A California Home Equity Sales Contract Buyer Was An LLC, But the LLC Owner Could Not Claim To Intend To Reside There To Get the HESCA Exemption.

In a recent California HESCA decision, a homeowner in Hillsborough was in trouble on their $1.3 million dollar home. On the day of the trustee’s sale, Monopoly Game LLC, owned by Gladney, made a deal to buy the owners equity for $100,000, plus another $50,000 if they moved out within a month. They signed a one page agreement, and the homeowner signed a deed to the LLC. The LLC eventually sold to a third party.

The former homeowner sued for, among other things, violation of the Home Equity Sales Contract Act (HESCA or the Act) (Civ. Code, § 1695 et seq.) HESCA is designed to protect homeowners in default against unfair purchases of their home equity. The Act regulates transactions between an equity purchaser and an equity seller
The Trial Court ruled for the homeowner. Among other things, it found the grant deed void because the property description was altered by the defendants (!). But as to the HESCA claim, notwithstanding the fact that Monopoly Game acquired title to the Property, the trial court found applicable an exception from the requirements of HESCA: under section 1695.1(a)(1), Monopoly Game was not an “equity purchaser” because Gladney intended to use the Property as a “personal residence.” It reasoned that Monopoly Game . . . and . . . Gladney were and are alter-egos of each other, such that . . . Gladney may benefit from the safe harbor established by HESCA.

The appellate court found this unreasonable in light of the Act’s purpose to prevent fraud, deception, and unfair dealing. Otherwise, any scam artist could acquire the property for the purpose of use as a personal residence, by renting it out to someone else. Requiring the purchaser to be someone who will actually live there provides the best protection against fraud.

Gladney, and Monopoly Game LLC, which was a buyer of these houses in distress and flaunted it with the choice of name, made an obvious mistake here. Any real estate attorney could have advised them that HESCA is a consumer protection law, and they needed not to stretch the interpretation of the Act.