I was just asked this question and had to look it up.
I figured it was worthy of a post.

In California, if the property is in Notice of Default, and the purchaser does not occupy the property (Investor), the transaction becomes what is called an Equity Purchase.

That's important because there are specific rules that need to be applied and adhered to.

Here's the actual question:

"I plan on buying a home that is in foreclosure and flip it, But I just heard the seller (homeowner) has a 2 year right of rescission. What does that mean? Do I have to hold the property for two years before I can sell?"

As I mentioned, I had to look this up to make sure I had the correct information.
Here's what I found.

Once the sale has closed, the investors title is subject to the seller in foreclosure's Two Year Right of Rescission due to any unconscionable advantage the Investor might have imposed on the transaction.

So does that mean the homeowner can get their property back?

Not quite. Assuming the investor has already sold the property to an unknowing buyer, the remedy would be a recovery of the money the original homeowner was out.

That figure would be determined by the value of the property at the time of resale, less the old loan amounts, less any funds received (good faith money) in the original transaction from the investor.

Interestingly, if it was a sale rent back, where the homeowner never left but instead started to pay the new owner rent, they will not be able to recover any of the rent paid - NONE.

They will however get paid 10% interest on the equity they lost from the start of the violation.

Where did I find this information?
California Civil Code 1695.10 and 1695.14

Buying a foreclosure and planning on living in it?
These rules don't apply to you.

Remember, always work with a professional. Always!

Labels: buying a short sale, Notice of Default