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Article of the Month for August 2005 Printer friendly version

Meaning of Unconscionable?

by Ward Hanigan

The State of California has enacted strict, legal guidelines regarding the sale of real property by a homeowner whose home is in foreclosure at the time of sale and the buyer has no intent to occupy it as their residence. [Civil Code 1695]

Section 1695.13 of the Code states:
"It is unlawful for any person to initiate, enter into, negotiate, or consummate any transaction involving residential real property in foreclosure, as defined in Section 1695.1, if such person, by the terms of such transaction, takes unconscionable advantage of the property owner in foreclosure."

The code goes on to state in part, that if the purchaser violates 1695.13 then the transaction is voidable and can be rescinded by the seller within 2 years of deeding the property to the buyer. And the buyer would be liable for any consequential damages, costs and attorney fees. Additional fines and jail time are also provided for.

So it's imperative that if you engage in equity buyout activity that comes under the purview of 1695, that you have a very clear understanding of what's required under the law and that you conduct yourself in full accord with the intent and strictures of the law. All that the code is asking you to do is act in a fair and above-board manner.

The most common question that arises in this area is, "What does unconscionable advantage really mean?"

Here are some definitions found in various dictionaries -

  • A contract with unfair or unduly harsh terms
  • A contract of sale, the terms of which are unscrupulous, unprincipled or unjust.
  • A contract which has terms that are excessively unreasonable, overreaching and one sided.
  • Not restrained by conscience; unscrupulous behavior.
  • Beyond prudence or reason; excessive in the extreme.
  • Conduct that is monstrously harsh and shocking to the conscience.
  • A contract which no man in his senses, not under delusion, would make on the one hand, and which no fair and honest man would accept, on the other.

I suspect that most people would feel a lot more comfortable about what unconscionable advantage really means, if they could quantify it. That would probably be a 50/50 deal where both sides evenly split the expected profit or proceeds of the deal.

My best bit of advice, which would make you feel proud of you, is to make an offer that you would take, if you were on the other side of the negotiation.

Information provided by this website is for informational purposes only and is not a substitute for professional advice. Please consult your investment advisor and/or attorney before entering into any transaction. Read our privacy policy.

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