Even a well intentioned law may be declared void for vagueness if the reader is left in a fog. A recent case in point involves the bonding requirement in the Cal. Home Equity Sales Contract Act.According to the Court of Appeal, "The Home Equity Sales Contract Act (Civ. Code, section 1695 et seq . . .) was enacted to protect homeowners faced with mortgage foreclosure proceedings from being victimized by person employing oral and written representations, intimidation, and other unreasonable commercial practices to induce homeowners to sell their homes for a fraction of their fair market value and lose the equity in their homes. (citations omitted)." Schweitzer v. Westminster Investments, Inc. (12/13/2007) 157 Cal. App. 4th 1195.
The Home Equity Sales Contract Act ("HESCA") contains a number of protections for sellers in foreclosure. As discussed in my February 20, 2007 post ["Buyers (and Agents) Beware If the Seller is Upside Down"): "There is another interesting protection for equity sellers. If an equity buyer is represented by an agent, the agent must have a bond from an admitted insurer in an amount equal to twice the fair market value of the property. But no insurer admitted in California offers such a bond, so agents should avoid representing equity buyers." The Court of Appeal has recently eliminated the requirement of a bond. The reason -- that bonding subsection of the law was so vague that a person of ordinary intelligence would have to guess what it requires.
In Schweitzer, the trial court held that a deed transferring the property to an equity purchaser was voidable because the purchaser's representative did not have the bond required by Civil Code section 1695.17. The code section requires proof that the purchaser's agent/representative is "bonded by an admitted surety in an amount equal to twice the fair market value of the real property which is the subject of the contract." The Court of Appeal reversed, holding that the requirement of a bond was void for vagueness and unenforceable.
That language, reasoned the Court of Appeal, ". . . provided no guidance on the amount, the obligee, the beneficiaries, the terms or conditions of the bond, the delivery and acceptance requirements, or the enforcement mechanisms of the required bond." However, the rest of the HESCA is enforceable because the statute had a "severability" provision specifying that if any provision of the Act is declared unconstitutional the remainder shall not be affected (section 1695.11) if it is "grammatically, functionally and volitionally separable." Under the remaining provisions, the equity purchase contract was enforceable.
Schweitzer v. Westminster teaches us 3 lessons: a statute, like a contract, should be complete and written so that a person of ordinary intelligence does not have to guess what it requires; the remainder of the HESCA survives intact, including the requirement that a purchaser's representative be licensed by the Department of Real Estate; and, "Buyers (and Agents) Should Still Beware If the Seller is Upside Down."
