The second major change for property owner's in the Homeowner and Homebuyer Protection Act("the Act"), effective October 1, 2010, affects foreclosure rescues. Below I explain how to comply with the Act and avoid trouble if you engage in these deals.
What does the Act consider a foreclosure rescue?
A rescue is a sale of real property where:
a. It is the principal residence of the seller;
b. The seller is in default (defined as the seller being more than 60 days delinquent on any loan or debt that is secured by the property, including real estate taxes) or foreclosure;
c. The purchaser or his agents make representations that the sale of the
property will enable the seller to prevent, postpone, or reverse the effect of foreclosure and to remain in the residence; and
d. The seller retains an interest in the property conveyed, including a tenancy interest, an interest under a lease-purchase agreement, an option to reacquire the property, or any other legal, equitable, or possessory interest in the property conveyed. This would include any "subject to" deals.
What types of property are affected?
Property that has one or more single-family dwellings, including an individual condominium unit, cooperative unit, manufactured home, or mobile home.
What does the Act require?
The purchaser must pay the seller at least 50% percent of the fair market value of the property as set by a licensed appraiser. The appraisal must be performed no more than 90 days before the sale. Further, the appraisal must be delivered to the seller within 3 days after it is performed and at least 7 days before the sale.
This would make "subject to" deals much more difficult if the seller is in default.
Are there any new contract requirements?
The contract shall be in writing, signed by all parties, and contain all the terms to which the parties have agreed. The contract shall contain the following:
(1) The names and addresses of all parties to the contract;
(2) The legal description of the property being transferred;
(3) Any financial obligation of the seller that will be assumed by the purchaser;
(4) The total amount to be paid by the purchaser;
(5) The fair market value of the property;
(6) A description of the interest in the property retained by the seller; and
(7) The terms of the seller's right to any future possession or ownership of the property.
If I don't comply with the act what are the penalties?
Failure to comply with the act is considered an unfair trade practice. The seller may bring an action for the recovery of damages, to void a prohibited foreclosure rescue transaction, as well as for declaratory or equitable relief, and attorney's fees.
Are there any exemptions or exclusions?
The following buyers are exempt from the Act:
a. A member of the seller's immediate family;
b. A government agency or organization;
c. A bank, savings institution, or credit union; or
d. A licensed mortgage lender or mortgage servicer.
In summation the big change is that you will need to purchase rescue properties for at least 50% of their appraised value.
If you have any questions or comments on the Act or this post feel free to contact me by e-mail or telephone.
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