As used in this chapter, the following terms have the following meaning:
(a) “Actual benefit” means the amount, if any, realized by the lender upon the disposition of property acquired through foreclosure or its equivalent as a direct result of a removal or remedial action undertaken by another person, not to exceed the amount, if any, by which the disposition proceeds exceed the sum of the balance of all of the following:
(1) The loan or obligation or the amount of the lien, evidenced by the loan or obligation outstanding at foreclosure or its equivalent.
(2) The costs, including attorneys’ fees, incurred by the lender in connection with the foreclosure or its equivalent, subsequent ownership, any removal or remedial action, and disposition of the property.
(b) “Borrower, debtor or obligor” means a person who is obligated to a lender under a loan or obligation, whether or not the lender maintains a security interest in that person’s property.
(c) “Damages” includes compensatory damages, exemplary damages, punitive damages, and costs of every kind and nature, including, but not limited to, costs of a removal or remedial action.
(d) “Fiduciary” means a person who is acting in any of the following capacities:
(1) As trustee for a trust described in paragraph (1) or (2) of subdivision (a) of Section 82 of the Probate Code.
(2) As a fiduciary in any arrangement described in paragraphs (1) to (3), inclusive, or paragraphs (5) to (14), inclusive, of subdivision (b) of Section 82 of the Probate Code.
(3) A trustee appointed in proceedings under any state or federal bankruptcy law.
(4) An assignee or a trustee acting under an assignment made for the benefit of creditors.
(5) A court-appointed receiver.
(e) “Finance lease” means a transaction with respect to which both of the following apply:
(1) The lessor does not select or manufacture the goods or does not supply the goods, except in the case of a re-lease, whether it is created by a new transaction or substitution of the lessee.
(2) The lessor acquires the goods or right to possession and use of the goods in connection with the lease or a prior lease transaction.
(f) “Foreclosure or its equivalent” means the acquisition of property by a lender through any of the following:
(1) Judicial or nonjudicial foreclosure of the lender’s security interest in the property or acceptance of a deed or other conveyance in satisfaction thereto.
(2) Acceptance of a deed in lieu or other conveyance in satisfaction of a loan or obligation previously contracted.
(3) Termination of a finance lease by consent or default.
(4) Any other formal or informal manner, whether pursuant to law or under warranties, covenants, conditions, representations or promises from the borrower, by which the lender acquires, for subsequent disposition, actual possession of the property subject to a security interest.
(g) “Hazardous material” has the same meaning as defined in subdivision (d) of Section 25260.
(h) (1) “Indicia of ownership” means evidence of a security interest, evidence of an interest in a security interest, or evidence of an interest in real or personal property securing a loan or other obligation, including, but not limited to, any legal or equitable title to real or personal property acquired incident to foreclosure or its equivalent.
(2) “Evidence of an interest” includes, but is not limited to, all of the following:
(A) Mortgages.
(B) Deeds of trust.
(C) Liens.
(D) Surety bonds and guarantees of obligations.
(E) Title held pursuant to a finance lease in which the lessor does not select initially the leased property.
(F) Legal or equitable title obtained pursuant to foreclosure or its equivalent.
(G) Assignments, pledges, or other rights to, or other forms of, encumbrance against property that are held primarily to protect a security interest.
(3) A person is not required to hold title or a security interest to maintain indicia of ownership.
(i) “Lender” means a person to the extent of the capacity in which that person maintains indicia of ownership primarily to protect a security interest or makes, acquires, renews, modifies, or holds a loan or obligation from a borrower. “Lender” includes either of the following persons:
(1) Any person who acts as, or on behalf of, a lender in connection with any aspect of the solicitation, negotiation, consummation, disbursement, administration, servicing, collection, enforcement, or foreclosure or its equivalent of a loan or obligation or security interest in property such as a surety, escrow, or title company.
(2) Any person who makes, secures, acquires, or holds a loan or obligation or security interest by assignment, sale, pledge, subrogation, succession, or operation of law, or becomes the receiver for the holder of a loan or obligation or security interest.
(j) “Loan or obligation” means a loan, revolving or nonrevolving line of credit, finance lease, sale-leaseback that provides for a purchase option in favor of the lessee, installment sale contract, sale on account, or other credit sale, letter of credit, forbearance or guaranty, collateral pledge, or other suretyship obligation, and any extension, renewal, or modification thereof. A loan or obligation may or may not involve a security interest in property.
(k) (1) Except as provided in paragraphs (3) and (4), “participate (or participation) in the management of the property” means actual participation in the management or operational affairs of the property by the lender while the borrower, under the loan or obligation, is in possession of the property, and the lender exercises decisionmaking control over the environmental compliance by the borrower, so that the lender assumes responsibility for the hazardous material handling or disposal practices of the borrower, or exercises control at a level comparable to that of a manager of the enterprise of the borrower, so that the lender assumes or manifests responsibility for the overall management of the enterprise encompassing the day-to-day decisionmaking of the enterprise with respect to either of the following:
(A) Environmental compliance.
(B) All, or substantially all, of the operational, as opposed to financial or administrative, aspects of the enterprise other than environmental compliance.
(2) For purposes of paragraph (1), the following terms have the following meaning:
(A) “Operational aspects of the enterprise” includes, but is not limited to, functions such as that of facility or plant manager, operations manager, chief operating officer, or chief executive officer.
(B) “Financial or administrative aspects” includes, but is not limited to, functions such as that of a credit manager, accounts payable/receivable manager, personnel manager, controller, or chief financial officer.
(3) Notwithstanding paragraph (1), “participation in the management of the property” does not include an act or omission by a prospective lender prior to making, acquiring, or holding a loan or obligation. “Participation in the management of the property” also does not include the actions taken by a prospective lender who undertakes or requires an environmental inspection of property prior to making, acquiring, or holding a loan or obligation. A lender or prospective lender does not “participate in the management of the property” if the lender or prospective lender requires the borrower to clean up the property or requires the borrower to comply or come into compliance with any applicable law or regulation. This chapter does not require a lender to conduct or require an inspection prior to foreclosure or its equivalent to qualify for the exemption provided by this chapter, and the liability of a lender shall not be based on or affected by whether the lender conducts or requires an inspection prior to foreclosure or its equivalent.
(4) Loan policing and work out activities, as specified in paragraphs (5) and (6), that are consistent with holding ownership indicia primarily to protect a security interest and consistent with a loan or obligation made, acquired, or held primarily for purposes other than investment purposes, do not constitute participation in the management of the property. The authority for the lender to take those actions may, but are not required to, be contained in contractual or other documents specifying requirements for financial, environmental, and other warranties, covenants, conditions, representations, or promises from the borrower. Loan policing and work out activities include all activities up to foreclosure or its equivalent.
(5) A lender who engages in loan policing activities prior to foreclosure or its equivalent is exempt from liability pursuant to this chapter if the lender does not, by those actions, participate in the management of the property. Those actions include, but are not limited to, all of the following:
(A) Requiring the borrower to conduct a removal or remedial action during the term of the security interest or loan or obligation.
(B) Requiring the borrower to comply or come into compliance with applicable federal, state, and local environmental and other laws during the term of the security interest or loan or obligation.
(C) Securing or exercising authority to monitor or inspect the property, including onsite inspections, or the business or financial condition of the borrower during the term of the security interest or loan or obligation.
(D) Taking other actions to adequately police the loan, obligation, or security interest, such as requiring the borrower to comply with any warranties, covenants, conditions, representations, or promises in connection with the security interest or loan or obligation.
(6) (A) A lender who engages in work out activities prior to foreclosure or its equivalents is exempt from liability pursuant to this chapter if the lender does not, by those actions, participate in the management of the property.
(B) “Work out” means those actions by which a lender, at any time prior to foreclosure or its equivalent, seeks to prevent, cure, or mitigate a default by the borrower, or to preserve or prevent the diminution of the value of the property, security interest, or loan or obligation.
(C) Work out activities include, but are not limited to, all of the following:
(i) Restructuring or renegotiating the terms of the loan, obligation, or security interest.
(ii) Requiring payment of additional rent or interest.
(iii) Exercising rights pursuant to an assignment of accounts or other amounts owing to a lender.
(iv) Requiring or exercising rights pursuant to an escrow agreement pertaining to amounts owing to a lender.
(v) Exercising forbearance.
(vi) Providing specific or general financial or other advice, suggestions, counseling, or guidance.
(vii) Exercising any right or remedy the lender is entitled to by law or under any warranties, covenants, conditions, representations, or promises from the borrower.
(7) A lender does not participate in the management of the property by taking any response action under Section 107(d)(1) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Sec. 9607(d)(1)). However, the lender may be liable for damages, as defined by this chapter, that occur as a result of the gross negligence or willful misconduct of the lender in his or her performance of a response action under Section 107 (d)(1) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Sec. 9607(d)(1)).
(l) “Person” means any entity, including, but not limited to, an individual, estate, trust, firm, business trust, joint stock company, corporation, partnership, joint venture, limited liability company, association, or government. “Person” includes, but is not limited to, any city, county, district, the state, or the federal government, or any department, subdivision, or agency thereof.
(m) (1) “Primarily to protect a security interest” means that the indicia of ownership of a lender are held primarily for the purpose of securing payment or performance of an obligation.
(2) “Primarily to protect a security interest” does not include indicia of ownership held primarily for investment purposes or indicia of ownership held primarily for purposes other than as protection for a security interest. A lender may have other, secondary reasons for maintaining indicia of ownership, but the primary reason that any indicia of ownership are held shall be as protection for a security interest.
(n) “Property” means any real or personal property where hazardous materials are or were generated, handled, managed, deposited, stored, disposed of, placed, released, or otherwise have come to be located. In the context of a loan or obligation, “property” includes any real or personal property in which the obligor has or had an ownership, leasehold, or possessory interest, whether or not it was the subject of a security interest for the loan or obligation.
(o) “Release” has the same meaning as defined in Section 25320.
(p) “Remedial action” has the same meaning as defined in subdivision (g) of Section 25260.
(q) “Removal” means the cleanup or removal of released hazardous materials from the environment or the taking of other actions that may be necessary to prevent, minimize, or mitigate damages that may otherwise result from a release or threatened release, as further defined in Section 101(23) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Sec. 9601(23)).
(r) “Security interest” means an interest in a property created or established for the purpose of securing a loan or obligation. Security interests include, but are not limited to, mortgages, deeds of trust, liens, and title pursuant to a finance lease. Security interests may also arise from transactions such as sale and leasebacks, conditional sales, installment sales, trust receipt transactions, certain assignments, factoring agreements, and accounts receivable financing arrangements and consignments if the transaction creates or establishes an interest in a property for the purpose of securing a loan or other obligation.
(Amended by Stats. 1998, Ch. 382, Sec. 1. Effective January 1, 1999.)
Last modified: October 25, 2018