Buyer’s Choice Act Signed Into Law
Gov. Arnold Schwarzenegger has signed an assembly bill into law that protects consumers by ensuring that they have the right to choose their own real estate service providers when purchasing foreclosed properties.
Also known as the Buyer’s Choice Act, the law prohibits sellers of REO properties from requiring the buyer to use a particular title company, escrow settlement or other real estate service provider. The Escrow Institute of California says this “unethical, anti-competitive practice” drives up costs for homebuyers and takes business away from locally owned companies.
The institute said the problem has become particularly acute in the Central Valley and Inland Empire, areas that have faced some of the highest foreclosure rates in the country. Recent data indicate that the foreclosure rate in 11 of the nation’s top 20 metropolitan areas is in California.
“Homebuyers should have every right to choose their title, escrow and real estate service providers based on price and quality of service,” said Assembly member Cathleen Galgiani.
“This law ensures that buyers can make marketplace choices that suit their own best interests, rather than getting forced to serve the financial interests of some international bank or other corporation,” she said. The Buyer’s Choice Act enjoyed overwhelming bipartisan support in the Legislature, with State Sen. Jeff Denham, R-Merced, providing assistance. AB 957 was sponsored by the Escrow Institute of California, and received support from the California Association of Realtors and numerous real estate professionals from across the state.
The bill requires that REO sellers provide a disclosure notice to buyers informing them of their rights to choose their own title, escrow and other real estate services. Sellers who violate the provisions of the law are subject to enforcement action by state regulators and liable to buyers for civil penalties.
“It’s just not right that independent escrow companies and other local real estate businesses are being literally locked out of the foreclosure sales market,” said Tim Egan, CEO of the Escrow Institute of California.
“These local companies oftentimes offer the best price and highest quality of service available to consumers. Excluding these companies from REO sales kills local jobs and eliminates competition in the marketplace,” Mr. Egan said.
It has been said the government felt that the troubled real estate market created a situation where the majority of homes available for resale were in the hands of the foreclosing lenders, which created a high potential for unfairness and abuse by sellers on foreclosed homes.
Penalties for violating the law are that the seller is liable to the buyer for three times the amount of all charges made for the title insurance and/or escrow services. In addition, the seller will be considered to have violated their licensing law. However, a sale cannot be set aside solely because this law has been violated. California's Buyer's Choice Act will remain in effect until January 1, 2015, unless it is extended by the legislature.