(a) Any transaction that involves the sale of or offer to sell a note secured directly by an interest in one or more parcels of real property or the sale of an undivided interest in a note secured directly by one or more parcels of real property shall adhere to all of the following:
(1) Except as provided in paragraph (2), the aggregate principal amount of the note or interest sold, together with the unpaid principal amount of any encumbrances upon the real property senior thereto, shall not exceed the following percentages of the current market value of each parcel of the real property, as determined in writing by the broker or appraiser pursuant to Section 10232.6, plus the amount for which the payment of principal and interest in excess of the percentage of current market value is insured for the benefit of the holders of the note or interest by an insurer admitted to do business in this state by the Insurance Commissioner:
(A) | Single-family residence, owner occupied ........................ | 80% |
(B) | Single-family residence, not owner occupied ........................ | 75% |
(C) | Commercial properties and income-producing properties not | |
| described in (B) or (E) ........................ | 65% | |
(D) | Single-family residentially zoned lot or parcel that has installed offsite improvements including drainage, curbs, gutters, sidewalks, paved roads, and utilities as mandated by the political subdivision having jurisdiction over the lot or parcel ........................ | 65% |
(E) | Land that produces income from crops, timber, or minerals ........................ | 60% |
(F) | Land that is not income producing but has been zoned for (and if required, approved for subdivision as) commercial or residential development ........................ | 50% |
(G) | Other real property ........................ | 35% |
(2) The percentage amounts specified in paragraph (1) may be exceeded when and to the extent that the broker determines that the encumbrance of the property in excess of these percentages is reasonable and prudent considering all relevant factors pertaining to the real property. However, in no event shall the aggregate principal amount of the note or interest sold, together with the unpaid principal amount of any encumbrances upon the property senior thereto, exceed 80 percent of the current fair market value of improved real property or 50 percent of the current fair market value of unimproved real property, except in the case of a single-family zoned lot or parcel as defined in paragraph (1), which shall not exceed 65 percent of the current fair market value of that lot or parcel, plus the amount insured as specified in paragraph (1). A written statement shall be prepared by the broker that sets forth the material considerations and facts that the broker relies upon for his or her determination, which shall be retained as a part of the broker’s record of the transaction. Either a copy of the statement or the information contained therein shall be included in the disclosures required pursuant to Section 10232.5.
(3) A copy of the appraisal or the broker’s evaluation, for each parcel of real property securing the note or interest, shall be delivered to the purchaser. The broker shall advise the purchaser of his or her right to receive a copy. For purposes of this paragraph, “appraisal” means a written estimate of value based upon the assembling, analyzing, and reconciling of facts and value indicators for the real property in question. A broker shall not purport to make an appraisal unless the person so employed is qualified on the basis of special training, preparation, or experience.
(4) For construction or rehabilitation loans, where the amount withheld for construction or rehabilitation at the start of the project exceeds one hundred thousand dollars ($100,000), the term “current market value” may be deemed to be the value of the completed project if all of the following safeguards are met:
(A) An independent neutral third-party escrow holder is used for all deposits and disbursements relating to the construction or rehabilitation of the secured property.
(B) The loan is fully funded, with the entire loan amount to be deposited in escrow prior to recording of the deed or deeds of trust.
(C) A comprehensive, detailed draw schedule is used to ensure proper and timely disbursements to allow for completion of the project.
(D) The disbursement draws from the escrow account are based on verification from an independent qualified person who certifies that the work completed to date meets the related codes and standards and that the draws were made in accordance with the construction contract and draw schedule. For purposes of this subparagraph, “independent qualified person” means a person who is not an employee, agent, or affiliate of the broker and who is a licensed architect, general contractor, structural engineer, or active local government building inspector acting in his or her official capacity.
(E) An appraisal is completed by a qualified and licensed appraiser in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP).
(F) The documentation includes a detailed description of the actions that may be taken in the event of a failure to complete the project, whether that failure is due to default, insufficiency of funds, or other causes.
(G) The entire amount of the loan does not exceed two million five hundred thousand dollars ($2,500,000).
(5) For construction or rehabilitation loans, where the amount withheld for construction or rehabilitation at the start of the project is one hundred thousand dollars ($100,000) or less, the term “current market value” may be deemed to be the value of the completed project if all of the following safeguards are met:
(A) The loan is fully funded, with the entire loan amount to be deposited in escrow prior to recording of the deed or deeds of trust.
(B) A comprehensive, detailed draw schedule is used to ensure proper and timely disbursements to allow for completion of the project.
(C) An appraisal is completed by a qualified and licensed appraiser in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP).
(D) The documentation includes a detailed description of the actions that may be taken in the event of a failure to complete the project, whether that failure is due to default, insufficiency of funds, or other causes.
(E) The entire amount of the loan does not exceed two million five hundred thousand dollars ($2,500,000).
(6) If a note or an interest will be secured by more than one parcel of real property, for the purpose of determining the maximum amount of the note or interest, each security property shall be assigned a portion of the note or interest that shall not exceed the percentage of current market value determined by, and in accordance with, the provisions of paragraphs (1) and (2).
(b) The note or interest shall not be sold, unless the purchaser meets one or both of the qualifications of income or net worth set forth below and signs a statement, which shall be retained by the broker for four years, conforming to the following:
“Transaction Identifier: | ||
Name of Purchaser: | Date: | |
Check either one of the following, if true: | ||
( )My investment in the transaction does not exceed 10% of my net worth, | ||
exclusive of home, furnishings, and automobiles. | ||
( )My investment in the transaction does not exceed 10% of my adjusted | ||
gross income for federal income tax purposes for my last tax year or, | ||
in the alternative, as estimated for the current year. | ||
Signature” |
(Amended by Stats. 2015, Ch. 263, Sec. 1. (SB 647) Effective January 1, 2016.)
Last modified: October 25, 2018