Counts v. U.S. Financial

Filed 4/21/06 Counts v. U.S. Financial CA4/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

APPEAL from a judgment of the Superior Court of San Diego County, William C. Pate, Judge. Affirmed.

This case arises out of the August 2002 sale of Ava Counts's condominium to U.S. Financial, L.P. (USF). At the time the condo was sold it was in foreclosure, making the sale subject to the Home Equity Sales Contract Act (HESCA), Civil Code^[1] section 1695 et seq. In September 2003 Counts filed a complaint in the superior court against USF and its general partner Value T Sales, Inc. (VTS), alleging that they violated certain provisions of the HESCA by (1) misleading Counts as to the value of her home and the amount of proceeds she would receive from the sale; (2) failing to place certain required terms in the purchase contract; (3) failing to explain to her the nature of the documents she was signing; (4) taking unconscionable advantage of her; and (5) failing to provide her with the required bonding and licensing information and documents.

Following a bench trial the court denied all of Counts's claims, with the exception of the claim that USF failed to comply with section 1695.17, which requires that where the equity purchaser has a representative that is also its agent or employee in negotiating the purchase, that representative must provide the seller with written proof of a real estate license and a bond equal to twice the value of the property. Pursuant to the terms of section 1695.17, the court ordered the contract rescinded and USF to reconvey the condo to Counts on the condition that she repay USF for all cash consideration that it paid in furtherance of the purchase contract.

USF appeals, asserting that the court erred in ordering the contract rescinded under section 1695.17 because (1) the court found that a "representative" of USF is automatically subject to section 1695.17 without also finding that he or she was also the agent or employee of USF; (2) the person who negotiated the deal, Chris Mountain, was not acting as the agent or employee of USF; (3) Counts suffered no harm as a result of transaction; (4) rescission would only be appropriate in the case of an executory contract; and (5) compliance with section 1695.17 was impossible because the bond required by the statute is not commercially available.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Transaction

Counts purchased the condo in February 2000. In May 2002 the lender filed a notice of default on the property and Counts faced foreclosure. As a result of the recordation of the notice of default, Counts received numerous solicitations by phone and by mail offering to purchase her property or to help her avoid foreclosure. One of the mailings was from Mountain.

Mountain was a party to a joint venture agreement with USF whereby he would share the profits from the purchase and resale of any properties acquired by USF through him. Mountain would also take a draw against these profits upon recordation of the deed following the purchase. USF was in the business of acquiring distressed properties, sometimes through a home equity sales contract.

Counts and Mountain entered negotiations and ultimately Counts entered into a real property equity purchase agreement (the purchase agreement) with USF. Under the contract, USF would assume all debts and obligations against the property, Counts would receive a small amount of cash, depending upon how much the liabilities on the condo were, and Counts would be allowed to continue living in the property rent free for one year.

B. The Complaint

In September 2003 Counts filed an action against USF and its general partner VTS, alleging violations of the HESCA. Counts alleged that when her property went into foreclosure, Mountain^[2] contacted her and told her that he could get the property out of foreclosure by having USF purchase it, with Counts having the opportunity to receive some cash, use the equity in the property to allow her to stay in the property rent free for a year, and that she could repurchase the property after one year. Counts alleged that when she expressed interest in the arrangement, Mountain and Don Rady, a representative of USF, presented her with the purchase agreement and told her to sign it and a grant deed transferring the property to USF. However, Counts alleged that after she signed the purchase agreement and grant deed, USF only paid her a portion of the money she was promised, refused to sell the property back to her on the terms represented to her, and filed an unlawful detainer action against her when she refused to move out in August 2003.

The complaint alleged that USF violated the HESCA by misleading her as to the value of her property and the proceeds she would receive after a foreclosure sale, failing to follow statutory requirements as to the contents of the purchase agreement, failing to fully disclose the nature of the purchase agreement, taking unconscionable advantage of her, and failing to provide her with information required as to the defendants' real estate license status and bond. The complaint sought a rescission of the purchase agreement and damages.

C. Relevant Trial Testimony

The matter came on for a court trial in July 2004.

1. Rady Testimony

Counts called Rady, the president of VTS, the general partner of the limited partnership USF, as a witness. Rady testified that Mountain was a joint venture partner with USF on properties that he brought to USF for purchase, with Mountain receiving a percentage of the profits upon resale. In describing Mountain's role in the purchase of properties by USF, Rady stated that "he would bring the property" to USF. Pursuant to the joint venture agreement between USF and Mountain, Mountain could also take a draw against his percentage interest once USF purchased the property.

Rady testified that he became acquainted with Counts through Mountain. Mountain talked to Counts about the terms of the purchase agreement. Rady signed the purchase agreement on behalf of USF and Mountain signed the purchase agreement on behalf of the joint venture.

2. Mountain testimony

Counts also called Mountain as a witness in her case-in-chief. He stated that as part of his joint venture agreement with USF he could take a draw of 1 percent of the purchase price on properties that USF purchased. He took a 1 percent draw on Counts's property.

Mountain contacted Counts after she responded to a postcard he mailed her about the fact that "we buy properties, that we do equity loans." Mountain negotiated the terms of the purchase agreement with Counts. He went over the purchase agreement with her when she signed it. The purchase agreement provided that Counts would be paid $6,700 in cash, subject to verification of the amount owing on the property. Counts was actually paid only $1,700 because the liens on the property were above the amount estimated at the time of purchase agreement.

When discussing the purchase agreement with Counts, she asked if she could repurchase the property in the future and he responded that they "could talk about that in the future."

3. Counts's Testimony

Counts telephoned Mountain in response to his postcard to her about getting her condo out of foreclosure. Mountain told her that she could live in the condo for a year and at the end of that period she could repurchase the property for $20,000 more than USF was purchasing it from her. However, when she asked why the repurchase option was not in the purchase agreement, Mountain told her that that agreement could only be verbal.

When Counts asked Mountain what company he worked for, he told her it was USF. Mountain told her that she would sign over the deed to the property, but the loan on the property would stay in her name to make it easier for her to buy back the property after the one-year period ended.

At the end of the one-year period she contacted Mountain about repurchasing the property. Mountain told her she could do that, but that she would have to contact Rady. When she contacted Rady, however, he did not know anything about a repurchase deal. Rady told her that she could not buy the condo back from USF.

D. Court's Decision

After taking the matter under submission, the court issued its decision from the bench. The court found that Mountain sent a postcard solicitation on behalf of USF. The court found that Mountain was acting as a representative of USF at the time the purchase agreement was signed.

The court found that the basic terms of the purchase agreement appeared to be fair. The court found that USF did not make any untrue or misleading statements regarding the value of the property. Regarding the alleged representation by Mountain that Counts could repurchase the property, the court found, based upon the evidence, that it had a "serious question" as whether such a representation was ever made. The court also found that the purchase agreement was not unconscionable.

However, the court found that since Mountain was acting as a representative of USF, he was required by section 1695.17 to provide written proof that that he had a valid California real estate license and that he was bonded in an amount equal to twice the fair market value of the property. The court further found that no such written proof was given to Counts and, therefore, according to section 1695.17, subdivision (b), the contract was voidable at the option of Counts and that USF was also liable for any damages suffered by Counts. The court therefore found that the purchase agreement was void. The court also found, however, that there was no evidence of damages proximately caused by the failure to comply with the terms of section 1695.17, subdivision (b). The court ordered USF to transfer the property back to Counts, after Counts reimbursed USF for any payments it made on the property, so that both parties would be put back in the same position as they were before entering the purchase agreement.

DISCUSSION

USF asserts that the court erred in voiding the purchase agreement under section 1695.17, subdivision (b) because (1) the court found that a "representative" of USF is automatically subject to section 1695.17 without a finding that he or she was also its agent or employee; (2) the person who negotiated the deal, Mountain, was not acting as the agent or employee of USF; (3) Counts suffered no harm as a result of transaction; (4) rescission would only be appropriate for an executory contract; and (5) compliance with section 1695.17 was impossible because the bond required by the statute is not commercially available. We reject these contentions

A. Legislative Intent

Our mandate when construing statutes is to discern the intention of the Legislature. (Code Civ. Proc., § 1859.) Here since the legislative intent is expressly declared, we need not look to extrinsic evidence to prove legislative intent. In enacting section 1695 et seq. the Legislature stated: "The intent and purposes of this chapter are the following: [¶] (1) To provide each homeowner with information necessary to make an informed and intelligent decision regarding the sale of his or her home to an equity purchaser; to require that the sales agreement be expressed in writing; to safeguard the public against deceit and financial hardship; to insure, foster, and encourage fair dealing in the sale and purchase of homes in foreclosure; to prohibit representations that tend to mislead; to prohibit or restrict unfair contract terms; to afford homeowners a reasonable and meaningful opportunity to rescind sales to equity purchasers; and to preserve and protect home equities for the homeowners of this state. [¶] (2) This chapter shall be liberally construed to effectuate this intent and to achieve these purposes." (§ 1695, subd. (d).)

B. Analysis

The Legislature enacted section 1695 et seq. to protect homeowners who face foreclosure. The Legislature expressly found that these homeowners are vulnerable to unfair, deceptive or fraudulent tactics by those seeking to acquire their residences and those offering paid advice regarding mortgage foreclosures. (§ 1695, subd. (a).) To ensure the homeowners' protection, the Legislature enacted section 1695 et seq., which prohibits specific actions and requires certain disclosures by equity purchasers. (See § 1695, subd. (d)(1).)

"At the heart of the [legislative] scheme is the requirement that the agreement between buyer and seller be in writing, with specific terms aimed at protecting the homeowner." (Segura v. McBride (1992) 5 Cal. App.4th 1028, 1035.)

Of relevance to this appeal, 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 amount equal to at least twice the value of the real property which is the subject of the contract and has complied with paragraph (1). The written statement required by this paragraph shall be provided to all parties to the contract prior to the transfer of any interest in the real property which is the subject of the contract. [¶] (b) The failure to comply with subdivision (a) shall at the option of the equity seller render the equity purchase contract void and the equity purchaser shall be liable to the equity seller for all damages proximately caused by the failure to comply. (Italics added.)

Section 1695.15, subdivision (b) provides the following definition of "representative":

"(b) 'Representative' for the purposes of this section means a person who in any manner solicits, induces, or causes any property owner to transfer title or solicits any member of the property owner's family or household to induce or cause any property owner to transfer title to the residence in foreclosure to the equity purchaser." (Italics added.)

The parties do not dispute that Mountain and USF failed to comply with the required disclosures of section 1695.17, subdivision (a). Rather, USF asserts that that section should not be applied to this transaction for several reasons.

In asserting that the court erred in its application of the HESCA, USF first points to the following language from the court's oral statement of decision citing section 1695.17, subdivision (a) for the proposition that a "representative" of the equity purchaser is automatically deemed to be the agent of the purchaser:

"[The Court:] Any representative as defined in subdivision b of section 1695.15 is deemed to be the agent or employee, or both the agent and employee of the equity purchaser shall be required to provide both of the following . . . ." (Italics added.)

This is clearly a misquotation of section 1695.17, subdivision (a), which provides in part: "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 . . . ." In other words, a representative is not automatically also the agent or employee of the principal. Rather, a finding must be made that the representative is also an agent or employee.

However, the court's misquote of section 1695.17, subdivision (a) in its oral statement of decision is of no moment. Whether the court's statement was intentional or not, we do not review the trial court's stated reasons for its decision. Rather, we affirm the judgment if the court's decision is correct on any theory, stated or not. (Rappleyea v. Campbell (1994) 8 Cal.4th 975, 980-981.) Thus, if there is substantial evidence that Mountain was in fact acting as the agent of USF, it matters not that the court stated that a representative of USF is deemed to be an agent of that entity. We conclude that there is substantial evidence that Mountain was acting as an agent of USF in the transaction whereby it purchased Counts's condo, making him subject to section 1696.17.

An agent is defined as "one who represents another, called the principal, in dealings with third parties." (§ 2295.) Rady testified that Mountain's job was to bring potential properties to USF. Mountain made the initial contact with Counts and negotiated the terms of the purchase contract. He explained the terms of the contract to Counts. He was entitled to a draw against any profits he might receive from resale of the property. Substantial evidence demonstrates a classic agency relationship existed between Mountain and USF.

USF asserts that Mountain could not be the agent of USF because he was acting pursuant to a joint venture agreement with USF, under which he stood to receive a portion of the profits from any resale. USF also points to Mountain's and Rady's testimony that Mountain was not acting as an agent of USF. Thus, USF argues, Mountain was actually a principal in the transaction, not an agent.

However, the purchaser, from the face of the purchase agreement, is USF, not Mountain. Therefore Mountain was not the principal on the transaction. Any side agreement between Mountain and USF regarding his compensation is irrelevant to an analysis of Mountain's agency. Indeed, the joint venture agreement between Mountain and USF actually supports the conclusion that Mountain was acting as USF's agent because each member of a joint venture is the agent of the others in its business transactions with third parties. (Cahill Bros., Inc. v. Clementina Co. (1962) 208 Cal.App.2d 367, 388.)

USF also asserts that the court erred in voiding the purchase agreement under section 1695.17 because it found Counts did not suffer any harm as a result of its failure to comply with its terms. This contention is unavailing.

The court made a finding that Counts suffered no damages as a result of Mountain's failure to disclose in writing he was a licensed real estate agent and that he was bonded as required by the statute, because the statute allows an equity seller to void a contract and recover any damages the seller incurred. The statute does not require that the seller incur damages as a prerequisite to voiding the contract. Further, Counts did not suffer any damages precisely because the court ordered the property reconveyed to her, in order to place the parties in the same position as they were prior to entering into the purchase agreement.

USF contends that section 1695.17 should be interpreted to allow a voiding of the purchase agreement only where the agreement is executory, i.e., where it has not been fully performed, and its terms should only be allowed as a defense to enforcement of the contract. USF asserts that because Counts waited until over a year in seeking to void the purchase agreement, she acted too late. However, there is no authority to support such an interpretation of section 1695.17 and the plain language of the statute does not impose such a limitation. Further, Counts did use the remedy provided in section 1695.17 as a defense to enforcement of the contract. The action was filed in response to USF's attempt to enforce the one-year time limit for her to reside in the condo.

USF asserts that allowing Counts to void the contract is inconsistent with the remedies allowed under section 1695.7. We reject this contention. Section 1695.7 provides:

"An equity seller may bring an action for the recovery of damages or other equitable relief against an equity purchaser for a violation of any subdivision of Section 1695.6 or Section 1695.13. The equity seller shall recover actual damages plus reasonable attorneys' fees and costs. In addition, the court may award exemplary damages or equitable relief, or both, if the court deems such award proper, but in any event shall award exemplary damages in an amount not less than three times the equity seller's actual damages for any violation of paragraph (3) of subdivision (b) of Section 1695.6 or Section 1695.13; or the court may award a civil penalty of up to two thousand five hundred dollars ($2,500), but it may not award both exemplary damages and a civil penalty. Any action brought pursuant to this section shall be commenced within four years after the date of the alleged violation." (Italics added.)

From its terms, section 1695.7 specifies the remedies available for violations of sections 1695.6 and 1695.13 only. It has no relevance to the remedy afforded under section 1695.17.

USF also cites the legislative history of Senate Bill No. 2641, under which section 1695.17 was enacted, asserting that language in that history demonstrates that the purchase agreement was void only on grounds that exist for the revocation of a contract, i.e., under ordinary rescission principles. However, as discussed, ante, as the intent of the statute appears on its face, and the language of section 1695.17 is not vague or ambiguous, we need not resort to its legislative history in interpreting its terms. Further, a review of the legislative history cited by USF does not assist its position. The legislative history for Senate Bill No. 2641 provides:

"Existing law includes various provisions governing the sale of residences in foreclosure to defined foreclosure consultants and equity purchasers. [¶] This bill would provide that an equity purchaser is liable for all damages resulting from any statement made or act committed by the equity purchaser's representative, as defined, in any manner connected with the equity purchaser's acquisition of a residence in foreclosure, receipt of any consideration or property from or on behalf of the equity seller, or the performance of certain prohibited acts. Similarly, this bill would provide that a foreclosure consultant is liable for all damages resulting from any statement made or act committed by the foreclosure consultant's representative, as defined, in any manner connected with the foreclosure consultant's (1) performance, offer to perform, or contract to perform specified services, (2) receipt of any consideration or property from or on behalf of any owner, or (3) performance of any act prohibited by the provisions relating to mortgages. The bill also would require such an individual to provide certain proof of licensure and bonding, as specified. [¶] This bill would specify that any provision in a contract, entered into on or after January 1, 1991, that attempts or purports to limit the liability of the equity purchaser or the foreclosure consultant is void and at the option of the equity seller or owner the equity purchase contract or the foreclosure sale contract, respectively, is void only upon grounds as exist for the revocation of any contract. This bill would specify that an order summarily adjudicating civil liability or agency shall not constitute a finding of criminal liability for the purpose of any criminal prosecution brought under these provisions." (Legis. Counsel's Dig., Sen. Bill No. 2641 (1989-1990 Reg. Sess.) Stats. 1990, ch. 1537, italics added.)

USF relies upon the second italicized portion, in the last paragraph. However, it is the first italicized portion, in the paragraph immediately preceding the part that USF relies on, that discusses section 1695.17. The portion USF relies on apparently is a reference to section 1695.16, which provides in part:

"Any provision of a contract which attempts or purports to limit the liability of the equity purchaser under Section 1695.15 shall be void and shall at the option of the equity seller render the equity purchase contract void. The equity purchaser shall be liable to the equity seller for all damages proximately caused by that provision. Any provision in a contract which attempts or purports to require arbitration of any dispute arising under this chapter shall be void at the option of the equity seller only upon grounds as exist for the revocation of any contract."

USF's final contention is that section 1695.17 should not be enforced because Rady testified at trial that that the bond required under section 1695.17 is not commercially available. However, even if this were true, that fact would not justify a reversal of the judgment in this matter. First, this argument ignores the fact that section 1695.17 requires not only a specific bond and the disclosure to the seller that the representative has such a bond, but also a disclosure of the representative's current status as a licensed real estate agent. A violation of either requirement renders the agreement void. Further, if such a bond were not available, the simple answer would be not to retain an individual such as Mountain to act as USF's representative and agent in obtaining distressed properties such as Counts's condo. Any problem with obtaining the bond required by section 1695.17 is a matter to be pursued with the Legislature.

DISPOSITION

The judgment is affirmed.

NARES, J.

WE CONCUR:

McCONNELL, P. J.

IRION, J.

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^[1] All further statutory references are to the Civil Code unless otherwise specified.

^[2] Counts's complaint mistakenly refers to Mountain as "Michael Mountaineer."