High Court Decision re: Notice of Default Agency

Friday, March 28, 2008, Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®

HIGH COURT DENIES REVIEW OF DECISION ELIMINATING BOND REQUIREMENT

The California Supreme Court has denied review of a Court of Appeal decision that the bond requirement under the home equity sales contracts law is unconstitutional and unenforceable.

Schweitzer v. Westminster Investments (2007) 157 Cal.App.4th 1195, review denied March 26, 2008.

Under Schweitzer, buyers' agents may represent investors without obtaining the surety bond required under the home equity sales contracts law.

Buyers and their agents must nevertheless comply with the other requirements of the home equity sales contracts law. Most notably, buyers and their agents should use C.A.R.'s standard form Notice of Default Purchase Agreement (NODPA) as amended, which will be available with the April forms release.

As background, this case arose when a seller sued to reclaim a property by arguing that the buyer's agent was not bonded under the home equity sales contracts law. The home equity sales contracts law imposes certain requirements when an investor buys an owner-occupied residential property up to four units with a recorded notice of default.

One of the statutory requirements is for a buyer's agent to be bonded by an admitted insurer in the amount equal to twice the fair market value of the subject property. Yet, C.A.R. is unaware of any insurer currently offering the requisite bond.

The Court of Appeal in Schweitzer held that the bond requirement was unconstitutionally vague under the due process clause and may not be enforced. The seller requested for the California Supreme Court to review that decision, but the high court refused. As with other published appellate court opinions, the Schweitzer decision is binding and controlling authority for all California trial courts and Division One of the Fourth Appellate District (San Diego and Imperial Counties). It is also persuasive authority for the other Courts of Appeal.

In light of the Schweitzer decision, C.A.R. will amend its standard form Notice of Default Purchase Agreement (NODPA) accordingly. The revised NODPA is scheduled to be released in the April forms release the week of April 27, 2008.