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THE HOME EQUITY THEFT PREVENTION ACT: Your rights under the law

The Home Equity Theft Prevention Act governs certain sales of homes that are in foreclosure or default. If you are planning to sell a home that is in foreclosure or default, you should be aware of your rights under the Act, and know what to expect from a legitimate buyer.

If your sale is protected by the law, and your buyer fails to fulfill any of the requirements listed below you may be able to void or legally cancel the contract you have with the buyer, even after it has been signed. Likewise, a sale may be declared void. You may also be able to sue the buyer to recover any damages.

DOES THIS LAW APPLY TO THE SALE OF YOUR HOME?

The law generally applies to the sale of a home in foreclosure to a buyer who wants to purchase the home as an investment.

If your home is in default, this law applies to the sale of your home ONLY if there is a “buyback” agreement in your sale contract. If your home is in foreclosure, this law DOES NOT APPLY to the sale of your home if:

YOU HAVE THE RIGHT TO A COMPLETE CONTRACT

The contract must be completely filled in, then signed and dated by both you and the buyer. Go over every page of the contract and all attached documents to make sure that it is complete and contains no blank pages or missing information.

Under the Act, the contract must contain ALL of the following information:

A notice that you are allowed to cancel the contract within five business days of the day that you signed it (“business days” are every day of the week EXCEPT Sundays and federal holidays);

YOU HAVE THE RIGHT TO CANCEL THE CONTRACT

You have the right to cancel the contract until midnight of the fifth business day after the day that you signed it (see sidebar). The buyer is required to attach a form to the agreement that you can use to cancel the contract. You are not required to use the form, but you MUST cancel the contract in writing.

To cancel the contract, detach the form, fill it out, and deliver it within five business days to the buyer’s address as listed on the contract, and your contract will be cancelled. If you mail your cancellation, it must be postmarked by midnight of the fifth business day.

How Long Do I Have To Cancel My Contract?

During the cancellation period, your buyer may not:

YOU HAVE THE RIGHT TO AN HONEST BUYER AND A FAIR SALE

Your buyer may not, at any time, deceive or mislead you in any way about any aspect of the sale of the house or about any aspect of a buyback agreement. In particular, your buyer must not:

If you suspect that your buyer is doing or has done any of the following, the buyer may have committed a felony and the contract may be voidable—you may be able to legally cancel the contract and the sale, even after it has been signed.

Equity purchasers often advertise that they want to help you keep your home or avoid foreclosure. Remember—these buyers are in the business of buying homes in foreclosure, and their ultimate goal isn’t to lend you a helping hand—it is to make a profit. For this reason, it’s illegal for your buyer to represent that:

Sometimes the buyer will make a genuine error in the sale proceedings and will accidentally violate the law. If this occurs, the buyer must notify you of the error within 90 days of the day the error occurred, and must pay you back for any extra cost to you that occurred because of the error.

MORE ABOUT BUYBACK OR RECONVEYANCE AGREEMENTS

The Home Equity Theft Prevention Act permits buyers to offer you a buyback agreement in your sale contract. In a buyback agreement you allow the buyer to take ownership of your home in exchange for a service from the buyer (such as bringing your mortgage current and making your mortgage payments). The buyer retains ownership of the home until a predetermined date, at which time it is expected you will be able to repay the buyer for services provided and mortgage payments made and the deed will be “reconveyed” to you.

While buyback agreements may sound like a viable option and are not illegal, the Department of Financial Services strongly recommends that you do not sign a contract that contains a buyback agreement of any sort. Equity buyers offer these agreements in the hopes that you will either choose not to buy back the home, or that you will not be able to afford to buy back the home by the preset date. The buyer only profits when you are unable to or choose not to buy back your home.

The Act now requires buyers to make sure that you will be able to afford the terms of a buyback within the proposed time frame. The buyer must consider and verify the following information:

Please note: this “prediction” on the part of the buyer does not guarantee that you will be able to afford to repurchase your home. No one can predict your financial future.

The law does require that buyers “buy you out” of the home if you choose not to or cannot afford to buy it back. However, the Act only requires that the buyer pay you at least 82% of the home’s fair market value. The law also allows the buyer to deduct any debts you still owe to them, including but not limited to:

As you can see, these costs can really chip into the reduced payment you are getting from the buyer. You may not be left with enough money to cover the remaining mortgage debt you still owe on the home.

If you do decide to sign a buyback agreement, the buyer is required by law to do the following:

If you have questions about your foreclosure or default situation or about the Home Equity Theft Prevention Act please contact the Department of Financial Services Foreclosure Hotline at 1-800-269-0990.

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