CHAPTER
7.5. Equity Purchasers
3740.
(a) The Legislature finds and declares all of the following:(1) Property owners whose real property is in property tax default and is subject to tax sale have been subjected to fraud, deception, and unfair dealing by equity purchasers.
(2) The recent rapid escalation of property values has resulted in a significant increase in equity, which is usually the greatest financial asset held by the property owners of this state.
(3) During the time period between the commencement of the tax sale process and the scheduled tax sale date, property owners in financial distress, especially the poor, elderly, and financially unsophisticated, are vulnerable to the importunities of equity purchasers who induce property owners to sell their property for a small fraction of its
fair market value through the use of schemes that often involve oral and written misrepresentations, deceit, intimidation, and other unreasonable commercial practices.
(4) It is the policy of the state to preserve and guard the precious asset of real property equity, and the social and economic value of property ownership.
(5) Equity purchasers have a significant impact upon the economy and well-being of this state and its local communities.
(6) This chapter is necessary to promote the public welfare.
(b) (1) The purposes of this chapter are as follows:
(A) To provide each real property owner with the information necessary to make an informed and intelligent decision regarding the sale of his or her real property to an equity purchaser.
(B) To require that a sales agreement between a real property owner and an equity
purchaser be expressed in writing.
(C) To safeguard the public against deceit and financial hardship.
(D) To ensure, foster, and encourage fair dealing in the sale and purchase of real property that is in property tax default and subject to tax sale.
(E) To prohibit misleading representations.
(F) To prohibit or restrict unfair contract terms.
(G) To afford real property owners a reasonable and meaningful opportunity to rescind sales to equity purchasers.
(H) To preserve and protect equity for the real property owners of this state.
(2) This chapter shall be liberally construed to effectuate these purposes.
3740.1.
For purposes of this chapter, the following terms have the following meanings:(a) “Business day” means a calendar day, but does not include Sunday, New Year’s Day, Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans’ Day, Thanksgiving Day, and Christmas Day.
(b) “Contract” means a contract, agreement, partnership, or arrangement, or any term thereof, between an equity purchaser and equity seller incident to the sale of any real property subject to tax sale. “Contract” includes both of the following:
(1) An agreement by which an equity purchaser acquires or obtains an option to purchase real property subject to tax sale from an equity seller.
(2) An agreement by which an equity purchaser acquires title to real property
subject to tax sale from an equity seller and grants an option to the equity seller to repurchase the real property subject to tax sale from the equity purchaser at a later date.
(c) “Equity purchaser” means a person who acquires title to real property subject to tax sale by a county, but does not include a person who acquires that title as follows:
(1) By a deed in lieu of foreclosure of any voluntary lien or encumbrance of record.
(2) By a deed from a trustee acting under the power of sale contained in a deed of trust or mortgage at a foreclosure sale conducted pursuant to Article 1 (commencing with Section 2920) of Chapter 2 of Title 14 of Part 4 of Division 3 of the Civil Code.
(3) At any sale of property authorized by statute.
(4) By order or judgment of any court.
(5) From a spouse, blood relative, or blood relative of a spouse.
(d) “Equity purchaser’s representative” means any person who, in any manner, solicits, induces, or causes any equity seller to transfer title, or solicits any member of the equity seller’s family or household to induce or cause an equity seller to transfer title, to the real property subject to tax sale to the equity purchaser. An equity purchaser’s representative is deemed to be the agent or employee, or both the agent and the employee, of the equity purchaser. “Equity purchaser’s representative” does not include any of the following:
(1) An officer or director of a corporation that is the equity purchaser.
(2) A general partner of a partnership that is the equity purchaser.
(3) A managing member of a limited liability company that is the equity purchaser.
(e) “Equity seller” means any seller of real property subject to tax sale.
(f) “Excess
proceeds” has the same meaning as described in Section 4675.
(g) “Property owner” means the holder of record title to the real property subject to tax sale on the date of recordation of the Notice of Power to Sell Tax Defaulted Property by the county.
(h) “Real property subject to tax sale” means any real property that is scheduled for tax sale by a county within 90 days of the date that it is sold or transferred to an equity purchaser. This definition shall be liberally construed for the benefit of equity sellers.
3740.2.
(a) An equity purchaser’s representative shall provide to an equity seller all of the following:(1) Written proof that the equity purchaser and each of the equity purchaser’s representatives who participated in the transaction:
(A) Have a valid current California real estate license.
(B) Are bonded by an admitted surety insurer in an amount equal to the greater of two million dollars ($2,000,000) or twice the value of the real property that is the subject of the contract.
(C) Are covered by professional liability insurance, comprehensive general liability insurance, or both professional liability insurance and comprehensive general liability insurance in an amount equal to the greater of two million dollars ($2,000,000) or twice the
value of the real property that is the subject of the contract.
(2) A written statement, signed under penalty of perjury, which states each of following:
(A) That the equity purchaser and each of the equity purchaser’s representatives who participated in the transaction have a valid and current California real estate license, which license numbers shall be included in the statement.
(B) That the equity purchaser and each equity purchaser’s representative who participated in the transaction are bonded by an admitted surety insurer in an amount equal to the greater of two million dollars ($2,000,000) or twice the value of the real property which is the subject of the contract. The name and address of the admitted surety insurer and the identification number of the surety bond shall be included in the statement.
(C) That the equity purchaser and each equity purchaser’s representative who participated
in the transaction are covered by professional liability insurance, comprehensive general liability insurance, or both professional liability insurance and comprehensive general liability insurance in an amount equal to the greater of two million dollars ($2,000,000) or twice the value of the real property that is the subject of the contract. The name and address of the insurer and the policy identification number shall be included in the statement.
(D) The full name, address, telephone number, social security number, and California driver’s license number of the equity purchaser and each equity purchaser’s representative who participated in the transaction.
(b) The written statements required by subdivision (a) shall be provided to the equity seller before a contract is executed.
(c) If an equity purchaser’s representative fails to comply with subdivision (a), both of the following apply:
(1) The
equity seller may void the equity purchase contract.
(2) The equity purchaser, the equity purchaser’s representative, or the equity purchaser and the equity purchaser’s representative shall be liable to the equity seller for all damages proximately caused by that failure to comply.
3740.3.
(a) A contract for the sale of real property subject to tax sale shall be written in letters of a size equal to 12-point boldface type in the same language principally used by the equity purchaser and equity seller to negotiate the sale of the real property subject to tax sale, and shall be completed, signed, and dated by the equity seller and equity purchaser prior to the execution of any instrument to convey the real property subject to tax sale. The required signatures shall be notarized.(b) The equity purchaser shall provide the equity seller with a copy of the contract described in subdivision (c) and the notice of cancellation described in subdivision (d) and shall complete those documents in conformity with this chapter.
(c) A contract for the sale of real property subject to tax
sale is the entire agreement of the parties and shall include all of the following terms:
(1) The name, business address, social security number or taxpayer identification number, and the telephone number of the equity purchaser and each equity purchaser’s representative who participated in any way with the equity purchaser’s acquisition of the real property subject to tax sale.
(2) The address and tax assessors identification number of the real property subject to tax sale which is being sold pursuant to the contract.
(3) The total consideration to be given by the equity purchaser in connection with, or incident to, the sale.
(4) A complete description of the terms of payment or other consideration, including, but not limited to, any services of any nature that the equity purchaser represents he or she will perform for the equity seller either before or after the sale.
(5) The time at which possession of the property subject to tax sale is to be transferred to the equity purchaser.
(6) The terms of any rental agreement, lease, partnership agreement, joint venture, or profit-sharing agreement between the equity seller and the equity purchaser.
(7) A disclosure, in at least 14-point boldface type if the contract is printed, or in capital letters if the contract is typed, regarding both of the following:
(A) That if the real property subject to tax sale is sold by the county at a tax sale, the equity seller has the right to claim, collect, and receive excess proceeds from the tax sale pursuant to Section 4675.
(B) That by selling the real property subject to tax sale to the equity purchaser, the equity seller is transferring to the equity purchaser the right to claim, collect, and receive excess proceeds from the tax sale pursuant to Section 4675.
(8) A notice, in at least 14-point boldface type if the contract is printed or in capital letters if the contract is typed, completed with the name of the equity purchaser and in the following form:
| “NOTICE REQUIRED BY CALIFORNIA LAW |
|
| Until your right to cancel this contract has ended, |
| ____ (Name of Equity Purchaser) ____or |
| anyone working for____ (Name of Equity Purchaser) |
| ____ CANNOT ask you to sign or have you sign any |
| deed or any other document. |
|
| This contract shall survive delivery of any |
| instrument of conveyance of the real property subject to tax sale, |
| and shall have no effect on persons other than the parties to the |
| contract.” |
(9) Immediately below the notice required by paragraph (8) and in immediate
proximity to the space reserved for the equity seller’s signature and in at least 14-point boldface type if the contract is printed or in capital letters if the contract is typed, a conspicuous notice of the equity seller’s right of cancellation shall be completed by the equity purchaser in the following form:
| “You may cancel this contract for the sale of your real property |
| without any penalty or obligation at any time before____ |
| (Date and time of day) ____. See the attached notice of |
| cancellation form for an explanation of this right.” |
(d) The contract shall be accompanied by a completed form in duplicate, captioned “NOTICE OF CANCELLATION” in a size equal to 14-point boldface type if the contract is printed or in capital letters if the contract is typed, followed by a space in which the equity purchaser shall enter the date on which the equity seller executes any contract.
This form shall be attached to the contract, shall be easily detachable, and shall contain in type of at least 12-point if the contract is printed or in capital letters if the contract is typed, the following statement written in the same language as used in the contract:
| “NOTICE OF CANCELLATION |
|
| ____ (Date contract signed) ____ |
|
| You may cancel this contract for the sale of your real property, |
| without any penalty or obligation, at any time before |
| ____ (Enter date and time of day) ____. |
|
| To cancel this transaction, personally deliver a signed and dated |
| copy of this cancellation notice, or send a telegram to ____ |
| (Name of equity purchaser) ____, at ____ (Street address |
| of equity purchaser’s place of business) ____ |
| NOT LATER THAN ____ (Enter date and time of day) ___. |
|
| I hereby cancel this transaction ____ (Date) ____. |
|
| ____ (Equity seller’s signature) ____” |
(e) Until the equity purchaser has complied with this section, the equity seller may cancel the contract at any time.
3740.4.
An equity purchaser or an equity purchaser’s representative who makes a claim for excess proceeds arising out of, or related to, real property subject to tax sale shall provide evidence with the claim to the county that the equity purchaser and each equity purchaser’s representative who participated in the transaction complied with all of the requirements of this chapter.3740.5.
(a) In addition to any other right of cancellation, the equity seller may cancel a contract with an equity purchaser until the earlier of the following:(1) Midnight of the fifth business day following the day on which the equity seller signs a contract that complies with this chapter.
(2) Eight a.m. on the day scheduled for the tax sale of the property.
(b) (1) Cancellation occurs when the equity seller personally delivers written notice of cancellation to the address specified in the contract, mails the written notice of cancellation to the address specified in the contract by certified mail with return receipt requested, or sends a telegram indicating cancellation to the address specified in the contract.
(2) A notice of cancellation given by the equity seller need not take the particular form as provided with the contract and, however expressed, is effective if it indicates the intention of the equity seller not to be bound by the contract.
(3) Within 10 days after receipt of a notice of cancellation, the equity purchaser shall return to the equity seller, without condition, any original contract and any other documents signed by the equity seller.
(c) Until the time within which an equity seller may cancel a transaction has fully elapsed, the equity purchaser shall not do any of the following:
(1) Accept from an equity seller an execution of, or induce an equity seller to execute, an instrument of conveyance of an interest in the real property subject to tax sale.
(2) Record with the county recorder a document signed by the equity seller, including, but not limited to, an instrument
of conveyance.
(3) Transfer or encumber, or purport to transfer or encumber, any interest in the real property subject to tax sale to any third party. However, a grant of any interest or encumbrance shall not be defeated or affected as against a bona fide purchaser or encumbrancer for value and without notice of a violation of this chapter. The knowledge of person or entity that property was “real property subject to tax sale” does not constitute notice of a violation of this chapter. This paragraph shall not be deemed to abrogate any duty of inquiry that exists as to rights or interests of persons in possession of the real property subject to tax sale.
(4) Pay the equity seller any consideration.
3740.6.
(a) A person shall not do any of the following:(1) Make untrue or misleading statements regarding any contract term, the value of the real property subject to tax sale, the equity seller’s rights or obligations incident to or arising out of the sale transaction or the excess proceeds therefrom, the amount of any excess proceeds the equity seller will receive after a tax sale, the nature of any document that the equity purchaser induces the equity seller to sign, or any other untrue or misleading statement concerning the sale of the real property subject to tax sale to the equity purchaser.
(2) (A) Without the written consent of the seller, cause any encumbrance to be placed on the property or grant any interest in the property to any other person in the case where an equity purchaser
purports to hold title as a result of a transaction in which the equity seller grants to the equity purchaser the real property subject to tax sale by any instrument that purports to be an absolute conveyance and reserves or is given by the equity purchaser an option to repurchase that real property.
(B) A grant of any interest or encumbrance by an equity purchaser in violation of subparagraph (A) shall not be defeated or affected as against a bona fide purchaser or encumbrancer for value and without notice of a violation of this chapter. The knowledge of person or entity that property was “real property subject to tax sale” does not constitute notice of a violation of this chapter. This paragraph shall not be deemed to abrogate any duty of inquiry that exists as to rights or interests of persons in possession of the real property subject to tax sale.
(3) Engage in any practice that would operate as a fraud or deceit upon an equity seller.
(4) Initiate, enter into, negotiate, or consummate any transaction involving real property subject to tax sale, as defined in this chapter, if the person, by the terms of the transaction, takes unconscionable advantage of the owner of the real property subject to tax sale.
(b) A person who violates paragraph (1), (3), or (4) of subdivision (a), subparagraph (A) of paragraph (2) of subdivision (a), or subdivision (c) of Section 3740.5 shall, upon conviction, be punished by a fine of not more than one hundred thousand dollars ($100,000), by imprisonment in a county jail for not more than one year, or in the state prison, or by both that fine and imprisonment for each violation.
3740.7.
(a) An equity purchaser is liable for all damages resulting from any statement made, or act committed, by the equity purchaser’s representative in any manner in connection with the equity purchaser’s acquisition of real property subject to tax sale, receipt of any consideration or property from or on behalf of the equity seller, or the performance of any act prohibited by this chapter.(b) (1) A provision of a contract that attempts or purports to limit the liability of an equity purchaser or an equity purchaser’s representative under this chapter is void and the equity seller may void the contract. The equity purchaser, the equity purchaser’s representative, or the equity purchaser and the equity purchaser’s representative shall be liable to the equity seller for all damages proximately caused
by that provision.
(2) A provision in a contract which attempts or purports to require arbitration of any dispute arising under this chapter shall be void at the option of the equity seller.
3740.8.
(a) An equity seller, his or her heirs, or an equity seller and his or her heirs may bring an action against an equity purchaser for a violation of Sections 3740.3, 3740.5, and 3740.6 for actual damages, exemplary damages, equitable relief, and reasonable attorneys’ fees and costs, within four years of an alleged violation.(b) For any violation of subdivision (c) of Section 3740.5 or paragraph (1) or (4) of subdivision (a) of Section 3740.6, in addition to any other relief awarded, the court shall award either, but not both, of the following:
(1) Exemplary damages in an amount not less than three times the equity seller’s actual damages.
(2) A civil penalty of up to one hundred thousand dollars ($100,000).
3740.9.
(a) A transaction, involving real property subject to tax sale, that violates paragraph (4) of subdivision (a) of Section 3740.6 is voidable, and the transaction may be rescinded by the equity seller or his or her heirs within four years of the date of the recordation of the conveyance of the real property subject to tax sale to the equity purchaser.(b) (1) The equity seller shall rescind the transaction by giving written notice to the equity purchaser or his or her successor in interest and by recording that notice with the county recorder of the county in which the property is located within four years of the date of the recordation of the conveyance to the equity purchaser.
(2) The notice of rescission shall particularly describe the real property and shall
contain the name of the equity seller, the name of the equity purchaser, and the name of any successor in interest holding record title to the real property.
(3) Within 20 days after delivery of the notice described in subparagraph (B), the equity purchaser and his successor in interest shall reconvey title to the property free and clear of encumbrances created subsequent to the rescinded transaction. Upon failure to reconvey title within that time, the rescinding party may bring an action to enforce the rescission and for cancellation of the deed.
(c) In any action brought to enforce a rescission pursuant to this section, the prevailing party shall be entitled to costs and reasonable attorneys’ fees.
(d) The remedies provided by this section are in addition to any other remedies provided by law.
(e) This section does not affect the interest of a bona fide purchaser or encumbrancer for value for a
purchase or encumbrance that occurred prior to the recordation of the notice of rescission described in subdivision (b). Knowledge that the property was real property subject to tax sale shall not impair the status of a person or entity as a bona fide purchaser or encumbrancer for value. This subdivision shall not be deemed to abrogate any duty of inquiry that exists as to rights or interests of persons in possession of the real property subject to tax sale.
3740.10.
(a) The provisions of this chapter are not exclusive and are in addition to any other requirements, rights, remedies, and penalties provided by law.(b) The requirements of this chapter may not be waived and any purported waiver of these requirements shall be void and unenforceable as contrary to the public policy of the state.
(c) The provisions of this chapter are severable. If any provision of this chapter or application of the provisions of this chapter is held invalid, that invalidity does not affect other provisions or applications that can be given effect without the invalid provision or application.