Re: Lease option to owner in foreclosure - Posted by JPiper
Posted by JPiper on December 21, 2000 at 13:47:59:
I think Nate below gives you some good advise.
My suggestion to you would be to familiarize yourself with the California laws concerning “equity purchasers”, “equity sellers”, and “foreclosure consultants” for properties that are in foreclosure.
In particular I would suggest that you do some reading at findlaw.com. Click on the state section and go to California. There I would search out California Civil Code Section 1695-1695.17. A violation of this act can result in some very severe penalties, both financial and criminal.
Here’s part of those sections:
1695.12. In any transaction in which an equity seller purports to grant a residence in foreclosure to an equity purchaser by any instrument which appears to be an absolute conveyance and reserves to himself or herself or is given by the equity purchaser an option to repurchase, such transaction shall create a presumption affecting the burden of proof, which may be overcome by clear and convincing evidence to the contrary that the transaction is a loan transaction, and the purported absolute conveyance is a mortgage; however, such presumption shall not apply to a bona fide purchaser or encumbrancer for value without notice of a violation of this chapter, and knowledge on the part of any such person or entity that the property was “residential real property in foreclosure” shall not constitute notice of a violation of this chapter. This section shall not be deemed to abrogate any duty of inquiry which exists as to rights or interests of persons in possession of the residential real property in foreclosure.
1695.13. It is unlawful for any person to initiate, enter into, negotiate, or consummate any transaction involving residential real property in foreclosure, as defined in Section 1695.1, if such person, by the terms of such transaction, takes unconscionable advantage of the property owner in foreclosure.
Obviously a leaseback falls squarely within this act. Further, ANY transaction done on a property in foreclosure falls under this act as well…to include the PacTrust. All require you to meet the requirements of the act. After you have read this information my best advice would be to get with an attorney in California who is familiar with the foreclosure laws there to make sure you are not placing yourself in a vulnerable position.
Personally, I would not consider doing a lease/option back to the seller in California. My view would be to acquire the property and have the seller move on. But there is also case law in California concerning a lease/back situation where the investor was taken to the cleaners…unfortunately I don’t remember the name of the case. For some reason the name Onofrio sticks in the back of my mind, but that may be an old memory acting up too.
JPiper