Schweitzer v. Westminster Investments

• Decision Date: 13 December 2007
• Docket Number: No. D049616.,No. D049589.,D049589.,D049616.
• Citation: 69 Cal.Rptr.3d 472,157 Cal.App.4th 1195
• Court: California Court of Appeals Court of Appeals
• Parties: Ingo SCHWEITZER, Plaintiff and Appellant, v. WESTMINSTER INVESTMENTS et al. Defendants and Appellants.

69 Cal.Rptr.3d 472

157 Cal.App.4th 1195

Ingo SCHWEITZER, Plaintiff and Appellant, v. WESTMINSTER INVESTMENTS et al. Defendants and Appellants.

No. D049589.

No. D049616.

Court of Appeal, Fourth District, Division 1.

December 13, 2007.

Michael V. Hesse, Riverside, for Plaintiff and Appellant Ingo Schweitzer.

Edmund G. Brown, Jr., Attorney General, Albert Norman Shelden, Assistant Attorney General, Ronald A. Reiter and Seth E. Mermin, Deputy Attorneys General, for the State of California as Amicus Curiae on behalf of Plaintiff and Appellant.

Turner & Maasch, Mark A. Maasch, San Diego; U.S.D. School of Law and Shaun P. Martin, San Diego, for Defendants and Appellants.

June Babiracki Barlow and Neil D. Kalin, Los Angeles, for California Association of Realtors as Amicus Curiae on behalf of Defendants and Appellants.

McDONALD, J.

The Home Equity Sales Contracts Act (Civ.Code, § 1695 et seq, "HESC")¹ was enacted to protect homeowners faced with mortgage foreclosure proceedings from being victimized by persons employing oral and written misrepresentations, intimidation, and other unreasonable commercial practices to induce the homeowners to sell their homes for a fraction of their fair market values and lose the equity in the home. (Boquilon v. Beckwith (1996) 49 Cal.App.4th 1697, 1709, 57 Cal.Rptr.2d 503.) In 1990, the Legislature amended the HESC to add sections 1695.15 through 1695.17, which (1) made the home equity purchaser liable for all damages caused by the purchaser's "representative" (§ 1695.15) and (2) imposed licensing and bonding requirements on (and disclosures by) the representatives (§ 1695.17). (Stats. 1990, ch. 1537, §§ 1-3.) The construction and operation of these sections, which have yet to be explored by the courts, is at the core of the present dispute.

In 2003, plaintiff Ingo Schweitzer's home mortgage was in foreclosure. Defendant Westminster Investments, Inc. (Westminster), through its representative Ms. Cote, agreed in writing to purchase Schweitzer's home and, upon expiration of the statutorily prescribed waiting period (§ 1695.4), Schweitzer conveyed title to the home to Westminster by grant deed. Six months later, Schweitzer filed this action to void the deed, arguing the purchase contract was voidable under the HESC because, among other things, Westminster did not provide proof that Cote was bonded, as required by section 1695.17. The court ruled that because Cote was not bonded (and Westminster concomitantly failed to provide proof of the bond) the purchase contract was voidable and Schweitzer was entitled to reclaim title to the home from Westminster.

On appeal, Westminster asserts the proper interpretation of section 1695.17 is that the bonding requirement applies only to representatives who use undisclosed equity purchasers to purchase homes in foreclosure, and that because Cote disclosed she was acting on behalf of Westminster, the requirements of section 1695.17 are inapplicable. Westminster asserts that a contrary interpretation would render section 1695.17 invalid under the equal protection clause of the United States Constitution. Westminster also argues the bond requirement is void for vagueness under the due process clause,² and the attorney fees award to Schweitzer was error.

Schweitzer's cross-appeal argues the trial court (1) erred when it found the purchase contract provided adequate notice of Schweitzer's right to cancel, and (2) erroneously excluded evidence of a purported violation by Westminster of section 1695.16. Because of the nature of the issues in this case, we have received and considered Amicus Curiae briefs from the State of California and the California Association of Realtors.

I FACTUAL AND PROCEDURAL BACKGROUND

A. The Facts

A home owned by Schweitzer was the subject of mortgage foreclosure proceedings and, by September 9, 2003 (the day before the scheduled trustees sale), Schweitzer was in arrears on 13 monthly payments exceeding $16,000. On September 9, Mr. Webster (an agent working for Westminster) contacted Schweitzer regarding Westminster's potential purchase of the home. That evening, Mr. Webster and Ms. Cote (another agent working for Westminster) came to Schweitzer's home and Schweitzer signed a contract to sell the home to Westminster. Schweitzer knew Westminster was the buyer and Webster and Cote were acting as agents for Westminster.

On September 10, Schweitzer signed the grant deed and delivered it to Westminster, which recorded it. Also on September 10, Westminster asked the foreclosure trustee to ascertain the amount required to reinstate the loan. The trustee postponed the sale and, on September 11, informed Westminster that nearly $23,000 would be required to reinstate the loan. Westminster sent the necessary funds to the lender the following day and the loan was reinstated.

The purchase contract allowed Schweitzer to stay in the home until January 2, 2004, at a rental rate of $1,300 per month, to be paid by deducting the monthly rents from the purchase contract cash consideration Westminster owed to Schweitzer. Westminster later extended Schweitzer's occupancy to January 31, 2004. When Schweitzer did not vacate the home, Westminster commenced unlawful detainer proceedings. Schweitzer responded by filing the present action and tendered restitution of the amounts paid by Westminster to reinstate the loan.

B. The Litigation

Schweitzer's complaint alleged the purchase contract was voidable because Westminster did not provide proof of Cote's bonding. Schweitzer's complaint also alleged the purchase contract was voidable because it did not provide adequate notice of his right to cancel and was unconscionable. (§§ 1695.5, 1695.13, 1695.14.) Westminster disputed those allegations.

Westminster contended the statutory language, considering the legislative history of the 1990 amendments, showed the bond requirement was intended to apply only when an undisclosed equity purchaser used a "front man" to importune the homeowner into selling his or her home, and did not apply when the agent disclosed the identity of the equity purchaser to the seller. Westminster asserted that if the statute were construed to require that a disclosed principal use a bonded agent to negotiate with a seller, it would discriminate against corporate buyers (who can act only through agents) by imposing a bond requirement on corporate buyers while imposing no similar bond requirement on individuals who negotiate directly with sellers to acquire homes in their individual names. Westminster argued this discriminatory impact would invalidate the statute under the equal protection clause because there was no rational basis for distinguishing between individual and corporate equity purchasers and treating them differently under the bonding statute. Westminster also asserted, in response to the court's ruling denying Westminster's motion for judgment on the pleadings, that application of section 1695.17 to this transaction would violate due process because Westminster did not receive fair notice of what it was required to do to comply with the bonding provisions of section 1695.17.

On the eve of trial, Schweitzer moved to amend his complaint to allege the contract was also voidable because a provision violated section 1695.16, which prohibits termination of liability in a home equity purchase contract. Westminster opposed the motion, and concurrently filed a motion in limine to preclude Schweitzer from raising the issue at trial. The court denied the motion for leave to amend and granted the motion in limine.

The matter was tried on stipulated facts. The court rejected Schweitzer's arguments that the contract was rescindable because of inadequate notice of Schweitzer's right to cancel or because of unconscionability. However, the court ruled the deed could be canceled for noncompliance with the bond requirement of section 1695.17. The court concluded the statutory requirement for a bond applied to all persons acting as representatives for an equity purchaser, regardless of whether the identity of the purchaser was disclosed to the seller, and rejected Westminster's argument that this interpretation rendered the statute unconstitutional under `the equal protection clause. The court also rejected Westminster's due process claims. Accordingly, the court declared the deed to the home void and ruled Schweitzer was entitled to title to the home based on Westminster's violation of section 1695.17. The court awarded attorney fees to Schweitzer in a posttrial motion.

On appeal, Westminster challenges the judgment both as to the court's declaration awarding title to the home to Schweitzer and as to the posttrial order awarding attorney fees to Schweitzer.³ We reverse the judgment on the merits and necessarily vacate the order awarding attorney fees to Schweitzer. By cross-appeal, Schweitzer challenges the orders denying him leave to amend his complaint and granting Westminster's motion in limine precluding him from raising the section 1695.16 issue. We affirm the latter rulings.

II OVERVIEW

The key disputed issue is whether section 1695.17 is enforceable, either as applied to this transaction or more generally to any transaction subject to the HESC. Section 1695.17 provides:

"(a) Any representative, as defined in subdivision (b) of Section 1695.15, deemed to be the agent or employee, or both the agent and the employee of the equity purchaser shall be required to provide both of the following:

"(1) Written proof to the equity seller that the representative has a valid current California Real Estate Sales License and that the representative is bonded by an admitted surety insurer in an amount equal to twice the fair market value of the real property which is the subject of the contract.

"(2) A statement in writing, under penalty of perjury, that the representative has a valid current California Real Estate Sales License, is bonded by an admitted surety insurer in an...