accepting this kind of representation (which I plan to) - at least until the bonds are offered by an insurance company in our state (which they're not).