Bond Requirement In The Home Equity Sales Contracts Act Is Unconstitutionally Vague and Violates Due Process

In Schweitzer v. Westminster Investments,(— Cal.Rptr. 3d —, 2007 WL 4340853, Cal.App. 4 Dist., Dec. 13, 2007), a California Court of Appeal considered a challenge to the bonding requirement of the Home Equity Sales Contract Act (“Act”). The court ruled that the requirement was unconstitutionally vague, and therefore unenforceable because it violated the due process rights of a home equity purchaser.


In 2003, a home owned by Ingo Schweitzer was in foreclosure proceedings due to Schweitzer’s failure to make several monthly payments. An agent of Westminster Investments (“Westminster”) contacted Schweitzer and told him Westminster was interested in purchasing the home. Schweitzer sold the home to Westminster, which then paid the past due amounts, and allowed Schweitzer to continue to live in the home until January 2004 in exchange for rent which would be deducted from the purchase amount owed Schweitzer by Westminster. When Schweitzer failed to vacate the home as scheduled, Westminster began unlawful detainer proceedings. Schweitzer then sued Westminster, claiming the purchase contract was void because Westminster did not provide proof that its agent was bonded, as required by the Act. The trial court ruled in favor of Schweitzer and Westminster appealed.


At issue is the interpretation of Civil Code Section 1695.17, a 1990 amendment to the Act, which requires written proof that an equity buyer’s agent 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.”

The court found that language fails to specify the total amount of the bond required by the statute because it could be interpreted in two different ways: that the representative must provide proof of a separate bond for each transaction in an amount of twice the value of the specific home involved in the transaction; or alternatively, that the agent may conduct multiple transactions under the umbrella of a single blanket bond, as long as the blanket bond is at least twice the amount of the value on any individual transaction. Further, the court added, Section 1695.17 “provides 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,” resulting in a “quagmire of vagueness.”

A statute is void for vagueness, the court said, if persons of common intelligence must guess as to its meaning and differ as to its applications. Such vagueness, the court added, violates the first essential of due process of law that government articulate its aims with clarity. Therefore, the court ruled the bonding requirement is void for vagueness under the due process clause and may not be enforced. Schweitzer could not reclaim title to the home under its terms, and the trial court judgment in his favor was reversed.