Foreclosure consultants have long been regulated by the California Home Equity Sales Contract Act, which protects defaulting homeowners. The terms of the act required that in order to represent an investor in a foreclosure equity purchase of a 1-4 unit primary residence in default, you had to have a license and put up a bond twice the amount of the fair market value of the property.



The catch? Because the bond is unavailable through any existing insurance companies, it's essentially illegal for REALTORS(R) to represent foreclosure investors in California.

In Schweitzer, a REALTOR(R) did just that, and was slapped with a seller lawsuit on the basis that he failed to post the bond. At the California Appellate court in the Fourth Appellate District, Division 1, the bond requirement was found to be unconstitutionally vague and the court found for the REALTOR(R).

On March 26, 2008, the California State Supreme Court denied review of the case - effectively telling the plaintiff to go away and leaving the ruling undisturbed.

What does it all mean? Are REALTORS(R) able to start banking on the foreclosure crisis in lieu of all the business they're missing in this slow market? Not so fast.

For one thing, the Court's denial of review is NOT the same as upholding the decision. In fact, all the ruling actually means is that in the Fourth Appellate District that lower courts will be prevented from following the legislation as drafted due to controlling precedent.

The Appellate Court in the 4th district may still change its own ruling subsequent to this decision. Not to mention, in all five other jurisdictions in the state, the Home Equity Sales Contract Act is still controlling.

Likely the reason the Supreme Court did not hear the case is that currently, there are no conflicting appellate court decisions on the issue. Supreme Courts are in the business of resolving conflicts among departments on the lower level, rather than spending time on undisputed matters of first impression. In sum, there's a long way to go.

However, if you are a REALTOR(R) who finds yourself in this position, you have now been given a great defense, with all of the arguments already written for you and an influential appellate decision to boot.

In the long run, if the Supreme Court does rule the law unconstitutional as drafted, the legislature will know the reason is that bond requirement is too vague. Our representatives are apt to simply redraft the bill with a more concrete bond requirement.

Therefore, if I was a REALTOR(R) (which I am) and I wanted to stay as far as possible on this side of the law (which I do) I'd still steer clear of accepting this kind of representation (which I plan to) - at least until the bonds are offered by an insurance company in our state (which they're not).