| The purchase and sale of California residential real estate in foreclosure is governed by the Home Equity Sales Contracts Act (California Civil Code Section 1695, et seq.). The Act provides mandatory contract terms, gives a right of cancellation to the seller, and prohibits a number of practices, among other things. (You can read California Foreclosure Laws Here.
In a recent lawsuit, one provision of the Act was invoked to produce some unexpected results. The provision relates to the requirements that an agent or employee who is “the representative” of the buyer must have a valid current California real estate license and must be bonded in an amount at least twice the fair market value of the property being purchased. A “representative” is defined as a person who in any manner solicits, induces or causes any property owner to transfer title or solicits any member of the owner’s family or household to cause the owner to transfer title to the residence in foreclosure. (You can read more about the Prohibitions of the Mortgage Foreclosure Laws Here.) The problem that arises is that legal entities like corporations, limited liability companies, limited partnerships and general partnerships can only act through representatives, that is, real people. Did the California Legislature intend to create this artificial distinction between legal entities and natural persons? Why require a partnership of two people to meet licensing and bonding requirements while either acting individually would be free of these restrictions? The application of the licensing and bonding requirements to all legal entities may not have been intended, but it is consistent with the language of the statute. Can the Legislature create this artificial distinction between legal entities and natural persons? Maybe not, since even legal entities have rights to equal protection under the law. But unless you want to find yourself in the position of arguing the unconstitutionality of a statute, you should probably avoid using legal entities to buy residential real estate in foreclosure. The interpretation is also contrary to the real estate licensing law. Under the license law, an officer of a corporation or a general partner of a partnership acting with respect to real property on behalf of the corporation or partnership is not required to have a real estate license so long as the officer or partner is not acting in expectation of a special compensation. The license law does not extend the same exemption to a member or manager of al limited liability company, however. So the license law and the Home Equity Sales Contracts Act are inconsistent. Generally, when two statutes are inconsistent, the later enacted statute governs. That means that to the extent of any inconsistency, the Home Equity Sales Contracts Act trumps the real estate license law. Given the conflict between the two statutes and the plain fact that the Home Equity Sales Contracts Act mandates the licensing and bonding requirements for legal entities, I recommend that “entities” not enter into home equity sales contracts. Until the ambiguity is resolved in the courts or in the Legislature, the contract should be entered into by an individual as the buyer, and the contract should not be assigned prior to closing to a legal entity. James (Jay) Freeman |
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