BUSINESS AND PROFESSIONS CODE
SECTION 10237-10239.4
10237. Any transaction that involves the sale of or offer to sell a
series of notes secured directly by interests in one or more parcels
of real property, or the sale of undivided interests in a note
secured directly by one or more parcels of real property equivalent
to a series transaction, shall comply with all of the provisions of
this article.
10238. (a) A notice in the following form and containing the
following information shall be filed with the commissioner within 30
days after the first transaction and within 30 days of any material
change in the information required in the notice:
TO: Real Estate
Commissioner
Mortgage Loan
Section
2201
Broadway
Sacramento, CA 95818
This notice is filed pursuant to Section 10237 of
the Business and Professions Code.
( ) Original Notice ( ) Amended Notice
1. Name of Broker conducting transaction under
Section 10237:
______________________________________________
2. Broker license identification number: ________
3. List the month the fiscal year ends: _________
4. Broker's telephone number: ___________________
5. Firm name (if different from "1):
______________________________________________
6. Street address (main location):
_______________________________________
# and Street City State ZIP
_____
Code
7. Mailing address (if different from "6):
______________________________________________
8. Servicing agent: Identify by name, address,
and telephone number the person or entity who
will act as the servicing agent in
transactions pursuant to Section 10237
(including the undersigned Broker if that is
the case):
______________________________________________
______________________________________________
9. Total number of multilender notes arranged: __
10. Total number of interests sold to investors
on the
multilender's notes: _________________________
11. Inspection of trust account (before answering
this question, review the provisions of
paragraph (3) of subdivision (k) of Section
10238).
CHECK ONLY ONE OF THE FOLLOWING:
( ) The undersigned Broker is (or expects to be)
required to file reports of inspection of its
trust account(s) with the Real Estate
Commissioner pursuant to paragraph (3) of
subdivision (k) of Section 10238.
Amount of Multilender Payments Collected Last
Fiscal Quarter: __________________________________
Total Number of Investors Due Payments Last
Fiscal Quarter: __________________________________
( ) The undersigned Broker is NOT (or does NOT
expect to be) required to file reports of
inspection of its trust account(s) with the
Real Estate Commissioner pursuant to
paragraph (3) of subdivision (k) of Section
10238.
12. Signature. The contents of this notice are
true and correct.
____________ _________________________________
Date Type Name of Broker
_________________________________
Signature of Broker or of
Designated Officer of
Corporate Broker
_________________________________
Type Name of Person(s)
Signing This Notice
NOTE: AN AMENDED NOTICE MUST BE FILED BY THE BROKER WITHIN 30 DAYS
OF ANY MATERIAL CHANGE IN THE INFORMATION REQUIRED TO BE SET FORTH
HEREIN.
(b) A broker or person who becomes the servicing agent for notes
or interest sold pursuant to this article, upon which payments due
during any period of three consecutive months in the aggregate exceed
one hundred twenty-five thousand dollars ($125,000) or the number of
persons entitled to the payments exceeds 120, shall file the notice
required by subdivision (a) with the commissioner within 30 days
after becoming the servicing agent.
(c) All advertising employed for transactions under this article
shall show the name of the broker and comply with Section 10235 and
Sections 260.302 and 2848 of Title 10 of the California Code of
Regulations. Brokers and their agents are cautioned that a reference
to a prospective investor that a transaction is conducted under this
article may be deemed misleading or deceptive if this representation
may reasonably be construed by the investor as an implication of
merit or approval of the transaction.
(d) Each parcel of real property directly securing the notes or
interests is located in this state, the note or notes are not by
their terms subject to subordination to any subsequently created deed
of trust upon the real property, and the note or notes are not
promotional notes secured by liens on separate parcels of real
property in one subdivision or in contiguous subdivisions. For
purposes of this subdivision, a promotional note means a promissory
note secured by a trust deed, executed on unimproved real property or
executed after construction of an improvement of the property but
before the first purchase of the property as so improved, or executed
as a means of financing the first purchase of the property as so
improved, that is subordinate, or by its terms may become
subordinate, to any other trust deed on the property. However, the
term "promotional note" does not include either of the following:
(1) A note that was executed in excess of three years prior to
being offered for sale.
(2) A note secured by a first trust deed on real property in a
subdivision that evidences a bona fide loan made in connection with
the financing of the usual cost of the development in a residential,
commercial, or industrial building or buildings on the property under
a written agreement providing for the disbursement of the loan funds
as costs are incurred or in relation to the progress of the work and
providing for title insurance ensuring the priority of the security
as against mechanic's and materialmen's liens or for the final
disbursement of at least 10 percent of the loan funds after the
expiration of the period for the filing of mechanic's and materialmen'
s liens.
(e) The notes or interests are sold by or through a real estate
broker, as principal or agent. At the time the interests are
originally sold or assigned, neither the broker nor an affiliate of
the broker shall have an interest as owner, lessor, or developer of
the property securing the loan, or any contractual right to acquire,
lease, or develop the property securing the loan. This provision does
not prohibit a broker from conducting the following transactions if,
in either case, the disclosure statement furnished by the broker
pursuant to subdivision (l) discloses the interest of the broker or
affiliate in the transaction and the circumstances under which the
broker or affiliate acquired the interest:
(1) A transaction in which the broker or an affiliate of the
broker is acquiring the property pursuant to a foreclosure under, or
sale pursuant to, a deed of trust securing a note for which the
broker is the servicing agent or that the broker sold to the holder
or holders.
(2) A transaction in which the broker or an affiliate of the
broker is reselling from inventory property acquired by the broker
pursuant to a foreclosure under, or sale pursuant to, a deed of trust
securing a note for which the broker is the servicing agent or that
the broker sold to the holder or holders.
(f) (1) The notes or interests shall not be sold to more than 10
persons, each of whom 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
(2) The number of offerees shall not be considered for the
purposes of this section.
(3) A husband and wife and their dependents, and an individual and
his or her dependents, shall be counted as one person.
(4) A retirement plan, trust, business trust, corporation, or
other entity that is wholly owned by an individual and the individual'
s spouse or the individual's dependents, or any combination thereof,
shall not be counted separately from the individual, but the
investments of these entities shall be aggregated with those of the
individual for the purposes of the statement required by paragraph
(1). If the investments of any entities are required to be aggregated
under this subdivision, the adjusted gross income or net worth of
these entities may also be aggregated with the net worth, income, or
both, of the individual.
(5) The "institutional investors" enumerated in subdivision (i) of
Section 25102 or subdivision (c) of Section 25104 of the
Corporations Code, or in a rule adopted pursuant thereto, shall not
be counted.
(6) A partnership, limited liability company, corporation, or
other organization that was not specifically formed for the purpose
of purchasing the security offered in reliance upon this exemption
from securities qualification is counted as one person.
(g) The notes or interests of the purchasers shall be identical in
their underlying terms, including the right to direct or require
foreclosure, rights to and rate of interest, and other incidents of
being a lender, and the sale to each purchaser pursuant to this
section shall be upon the same terms, subject to adjustment for the
face or principal amount or percentage interest purchased and for
interest earned or accrued. This subdivision does not preclude
different selling prices for interests to the extent that these
differences are reasonably related to changes in the market value of
the loan occurring between the sales of these interests. The interest
of each purchaser shall be recorded pursuant to subdivisions (a) to
(c), inclusive, of Section 10234.
(h) (1) Except as provided in paragraph (2), the aggregate
principal amount of the notes or interests 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 notes or interests 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 and income-producing
properties ............................ 65%
(D) Single-family residentially zoned lot
or parcel which 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 has been zoned for (and if
required, approved for
subdivision as) commercial or
residential development ............... 50%
(F) 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 notes or interests 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 subdivision (l).
(3) A copy of the appraisal or the broker's evaluation, for each
parcel of real property securing the notes or interests, shall be
delivered to each purchaser. The broker shall advise purchasers of
their 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, the term "current
market value" may be deemed to be the value of the completed project
if the following safeguards are met:
(A) An independent neutral third-party escrowholder is used for
all deposits and disbursements.
(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) In addition to the transaction documentation required by
subdivision (i), the documentation shall include a detailed
description of 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) 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 which shall not exceed the
percentage of current market value determined by, and in accordance
with, the provisions of paragraphs (1) and (2).
(i) The documentation of the transaction shall require that (1) a
default upon any interest or note is a default upon all interests or
notes and (2) the holders of more than 50 percent of the recorded
beneficial interests of the notes or interests may govern the actions
to be taken on behalf of all holders in accordance with Section
2941.9 of the Civil Code in the event of default or foreclosure for
matters that require direction or approval of the holders, including
designation of the broker, servicing agent, or other person acting on
their behalf, and the sale, encumbrance, or lease of real property
owned by the holders resulting from foreclosure or receipt of a deed
in lieu of foreclosure. The terms called for by this subdivision may
be included in the deed of trust, in the assignment of interests, or
in any other documentation as is necessary or appropriate to make
them binding on the parties.
(j) (1) The broker shall not accept any purchase or loan funds or
other consideration from a prospective lender or purchaser, or
directly or indirectly cause the funds or other consideration to be
deposited in an escrow or trust account, except as to a specific loan
or note secured by a deed of trust that the broker owns, is
authorized to negotiate, or is unconditionally obligated to buy.
(2) All funds received by the broker from the purchasers or
lenders shall be handled in accordance with Section 10145 for
disbursement to the persons thereto entitled upon recordation of the
interests of the purchasers or lenders in the note and deed of trust.
No provision of this article shall be construed as modifying or
superseding applicable law regulating the escrowholder in any
transaction or the handling of the escrow account.
(3) The books and records of the broker or servicing agent, or
both, shall be maintained in a manner that readily identifies
transactions under this article and the receipt and disbursement of
funds in connection with these transactions.
(4) If required by paragraph (3) of subdivision (k), the review by
the independent certified public accountant shall include a sample
of transactions, as reflected in the records of the trust account
required pursuant to paragraph (1) of subdivision (k), and the bank
statements and supporting documents. These documents shall be
reviewed for compliance with this article with respect to the
handling and distribution of funds. The sample shall be selected at
random by the accountant from all these transactions and shall
consist of the following: (A) three sales made or 5 percent of the
sales made pursuant to this article during the period for which the
examination is conducted, whichever is greater, and (B) 10 payments
processed or 2 percent of payments processed under this article
during the period for which the examination is conducted, whichever
is greater.
(5) For the purposes of this subdivision, the transaction that
constitutes a "sale" is the series of transactions by which a series
of notes of a maker, or the interests in the note of a maker, are
sold or issued to their various purchasers under this article,
including all receipts and disbursements in that process of funds
received from the purchasers or lenders. The transaction that
constitutes a "payment," for the purposes of this subdivision, is the
receipt of a payment from the person obligated on the note or from
some other person on behalf of the person so obligated, including the
broker or servicing agent, and the distribution of that payment to
the persons entitled thereto. If a payment involves an advance paid
by the broker or servicing agent as the result of a dishonored check,
the inspection shall identify the source of funds from which the
payment was made or, in the alternative, the steps that are
reasonably necessary to determine that there was not a disbursement
of trust funds. The accountant shall inspect for compliance with the
following specific provisions of this section: paragraphs (1), (2),
and (3) of subdivision (j) and paragraphs (1) and (2) of subdivision
(k).
(6) Within 30 days of the close of the period for which the report
is made, or within any additional time as the commissioner may in
writing allow in a particular case, the accountant shall forward to
the broker or servicing agent, as the case may be, and to the
commissioner, the report of the accountant, stating that the
inspection was performed in accordance with this section, listing the
sales and the payments examined, specifying the nature of the
deficiencies, if any, noted by the accountant with respect to each
sale or payment, together with any further information as the
accountant may wish to include, such as corrective steps taken with
respect to any deficiency so noted, or stating that no deficiencies
were observed. If the broker meets the threshold criteria of Section
10232, the report of the accountant shall be submitted as part of the
quarterly reports required under Section 10232.25.
(k) The notes or interests shall be sold subject to a written
agreement that obligates a licensed real estate broker, or a person
exempted from the licensing requirement for real estate brokers under
this chapter, to act as agent for the purchasers or lenders to
service the note or notes and deed of trust, including the receipt
and transmission of payments and the institution of foreclosure
proceedings in the event of a default. A copy of this servicing
agreement shall be delivered to each purchaser. The broker shall
offer to the lenders or purchasers the services of the broker or one
or more affiliates of the broker, or both, as servicing agent for
each transaction conducted pursuant to this article. The agreement
shall require all of the following:
(1) (A) That payments received on the note or notes be deposited
immediately to a trust account maintained in accordance with this
section and with the provisions for trust accounts of licensed real
estate brokers contained in Section 10145 and Article 15 (commencing
with Section 2830.1) of Chapter 6 of Title 10 of the California Code
of Regulations.
(B) That payments deposited pursuant to subparagraph (A) shall not
be commingled with the assets of the servicing agent or used for any
transaction other than the transaction for which the funds are
received.
(2) That payments received on the note or notes shall be
transmitted to the purchasers or lenders pro rata according to their
respective interests within 25 days after receipt thereof by the
agent. If the source for the payment is not the maker of the note,
the agent shall inform the purchasers or lenders of the source for
payment. A broker or servicing agent who transmits to the purchaser
or lenders the broker's or servicing agent's own funds to cover
payments due from the borrower but unpaid as a result of a dishonored
check may recover the amount of the advances from the trust fund
when the past due payment is received. However, this article does not
authorize the broker, servicing agent, or any other person to issue,
or to engage in any practice constituting, any guarantee or to
engage in the practice of advancing payments on behalf of the
borrower.
(3) If the broker or person who is or becomes the servicing agent
for notes or interests sold pursuant to this article upon which the
payments due during any period of three consecutive months in the
aggregate exceed one hundred twenty-five thousand dollars ($125,000)
or the number of persons entitled to the payments exceeds 120, the
trust account or accounts of that broker or affiliate shall be
inspected by an independent certified public accountant at no less
than three-month intervals during the time the volume is maintained.
Within 30 days after the close of the period for which the review is
made, the report of the accountant shall be forwarded as provided in
paragraph (6) of subdivision (j). If the broker is required to file
an annual report pursuant to subdivision (o) or pursuant to Section
10232.2, the quarterly report pursuant to this subdivision need not
be filed for the last quarter of the year for which the annual report
is made. For the purposes of this subdivision, an affiliate of a
broker is any person controlled by, controlling, or under common
control with the broker.
(4) Unless the servicing agent will receive notice pursuant to
Section 2924b of the Civil Code, the servicing agent shall file a
request for notice of default upon any prior encumbrances and
promptly notify the purchasers or lenders of any default on the prior
encumbrances or on the note or notes subject to the servicing
agreement.
(5) The servicing agent shall promptly forward copies of the
following to each purchaser or lender:
(A) Any notice of trustee sale filed on behalf of the purchasers
or lenders.
(B) Any request for reconveyance of the deed of trust received on
behalf of the purchasers or lenders.
(l) The broker shall disclose in writing to each purchaser or
lender the material facts concerning the transaction on a disclosure
form adopted or approved by the commissioner pursuant to Section
10232.5, subject to the following:
(1) The disclosure form shall include a description of the terms
upon which the note and deed of trust are being sold, including the
terms of the undivided interests being offered therein, including the
following:
(A) In the case of the sale of an existing note:
(i) The aggregate sale price of the note.
(ii) The percent of the premium over or discount from the
principal balance plus accrued but unpaid interest.
(iii) The effective rate of return to the purchasers if the note
is paid according to its terms.
(iv) The name and address of the escrowholder for the transaction.
(v) A description of, and the estimated amount of, each cost
payable by the seller in connection with the sale and a description
of, and the estimated amount of, each cost payable by the purchasers
in connection with the sale.
(B) In the case of the origination of a note:
(i) The name and address of the escrowholder for the transaction.
(ii) The anticipated closing date.
(iii) A description of, and the estimated amount of, each cost
payable by the borrower in connection with the loan and a description
of, and
the
estimated amount of, each cost payable by the lenders in connection
with the loan.
(C) In the case of a transaction involving a note or interest
secured by more than one parcel of real property, in addition to the
requirements of subparagraphs (A) and (B):
(i) The address, description, and estimated fair market value of
each property securing the loan.
(ii) The amount of the available equity in each property securing
the loan after the loan amount to be apportioned to each property is
assigned.
(iii) The loan to value percentage for each property after the
loan amount to be apportioned to each property is assigned pursuant
to subdivision (h).
(2) A copy of the written statement or information contained
therein, as required by paragraph (2) of subdivision (h), shall be
included in the disclosure form.
(3) Any interest of the broker or affiliate in the transaction, as
described in subdivision (e), shall be included with the disclosure
form.
(4) When the particular circumstances of a transaction make
information not specified in the disclosure form material or
essential to keep the information provided in the form from being
misleading, and the other information is known to the broker, the
other information shall also be provided by the broker.
(5) If more than one parcel of real property secures the notes or
interests, the disclosure form shall also fully disclose any risks to
investors associated with securing the notes or interests with
multiple parcels of real property.
(m) The broker or servicing agent shall furnish any purchaser of a
note or interest, upon request, with the names and addresses of the
purchasers of the other notes or interests in the loan.
(n) No agreement in connection with a transaction covered by this
article shall grant to the real estate broker, the servicing agent,
or any affiliate of the broker or agent the option or election to
acquire the interests of the purchasers or lenders or to acquire the
real property securing the interests. This subdivision shall not
prohibit the broker or affiliate from acquiring the interests, with
the consent of the purchasers or lenders whose interests are being
purchased, or the property, with the consent of the purchasers or
lenders, if the consent is given at the time of the acquisition.
(o) Each broker who conducts transactions under this article, or
broker or person who becomes the servicing agent for notes or
interest sold pursuant to this article, who meets the criteria of
paragraph (3) of subdivision (k) shall file with the commissioner an
annual report of a review of its trust account. The report shall be
prepared and filed in accordance with subdivision (a) of Section
10232.2 and the rules and procedures thereunder of the commissioner.
That report shall cover the broker's transactions under this article
and, if the broker also meets the threshold criteria set forth in
Section 10232, the broker's transactions subject to that section
shall be included as well.
(p) Each broker conducting transactions pursuant to this article,
or broker or person who becomes the servicing agent for notes or
interest sold pursuant to this article, who meets the criteria of
paragraph (3) of subdivision (k) shall file with the commissioner a
report of the transactions that is prepared in accordance with
subdivision (c) of Section 10232.2. If the broker also meets the
threshold criteria of Section 10232, the report shall include the
transactions subject to that section as well. This report shall be
confidential pursuant to subdivision (f) of Section 10232.2.
10239. The jurisdiction of the Commissioner of Corporations under
the Corporate Securities Law of 1968 shall be neither limited nor
expanded by this article. Nothing in this article shall be construed
to supersede or restrict the application of the Corporate Securities
Law of 1968. A transaction under this article shall not be construed
to be a transaction involving the issuance of securities subject to
authorization by the Real Estate Commissioner under subdivision (e)
of Section 25100 of the Corporations Code.
10239.1. Nothing in this article shall be construed to change the
agency relationships between the parties where they exist or limit in
any manner the fiduciary duty of brokers to borrowers, lenders, and
purchasers of notes or interests in transactions subject to this
article.
10239.2. For the purposes of this article, the following
definitions shall apply:
(a) "Broker" means a person licensed as a broker under this part.
(b) "Affiliate" means a person controlled by, controlling, or
under common control with, the broker.
(c) "Servicing agent" means the real estate broker or person
exempted from the licensing requirements for real estate brokers
under this chapter, to act as agent for the purchasers or lenders to
service the notes and deeds of trust, including the handling the
receipt and transmission of payments and the institution of
foreclosure proceedings in the event of a default.
(d) Except as provided in paragraph (5) of subdivision (j) of
Section 10238, the terms "sale" and "offer to sell," shall have the
same meaning as set forth in Section 25017 of the Corporations Code
and include the acts of negotiating and arranging the transaction.
10239.3. (a) If any person other than a real estate broker makes or
keeps any of the books, accounts, or other records maintained in
connection with a transaction described in this article, the
provisions of this article and of any regulation or order issued
under this section shall apply to the person with respect to the
performance of those services and with respect to those books,
accounts, and other records to the same extent as if the person were
the broker.
(b) If any person other than an affiliate of a broker makes or
keeps any of the books, accounts, or other records maintained in
connection with a transaction described in this article, or in the
case of an affiliate other than a parent or subsidiary of the broker,
the provisions of this article and of any regulation or order issued
under this article shall apply to the person with respect to those
books, accounts, and other records to the same extent as if the
person were the affiliate.
10239.4. This article applies only to the exemption from securities
qualification claimed under Section 25102.5 of the Corporations
Code. This article does not apply to any other exemption from
securities qualification, including subdivision (e) of Section 25102
of the Corporations Code, which may be claimed without complying with
this article, or to any permit to qualify the offer and sale of
securities under the Corporate Securities Law of 1968. A real estate
broker, when engaging in acts for which a license is required, who
arranges a transaction pursuant to this article or pursuant to an
offering subject to the Corporations Code, shall clearly indicate in
the broker's transaction file the provision of the Corporate
Securities Law of 1968 pertaining to qualification or exemption from
qualification under which the transaction is being conducted, and
shall retain this information for the period specified in subdivision
(a) of Section 10148.
BUSINESS AND PROFESSIONS CODE
SECTION 10237-10239.4
10237. Any transaction that involves the sale of or offer to sell a
series of notes secured directly by interests in one or more parcels
of real property, or the sale of undivided interests in a note
secured directly by one or more parcels of real property equivalent
to a series transaction, shall comply with all of the provisions of
this article.
10238. (a) A notice in the following form and containing the
following information shall be filed with the commissioner within 30
days after the first transaction and within 30 days of any material
change in the information required in the notice:
TO: Real Estate
Commissioner
Mortgage Loan
Section
2201
Broadway
Sacramento, CA 95818
This notice is filed pursuant to Section 10237 of
the Business and Professions Code.
( ) Original Notice ( ) Amended Notice
1. Name of Broker conducting transaction under
Section 10237:
______________________________________________
2. Broker license identification number: ________
3. List the month the fiscal year ends: _________
4. Broker's telephone number: ___________________
5. Firm name (if different from "1):
______________________________________________
6. Street address (main location):
_______________________________________
# and Street City State ZIP
_____
Code
7. Mailing address (if different from "6):
______________________________________________
8. Servicing agent: Identify by name, address,
and telephone number the person or entity who
will act as the servicing agent in
transactions pursuant to Section 10237
(including the undersigned Broker if that is
the case):
______________________________________________
______________________________________________
9. Total number of multilender notes arranged: __
10. Total number of interests sold to investors
on the
multilender's notes: _________________________
11. Inspection of trust account (before answering
this question, review the provisions of
paragraph (3) of subdivision (k) of Section
10238).
CHECK ONLY ONE OF THE FOLLOWING:
( ) The undersigned Broker is (or expects to be)
required to file reports of inspection of its
trust account(s) with the Real Estate
Commissioner pursuant to paragraph (3) of
subdivision (k) of Section 10238.
Amount of Multilender Payments Collected Last
Fiscal Quarter: __________________________________
Total Number of Investors Due Payments Last
Fiscal Quarter: __________________________________
( ) The undersigned Broker is NOT (or does NOT
expect to be) required to file reports of
inspection of its trust account(s) with the
Real Estate Commissioner pursuant to
paragraph (3) of subdivision (k) of Section
10238.
12. Signature. The contents of this notice are
true and correct.
____________ _________________________________
Date Type Name of Broker
_________________________________
Signature of Broker or of
Designated Officer of
Corporate Broker
_________________________________
Type Name of Person(s)
Signing This Notice
NOTE: AN AMENDED NOTICE MUST BE FILED BY THE BROKER WITHIN 30 DAYS
OF ANY MATERIAL CHANGE IN THE INFORMATION REQUIRED TO BE SET FORTH
HEREIN.
(b) A broker or person who becomes the servicing agent for notes
or interest sold pursuant to this article, upon which payments due
during any period of three consecutive months in the aggregate exceed
one hundred twenty-five thousand dollars ($125,000) or the number of
persons entitled to the payments exceeds 120, shall file the notice
required by subdivision (a) with the commissioner within 30 days
after becoming the servicing agent.
(c) All advertising employed for transactions under this article
shall show the name of the broker and comply with Section 10235 and
Sections 260.302 and 2848 of Title 10 of the California Code of
Regulations. Brokers and their agents are cautioned that a reference
to a prospective investor that a transaction is conducted under this
article may be deemed misleading or deceptive if this representation
may reasonably be construed by the investor as an implication of
merit or approval of the transaction.
(d) Each parcel of real property directly securing the notes or
interests is located in this state, the note or notes are not by
their terms subject to subordination to any subsequently created deed
of trust upon the real property, and the note or notes are not
promotional notes secured by liens on separate parcels of real
property in one subdivision or in contiguous subdivisions. For
purposes of this subdivision, a promotional note means a promissory
note secured by a trust deed, executed on unimproved real property or
executed after construction of an improvement of the property but
before the first purchase of the property as so improved, or executed
as a means of financing the first purchase of the property as so
improved, that is subordinate, or by its terms may become
subordinate, to any other trust deed on the property. However, the
term "promotional note" does not include either of the following:
(1) A note that was executed in excess of three years prior to
being offered for sale.
(2) A note secured by a first trust deed on real property in a
subdivision that evidences a bona fide loan made in connection with
the financing of the usual cost of the development in a residential,
commercial, or industrial building or buildings on the property under
a written agreement providing for the disbursement of the loan funds
as costs are incurred or in relation to the progress of the work and
providing for title insurance ensuring the priority of the security
as against mechanic's and materialmen's liens or for the final
disbursement of at least 10 percent of the loan funds after the
expiration of the period for the filing of mechanic's and materialmen'
s liens.
(e) The notes or interests are sold by or through a real estate
broker, as principal or agent. At the time the interests are
originally sold or assigned, neither the broker nor an affiliate of
the broker shall have an interest as owner, lessor, or developer of
the property securing the loan, or any contractual right to acquire,
lease, or develop the property securing the loan. This provision does
not prohibit a broker from conducting the following transactions if,
in either case, the disclosure statement furnished by the broker
pursuant to subdivision (l) discloses the interest of the broker or
affiliate in the transaction and the circumstances under which the
broker or affiliate acquired the interest:
(1) A transaction in which the broker or an affiliate of the
broker is acquiring the property pursuant to a foreclosure under, or
sale pursuant to, a deed of trust securing a note for which the
broker is the servicing agent or that the broker sold to the holder
or holders.
(2) A transaction in which the broker or an affiliate of the
broker is reselling from inventory property acquired by the broker
pursuant to a foreclosure under, or sale pursuant to, a deed of trust
securing a note for which the broker is the servicing agent or that
the broker sold to the holder or holders.
(f) (1) The notes or interests shall not be sold to more than 10
persons, each of whom 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
(2) The number of offerees shall not be considered for the
purposes of this section.
(3) A husband and wife and their dependents, and an individual and
his or her dependents, shall be counted as one person.
(4) A retirement plan, trust, business trust, corporation, or
other entity that is wholly owned by an individual and the individual'
s spouse or the individual's dependents, or any combination thereof,
shall not be counted separately from the individual, but the
investments of these entities shall be aggregated with those of the
individual for the purposes of the statement required by paragraph
(1). If the investments of any entities are required to be aggregated
under this subdivision, the adjusted gross income or net worth of
these entities may also be aggregated with the net worth, income, or
both, of the individual.
(5) The "institutional investors" enumerated in subdivision (i) of
Section 25102 or subdivision (c) of Section 25104 of the
Corporations Code, or in a rule adopted pursuant thereto, shall not
be counted.
(6) A partnership, limited liability company, corporation, or
other organization that was not specifically formed for the purpose
of purchasing the security offered in reliance upon this exemption
from securities qualification is counted as one person.
(g) The notes or interests of the purchasers shall be identical in
their underlying terms, including the right to direct or require
foreclosure, rights to and rate of interest, and other incidents of
being a lender, and the sale to each purchaser pursuant to this
section shall be upon the same terms, subject to adjustment for the
face or principal amount or percentage interest purchased and for
interest earned or accrued. This subdivision does not preclude
different selling prices for interests to the extent that these
differences are reasonably related to changes in the market value of
the loan occurring between the sales of these interests. The interest
of each purchaser shall be recorded pursuant to subdivisions (a) to
(c), inclusive, of Section 10234.
(h) (1) Except as provided in paragraph (2), the aggregate
principal amount of the notes or interests 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 notes or interests 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 and income-producing
properties ............................ 65%
(D) Single-family residentially zoned lot
or parcel which 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 has been zoned for (and if
required, approved for
subdivision as) commercial or
residential development ............... 50%
(F) 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 notes or interests 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 subdivision (l).
(3) A copy of the appraisal or the broker's evaluation, for each
parcel of real property securing the notes or interests, shall be
delivered to each purchaser. The broker shall advise purchasers of
their 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, the term "current
market value" may be deemed to be the value of the completed project
if the following safeguards are met:
(A) An independent neutral third-party escrowholder is used for
all deposits and disbursements.
(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) In addition to the transaction documentation required by
subdivision (i), the documentation shall include a detailed
description of 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) 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 which shall not exceed the
percentage of current market value determined by, and in accordance
with, the provisions of paragraphs (1) and (2).
(i) The documentation of the transaction shall require that (1) a
default upon any interest or note is a default upon all interests or
notes and (2) the holders of more than 50 percent of the recorded
beneficial interests of the notes or interests may govern the actions
to be taken on behalf of all holders in accordance with Section
2941.9 of the Civil Code in the event of default or foreclosure for
matters that require direction or approval of the holders, including
designation of the broker, servicing agent, or other person acting on
their behalf, and the sale, encumbrance, or lease of real property
owned by the holders resulting from foreclosure or receipt of a deed
in lieu of foreclosure. The terms called for by this subdivision may
be included in the deed of trust, in the assignment of interests, or
in any other documentation as is necessary or appropriate to make
them binding on the parties.
(j) (1) The broker shall not accept any purchase or loan funds or
other consideration from a prospective lender or purchaser, or
directly or indirectly cause the funds or other consideration to be
deposited in an escrow or trust account, except as to a specific loan
or note secured by a deed of trust that the broker owns, is
authorized to negotiate, or is unconditionally obligated to buy.
(2) All funds received by the broker from the purchasers or
lenders shall be handled in accordance with Section 10145 for
disbursement to the persons thereto entitled upon recordation of the
interests of the purchasers or lenders in the note and deed of trust.
No provision of this article shall be construed as modifying or
superseding applicable law regulating the escrowholder in any
transaction or the handling of the escrow account.
(3) The books and records of the broker or servicing agent, or
both, shall be maintained in a manner that readily identifies
transactions under this article and the receipt and disbursement of
funds in connection with these transactions.
(4) If required by paragraph (3) of subdivision (k), the review by
the independent certified public accountant shall include a sample
of transactions, as reflected in the records of the trust account
required pursuant to paragraph (1) of subdivision (k), and the bank
statements and supporting documents. These documents shall be
reviewed for compliance with this article with respect to the
handling and distribution of funds. The sample shall be selected at
random by the accountant from all these transactions and shall
consist of the following: (A) three sales made or 5 percent of the
sales made pursuant to this article during the period for which the
examination is conducted, whichever is greater, and (B) 10 payments
processed or 2 percent of payments processed under this article
during the period for which the examination is conducted, whichever
is greater.
(5) For the purposes of this subdivision, the transaction that
constitutes a "sale" is the series of transactions by which a series
of notes of a maker, or the interests in the note of a maker, are
sold or issued to their various purchasers under this article,
including all receipts and disbursements in that process of funds
received from the purchasers or lenders. The transaction that
constitutes a "payment," for the purposes of this subdivision, is the
receipt of a payment from the person obligated on the note or from
some other person on behalf of the person so obligated, including the
broker or servicing agent, and the distribution of that payment to
the persons entitled thereto. If a payment involves an advance paid
by the broker or servicing agent as the result of a dishonored check,
the inspection shall identify the source of funds from which the
payment was made or, in the alternative, the steps that are
reasonably necessary to determine that there was not a disbursement
of trust funds. The accountant shall inspect for compliance with the
following specific provisions of this section: paragraphs (1), (2),
and (3) of subdivision (j) and paragraphs (1) and (2) of subdivision
(k).
(6) Within 30 days of the close of the period for which the report
is made, or within any additional time as the commissioner may in
writing allow in a particular case, the accountant shall forward to
the broker or servicing agent, as the case may be, and to the
commissioner, the report of the accountant, stating that the
inspection was performed in accordance with this section, listing the
sales and the payments examined, specifying the nature of the
deficiencies, if any, noted by the accountant with respect to each
sale or payment, together with any further information as the
accountant may wish to include, such as corrective steps taken with
respect to any deficiency so noted, or stating that no deficiencies
were observed. If the broker meets the threshold criteria of Section
10232, the report of the accountant shall be submitted as part of the
quarterly reports required under Section 10232.25.
(k) The notes or interests shall be sold subject to a written
agreement that obligates a licensed real estate broker, or a person
exempted from the licensing requirement for real estate brokers under
this chapter, to act as agent for the purchasers or lenders to
service the note or notes and deed of trust, including the receipt
and transmission of payments and the institution of foreclosure
proceedings in the event of a default. A copy of this servicing
agreement shall be delivered to each purchaser. The broker shall
offer to the lenders or purchasers the services of the broker or one
or more affiliates of the broker, or both, as servicing agent for
each transaction conducted pursuant to this article. The agreement
shall require all of the following:
(1) (A) That payments received on the note or notes be deposited
immediately to a trust account maintained in accordance with this
section and with the provisions for trust accounts of licensed real
estate brokers contained in Section 10145 and Article 15 (commencing
with Section 2830.1) of Chapter 6 of Title 10 of the California Code
of Regulations.
(B) That payments deposited pursuant to subparagraph (A) shall not
be commingled with the assets of the servicing agent or used for any
transaction other than the transaction for which the funds are
received.
(2) That payments received on the note or notes shall be
transmitted to the purchasers or lenders pro rata according to their
respective interests within 25 days after receipt thereof by the
agent. If the source for the payment is not the maker of the note,
the agent shall inform the purchasers or lenders of the source for
payment. A broker or servicing agent who transmits to the purchaser
or lenders the broker's or servicing agent's own funds to cover
payments due from the borrower but unpaid as a result of a dishonored
check may recover the amount of the advances from the trust fund
when the past due payment is received. However, this article does not
authorize the broker, servicing agent, or any other person to issue,
or to engage in any practice constituting, any guarantee or to
engage in the practice of advancing payments on behalf of the
borrower.
(3) If the broker or person who is or becomes the servicing agent
for notes or interests sold pursuant to this article upon which the
payments due during any period of three consecutive months in the
aggregate exceed one hundred twenty-five thousand dollars ($125,000)
or the number of persons entitled to the payments exceeds 120, the
trust account or accounts of that broker or affiliate shall be
inspected by an independent certified public accountant at no less
than three-month intervals during the time the volume is maintained.
Within 30 days after the close of the period for which the review is
made, the report of the accountant shall be forwarded as provided in
paragraph (6) of subdivision (j). If the broker is required to file
an annual report pursuant to subdivision (o) or pursuant to Section
10232.2, the quarterly report pursuant to this subdivision need not
be filed for the last quarter of the year for which the annual report
is made. For the purposes of this subdivision, an affiliate of a
broker is any person controlled by, controlling, or under common
control with the broker.
(4) Unless the servicing agent will receive notice pursuant to
Section 2924b of the Civil Code, the servicing agent shall file a
request for notice of default upon any prior encumbrances and
promptly notify the purchasers or lenders of any default on the prior
encumbrances or on the note or notes subject to the servicing
agreement.
(5) The servicing agent shall promptly forward copies of the
following to each purchaser or lender:
(A) Any notice of trustee sale filed on behalf of the purchasers
or lenders.
(B) Any request for reconveyance of the deed of trust received on
behalf of the purchasers or lenders.
(l) The broker shall disclose in writing to each purchaser or
lender the material facts concerning the transaction on a disclosure
form adopted or approved by the commissioner pursuant to Section
10232.5, subject to the following:
(1) The disclosure form shall include a description of the terms
upon which the note and deed of trust are being sold, including the
terms of the undivided interests being offered therein, including the
following:
(A) In the case of the sale of an existing note:
(i) The aggregate sale price of the note.
(ii) The percent of the premium over or discount from the
principal balance plus accrued but unpaid interest.
(iii) The effective rate of return to the purchasers if the note
is paid according to its terms.
(iv) The name and address of the escrowholder for the transaction.
(v) A description of, and the estimated amount of, each cost
payable by the seller in connection with the sale and a description
of, and the estimated amount of, each cost payable by the purchasers
in connection with the sale.
(B) In the case of the origination of a note:
(i) The name and address of the escrowholder for the transaction.
(ii) The anticipated closing date.
(iii) A description of, and the estimated amount of, each cost
payable by the borrower in connection with the loan and a description
of, and
the
estimated amount of, each cost payable by the lenders in connection
with the loan.
(C) In the case of a transaction involving a note or interest
secured by more than one parcel of real property, in addition to the
requirements of subparagraphs (A) and (B):
(i) The address, description, and estimated fair market value of
each property securing the loan.
(ii) The amount of the available equity in each property securing
the loan after the loan amount to be apportioned to each property is
assigned.
(iii) The loan to value percentage for each property after the
loan amount to be apportioned to each property is assigned pursuant
to subdivision (h).
(2) A copy of the written statement or information contained
therein, as required by paragraph (2) of subdivision (h), shall be
included in the disclosure form.
(3) Any interest of the broker or affiliate in the transaction, as
described in subdivision (e), shall be included with the disclosure
form.
(4) When the particular circumstances of a transaction make
information not specified in the disclosure form material or
essential to keep the information provided in the form from being
misleading, and the other information is known to the broker, the
other information shall also be provided by the broker.
(5) If more than one parcel of real property secures the notes or
interests, the disclosure form shall also fully disclose any risks to
investors associated with securing the notes or interests with
multiple parcels of real property.
(m) The broker or servicing agent shall furnish any purchaser of a
note or interest, upon request, with the names and addresses of the
purchasers of the other notes or interests in the loan.
(n) No agreement in connection with a transaction covered by this
article shall grant to the real estate broker, the servicing agent,
or any affiliate of the broker or agent the option or election to
acquire the interests of the purchasers or lenders or to acquire the
real property securing the interests. This subdivision shall not
prohibit the broker or affiliate from acquiring the interests, with
the consent of the purchasers or lenders whose interests are being
purchased, or the property, with the consent of the purchasers or
lenders, if the consent is given at the time of the acquisition.
(o) Each broker who conducts transactions under this article, or
broker or person who becomes the servicing agent for notes or
interest sold pursuant to this article, who meets the criteria of
paragraph (3) of subdivision (k) shall file with the commissioner an
annual report of a review of its trust account. The report shall be
prepared and filed in accordance with subdivision (a) of Section
10232.2 and the rules and procedures thereunder of the commissioner.
That report shall cover the broker's transactions under this article
and, if the broker also meets the threshold criteria set forth in
Section 10232, the broker's transactions subject to that section
shall be included as well.
(p) Each broker conducting transactions pursuant to this article,
or broker or person who becomes the servicing agent for notes or
interest sold pursuant to this article, who meets the criteria of
paragraph (3) of subdivision (k) shall file with the commissioner a
report of the transactions that is prepared in accordance with
subdivision (c) of Section 10232.2. If the broker also meets the
threshold criteria of Section 10232, the report shall include the
transactions subject to that section as well. This report shall be
confidential pursuant to subdivision (f) of Section 10232.2.
10239. The jurisdiction of the Commissioner of Corporations under
the Corporate Securities Law of 1968 shall be neither limited nor
expanded by this article. Nothing in this article shall be construed
to supersede or restrict the application of the Corporate Securities
Law of 1968. A transaction under this article shall not be construed
to be a transaction involving the issuance of securities subject to
authorization by the Real Estate Commissioner under subdivision (e)
of Section 25100 of the Corporations Code.
10239.1. Nothing in this article shall be construed to change the
agency relationships between the parties where they exist or limit in
any manner the fiduciary duty of brokers to borrowers, lenders, and
purchasers of notes or interests in transactions subject to this
article.
10239.2. For the purposes of this article, the following
definitions shall apply:
(a) "Broker" means a person licensed as a broker under this part.
(b) "Affiliate" means a person controlled by, controlling, or
under common control with, the broker.
(c) "Servicing agent" means the real estate broker or person
exempted from the licensing requirements for real estate brokers
under this chapter, to act as agent for the purchasers or lenders to
service the notes and deeds of trust, including the handling the
receipt and transmission of payments and the institution of
foreclosure proceedings in the event of a default.
(d) Except as provided in paragraph (5) of subdivision (j) of
Section 10238, the terms "sale" and "offer to sell," shall have the
same meaning as set forth in Section 25017 of the Corporations Code
and include the acts of negotiating and arranging the transaction.
10239.3. (a) If any person other than a real estate broker makes or
keeps any of the books, accounts, or other records maintained in
connection with a transaction described in this article, the
provisions of this article and of any regulation or order issued
under this section shall apply to the person with respect to the
performance of those services and with respect to those books,
accounts, and other records to the same extent as if the person were
the broker.
(b) If any person other than an affiliate of a broker makes or
keeps any of the books, accounts, or other records maintained in
connection with a transaction described in this article, or in the
case of an affiliate other than a parent or subsidiary of the broker,
the provisions of this article and of any regulation or order issued
under this article shall apply to the person with respect to those
books, accounts, and other records to the same extent as if the
person were the affiliate.
10239.4. This article applies only to the exemption from securities
qualification claimed under Section 25102.5 of the Corporations
Code. This article does not apply to any other exemption from
securities qualification, including subdivision (e) of Section 25102
of the Corporations Code, which may be claimed without complying with
this article, or to any permit to qualify the offer and sale of
securities under the Corporate Securities Law of 1968. A real estate
broker, when engaging in acts for which a license is required, who
arranges a transaction pursuant to this article or pursuant to an
offering subject to the Corporations Code, shall clearly indicate in
the broker's transaction file the provision of the Corporate
Securities Law of 1968 pertaining to qualification or exemption from
qualification under which the transaction is being conducted, and
shall retain this information for the period specified in subdivision
(a) of Section 10148.
BUSINESS AND PROFESSIONS CODE
SECTION 10237-10239.4
10237. Any transaction that involves the sale of or offer to sell a
series of notes secured directly by interests in one or more parcels
of real property, or the sale of undivided interests in a note
secured directly by one or more parcels of real property equivalent
to a series transaction, shall comply with all of the provisions of
this article.
10238. (a) A notice in the following form and containing the
following information shall be filed with the commissioner within 30
days after the first transaction and within 30 days of any material
change in the information required in the notice:
TO: Real Estate
Commissioner
Mortgage Loan
Section
2201
Broadway
Sacramento, CA 95818
This notice is filed pursuant to Section 10237 of
the Business and Professions Code.
( ) Original Notice ( ) Amended Notice
1. Name of Broker conducting transaction under
Section 10237:
______________________________________________
2. Broker license identification number: ________
3. List the month the fiscal year ends: _________
4. Broker's telephone number: ___________________
5. Firm name (if different from "1):
______________________________________________
6. Street address (main location):
_______________________________________
# and Street City State ZIP
_____
Code
7. Mailing address (if different from "6):
______________________________________________
8. Servicing agent: Identify by name, address,
and telephone number the person or entity who
will act as the servicing agent in
transactions pursuant to Section 10237
(including the undersigned Broker if that is
the case):
______________________________________________
______________________________________________
9. Total number of multilender notes arranged: __
10. Total number of interests sold to investors
on the
multilender's notes: _________________________
11. Inspection of trust account (before answering
this question, review the provisions of
paragraph (3) of subdivision (k) of Section
10238).
CHECK ONLY ONE OF THE FOLLOWING:
( ) The undersigned Broker is (or expects to be)
required to file reports of inspection of its
trust account(s) with the Real Estate
Commissioner pursuant to paragraph (3) of
subdivision (k) of Section 10238.
Amount of Multilender Payments Collected Last
Fiscal Quarter: __________________________________
Total Number of Investors Due Payments Last
Fiscal Quarter: __________________________________
( ) The undersigned Broker is NOT (or does NOT
expect to be) required to file reports of
inspection of its trust account(s) with the
Real Estate Commissioner pursuant to
paragraph (3) of subdivision (k) of Section
10238.
12. Signature. The contents of this notice are
true and correct.
____________ _________________________________
Date Type Name of Broker
_________________________________
Signature of Broker or of
Designated Officer of
Corporate Broker
_________________________________
Type Name of Person(s)
Signing This Notice
NOTE: AN AMENDED NOTICE MUST BE FILED BY THE BROKER WITHIN 30 DAYS
OF ANY MATERIAL CHANGE IN THE INFORMATION REQUIRED TO BE SET FORTH
HEREIN.
(b) A broker or person who becomes the servicing agent for notes
or interest sold pursuant to this article, upon which payments due
during any period of three consecutive months in the aggregate exceed
one hundred twenty-five thousand dollars ($125,000) or the number of
persons entitled to the payments exceeds 120, shall file the notice
required by subdivision (a) with the commissioner within 30 days
after becoming the servicing agent.
(c) All advertising employed for transactions under this article
shall show the name of the broker and comply with Section 10235 and
Sections 260.302 and 2848 of Title 10 of the California Code of
Regulations. Brokers and their agents are cautioned that a reference
to a prospective investor that a transaction is conducted under this
article may be deemed misleading or deceptive if this representation
may reasonably be construed by the investor as an implication of
merit or approval of the transaction.
(d) Each parcel of real property directly securing the notes or
interests is located in this state, the note or notes are not by
their terms subject to subordination to any subsequently created deed
of trust upon the real property, and the note or notes are not
promotional notes secured by liens on separate parcels of real
property in one subdivision or in contiguous subdivisions. For
purposes of this subdivision, a promotional note means a promissory
note secured by a trust deed, executed on unimproved real property or
executed after construction of an improvement of the property but
before the first purchase of the property as so improved, or executed
as a means of financing the first purchase of the property as so
improved, that is subordinate, or by its terms may become
subordinate, to any other trust deed on the property. However, the
term "promotional note" does not include either of the following:
(1) A note that was executed in excess of three years prior to
being offered for sale.
(2) A note secured by a first trust deed on real property in a
subdivision that evidences a bona fide loan made in connection with
the financing of the usual cost of the development in a residential,
commercial, or industrial building or buildings on the property under
a written agreement providing for the disbursement of the loan funds
as costs are incurred or in relation to the progress of the work and
providing for title insurance ensuring the priority of the security
as against mechanic's and materialmen's liens or for the final
disbursement of at least 10 percent of the loan funds after the
expiration of the period for the filing of mechanic's and materialmen'
s liens.
(e) The notes or interests are sold by or through a real estate
broker, as principal or agent. At the time the interests are
originally sold or assigned, neither the broker nor an affiliate of
the broker shall have an interest as owner, lessor, or developer of
the property securing the loan, or any contractual right to acquire,
lease, or develop the property securing the loan. This provision does
not prohibit a broker from conducting the following transactions if,
in either case, the disclosure statement furnished by the broker
pursuant to subdivision (l) discloses the interest of the broker or
affiliate in the transaction and the circumstances under which the
broker or affiliate acquired the interest:
(1) A transaction in which the broker or an affiliate of the
broker is acquiring the property pursuant to a foreclosure under, or
sale pursuant to, a deed of trust securing a note for which the
broker is the servicing agent or that the broker sold to the holder
or holders.
(2) A transaction in which the broker or an affiliate of the
broker is reselling from inventory property acquired by the broker
pursuant to a foreclosure under, or sale pursuant to, a deed of trust
securing a note for which the broker is the servicing agent or that
the broker sold to the holder or holders.
(f) (1) The notes or interests shall not be sold to more than 10
persons, each of whom 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
(2) The number of offerees shall not be considered for the
purposes of this section.
(3) A husband and wife and their dependents, and an individual and
his or her dependents, shall be counted as one person.
(4) A retirement plan, trust, business trust, corporation, or
other entity that is wholly owned by an individual and the individual'
s spouse or the individual's dependents, or any combination thereof,
shall not be counted separately from the individual, but the
investments of these entities shall be aggregated with those of the
individual for the purposes of the statement required by paragraph
(1). If the investments of any entities are required to be aggregated
under this subdivision, the adjusted gross income or net worth of
these entities may also be aggregated with the net worth, income, or
both, of the individual.
(5) The "institutional investors" enumerated in subdivision (i) of
Section 25102 or subdivision (c) of Section 25104 of the
Corporations Code, or in a rule adopted pursuant thereto, shall not
be counted.
(6) A partnership, limited liability company, corporation, or
other organization that was not specifically formed for the purpose
of purchasing the security offered in reliance upon this exemption
from securities qualification is counted as one person.
(g) The notes or interests of the purchasers shall be identical in
their underlying terms, including the right to direct or require
foreclosure, rights to and rate of interest, and other incidents of
being a lender, and the sale to each purchaser pursuant to this
section shall be upon the same terms, subject to adjustment for the
face or principal amount or percentage interest purchased and for
interest earned or accrued. This subdivision does not preclude
different selling prices for interests to the extent that these
differences are reasonably related to changes in the market value of
the loan occurring between the sales of these interests. The interest
of each purchaser shall be recorded pursuant to subdivisions (a) to
(c), inclusive, of Section 10234.
(h) (1) Except as provided in paragraph (2), the aggregate
principal amount of the notes or interests 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 notes or interests 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 and income-producing
properties ............................ 65%
(D) Single-family residentially zoned lot
or parcel which 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 has been zoned for (and if
required, approved for
subdivision as) commercial or
residential development ............... 50%
(F) 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 notes or interests 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 subdivision (l).
(3) A copy of the appraisal or the broker's evaluation, for each
parcel of real property securing the notes or interests, shall be
delivered to each purchaser. The broker shall advise purchasers of
their 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, the term "current
market value" may be deemed to be the value of the completed project
if the following safeguards are met:
(A) An independent neutral third-party escrowholder is used for
all deposits and disbursements.
(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) In addition to the transaction documentation required by
subdivision (i), the documentation shall include a detailed
description of 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) 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 which shall not exceed the
percentage of current market value determined by, and in accordance
with, the provisions of paragraphs (1) and (2).
(i) The documentation of the transaction shall require that (1) a
default upon any interest or note is a default upon all interests or
notes and (2) the holders of more than 50 percent of the recorded
beneficial interests of the notes or interests may govern the actions
to be taken on behalf of all holders in accordance with Section
2941.9 of the Civil Code in the event of default or foreclosure for
matters that require direction or approval of the holders, including
designation of the broker, servicing agent, or other person acting on
their behalf, and the sale, encumbrance, or lease of real property
owned by the holders resulting from foreclosure or receipt of a deed
in lieu of foreclosure. The terms called for by this subdivision may
be included in the deed of trust, in the assignment of interests, or
in any other documentation as is necessary or appropriate to make
them binding on the parties.
(j) (1) The broker shall not accept any purchase or loan funds or
other consideration from a prospective lender or purchaser, or
directly or indirectly cause the funds or other consideration to be
deposited in an escrow or trust account, except as to a specific loan
or note secured by a deed of trust that the broker owns, is
authorized to negotiate, or is unconditionally obligated to buy.
(2) All funds received by the broker from the purchasers or
lenders shall be handled in accordance with Section 10145 for
disbursement to the persons thereto entitled upon recordation of the
interests of the purchasers or lenders in the note and deed of trust.
No provision of this article shall be construed as modifying or
superseding applicable law regulating the escrowholder in any
transaction or the handling of the escrow account.
(3) The books and records of the broker or servicing agent, or
both, shall be maintained in a manner that readily identifies
transactions under this article and the receipt and disbursement of
funds in connection with these transactions.
(4) If required by paragraph (3) of subdivision (k), the review by
the independent certified public accountant shall include a sample
of transactions, as reflected in the records of the trust account
required pursuant to paragraph (1) of subdivision (k), and the bank
statements and supporting documents. These documents shall be
reviewed for compliance with this article with respect to the
handling and distribution of funds. The sample shall be selected at
random by the accountant from all these transactions and shall
consist of the following: (A) three sales made or 5 percent of the
sales made pursuant to this article during the period for which the
examination is conducted, whichever is greater, and (B) 10 payments
processed or 2 percent of payments processed under this article
during the period for which the examination is conducted, whichever
is greater.
(5) For the purposes of this subdivision, the transaction that
constitutes a "sale" is the series of transactions by which a series
of notes of a maker, or the interests in the note of a maker, are
sold or issued to their various purchasers under this article,
including all receipts and disbursements in that process of funds
received from the purchasers or lenders. The transaction that
constitutes a "payment," for the purposes of this subdivision, is the
receipt of a payment from the person obligated on the note or from
some other person on behalf of the person so obligated, including the
broker or servicing agent, and the distribution of that payment to
the persons entitled thereto. If a payment involves an advance paid
by the broker or servicing agent as the result of a dishonored check,
the inspection shall identify the source of funds from which the
payment was made or, in the alternative, the steps that are
reasonably necessary to determine that there was not a disbursement
of trust funds. The accountant shall inspect for compliance with the
following specific provisions of this section: paragraphs (1), (2),
and (3) of subdivision (j) and paragraphs (1) and (2) of subdivision
(k).
(6) Within 30 days of the close of the period for which the report
is made, or within any additional time as the commissioner may in
writing allow in a particular case, the accountant shall forward to
the broker or servicing agent, as the case may be, and to the
commissioner, the report of the accountant, stating that the
inspection was performed in accordance with this section, listing the
sales and the payments examined, specifying the nature of the
deficiencies, if any, noted by the accountant with respect to each
sale or payment, together with any further information as the
accountant may wish to include, such as corrective steps taken with
respect to any deficiency so noted, or stating that no deficiencies
were observed. If the broker meets the threshold criteria of Section
10232, the report of the accountant shall be submitted as part of the
quarterly reports required under Section 10232.25.
(k) The notes or interests shall be sold subject to a written
agreement that obligates a licensed real estate broker, or a person
exempted from the licensing requirement for real estate brokers under
this chapter, to act as agent for the purchasers or lenders to
service the note or notes and deed of trust, including the receipt
and transmission of payments and the institution of foreclosure
proceedings in the event of a default. A copy of this servicing
agreement shall be delivered to each purchaser. The broker shall
offer to the lenders or purchasers the services of the broker or one
or more affiliates of the broker, or both, as servicing agent for
each transaction conducted pursuant to this article. The agreement
shall require all of the following:
(1) (A) That payments received on the note or notes be deposited
immediately to a trust account maintained in accordance with this
section and with the provisions for trust accounts of licensed real
estate brokers contained in Section 10145 and Article 15 (commencing
with Section 2830.1) of Chapter 6 of Title 10 of the California Code
of Regulations.
(B) That payments deposited pursuant to subparagraph (A) shall not
be commingled with the assets of the servicing agent or used for any
transaction other than the transaction for which the funds are
received.
(2) That payments received on the note or notes shall be
transmitted to the purchasers or lenders pro rata according to their
respective interests within 25 days after receipt thereof by the
agent. If the source for the payment is not the maker of the note,
the agent shall inform the purchasers or lenders of the source for
payment. A broker or servicing agent who transmits to the purchaser
or lenders the broker's or servicing agent's own funds to cover
payments due from the borrower but unpaid as a result of a dishonored
check may recover the amount of the advances from the trust fund
when the past due payment is received. However, this article does not
authorize the broker, servicing agent, or any other person to issue,
or to engage in any practice constituting, any guarantee or to
engage in the practice of advancing payments on behalf of the
borrower.
(3) If the broker or person who is or becomes the servicing agent
for notes or interests sold pursuant to this article upon which the
payments due during any period of three consecutive months in the
aggregate exceed one hundred twenty-five thousand dollars ($125,000)
or the number of persons entitled to the payments exceeds 120, the
trust account or accounts of that broker or affiliate shall be
inspected by an independent certified public accountant at no less
than three-month intervals during the time the volume is maintained.
Within 30 days after the close of the period for which the review is
made, the report of the accountant shall be forwarded as provided in
paragraph (6) of subdivision (j). If the broker is required to file
an annual report pursuant to subdivision (o) or pursuant to Section
10232.2, the quarterly report pursuant to this subdivision need not
be filed for the last quarter of the year for which the annual report
is made. For the purposes of this subdivision, an affiliate of a
broker is any person controlled by, controlling, or under common
control with the broker.
(4) Unless the servicing agent will receive notice pursuant to
Section 2924b of the Civil Code, the servicing agent shall file a
request for notice of default upon any prior encumbrances and
promptly notify the purchasers or lenders of any default on the prior
encumbrances or on the note or notes subject to the servicing
agreement.
(5) The servicing agent shall promptly forward copies of the
following to each purchaser or lender:
(A) Any notice of trustee sale filed on behalf of the purchasers
or lenders.
(B) Any request for reconveyance of the deed of trust received on
behalf of the purchasers or lenders.
(l) The broker shall disclose in writing to each purchaser or
lender the material facts concerning the transaction on a disclosure
form adopted or approved by the commissioner pursuant to Section
10232.5, subject to the following:
(1) The disclosure form shall include a description of the terms
upon which the note and deed of trust are being sold, including the
terms of the undivided interests being offered therein, including the
following:
(A) In the case of the sale of an existing note:
(i) The aggregate sale price of the note.
(ii) The percent of the premium over or discount from the
principal balance plus accrued but unpaid interest.
(iii) The effective rate of return to the purchasers if the note
is paid according to its terms.
(iv) The name and address of the escrowholder for the transaction.
(v) A description of, and the estimated amount of, each cost
payable by the seller in connection with the sale and a description
of, and the estimated amount of, each cost payable by the purchasers
in connection with the sale.
(B) In the case of the origination of a note:
(i) The name and address of the escrowholder for the transaction.
(ii) The anticipated closing date.
(iii) A description of, and the estimated amount of, each cost
payable by the borrower in connection with the loan and a description
of, and
the
estimated amount of, each cost payable by the lenders in connection
with the loan.
(C) In the case of a transaction involving a note or interest
secured by more than one parcel of real property, in addition to the
requirements of subparagraphs (A) and (B):
(i) The address, description, and estimated fair market value of
each property securing the loan.
(ii) The amount of the available equity in each property securing
the loan after the loan amount to be apportioned to each property is
assigned.
(iii) The loan to value percentage for each property after the
loan amount to be apportioned to each property is assigned pursuant
to subdivision (h).
(2) A copy of the written statement or information contained
therein, as required by paragraph (2) of subdivision (h), shall be
included in the disclosure form.
(3) Any interest of the broker or affiliate in the transaction, as
described in subdivision (e), shall be included with the disclosure
form.
(4) When the particular circumstances of a transaction make
information not specified in the disclosure form material or
essential to keep the information provided in the form from being
misleading, and the other information is known to the broker, the
other information shall also be provided by the broker.
(5) If more than one parcel of real property secures the notes or
interests, the disclosure form shall also fully disclose any risks to
investors associated with securing the notes or interests with
multiple parcels of real property.
(m) The broker or servicing agent shall furnish any purchaser of a
note or interest, upon request, with the names and addresses of the
purchasers of the other notes or interests in the loan.
(n) No agreement in connection with a transaction covered by this
article shall grant to the real estate broker, the servicing agent,
or any affiliate of the broker or agent the option or election to
acquire the interests of the purchasers or lenders or to acquire the
real property securing the interests. This subdivision shall not
prohibit the broker or affiliate from acquiring the interests, with
the consent of the purchasers or lenders whose interests are being
purchased, or the property, with the consent of the purchasers or
lenders, if the consent is given at the time of the acquisition.
(o) Each broker who conducts transactions under this article, or
broker or person who becomes the servicing agent for notes or
interest sold pursuant to this article, who meets the criteria of
paragraph (3) of subdivision (k) shall file with the commissioner an
annual report of a review of its trust account. The report shall be
prepared and filed in accordance with subdivision (a) of Section
10232.2 and the rules and procedures thereunder of the commissioner.
That report shall cover the broker's transactions under this article
and, if the broker also meets the threshold criteria set forth in
Section 10232, the broker's transactions subject to that section
shall be included as well.
(p) Each broker conducting transactions pursuant to this article,
or broker or person who becomes the servicing agent for notes or
interest sold pursuant to this article, who meets the criteria of
paragraph (3) of subdivision (k) shall file with the commissioner a
report of the transactions that is prepared in accordance with
subdivision (c) of Section 10232.2. If the broker also meets the
threshold criteria of Section 10232, the report shall include the
transactions subject to that section as well. This report shall be
confidential pursuant to subdivision (f) of Section 10232.2.
10239. The jurisdiction of the Commissioner of Corporations under
the Corporate Securities Law of 1968 shall be neither limited nor
expanded by this article. Nothing in this article shall be construed
to supersede or restrict the application of the Corporate Securities
Law of 1968. A transaction under this article shall not be construed
to be a transaction involving the issuance of securities subject to
authorization by the Real Estate Commissioner under subdivision (e)
of Section 25100 of the Corporations Code.
10239.1. Nothing in this article shall be construed to change the
agency relationships between the parties where they exist or limit in
any manner the fiduciary duty of brokers to borrowers, lenders, and
purchasers of notes or interests in transactions subject to this
article.
10239.2. For the purposes of this article, the following
definitions shall apply:
(a) "Broker" means a person licensed as a broker under this part.
(b) "Affiliate" means a person controlled by, controlling, or
under common control with, the broker.
(c) "Servicing agent" means the real estate broker or person
exempted from the licensing requirements for real estate brokers
under this chapter, to act as agent for the purchasers or lenders to
service the notes and deeds of trust, including the handling the
receipt and transmission of payments and the institution of
foreclosure proceedings in the event of a default.
(d) Except as provided in paragraph (5) of subdivision (j) of
Section 10238, the terms "sale" and "offer to sell," shall have the
same meaning as set forth in Section 25017 of the Corporations Code
and include the acts of negotiating and arranging the transaction.
10239.3. (a) If any person other than a real estate broker makes or
keeps any of the books, accounts, or other records maintained in
connection with a transaction described in this article, the
provisions of this article and of any regulation or order issued
under this section shall apply to the person with respect to the
performance of those services and with respect to those books,
accounts, and other records to the same extent as if the person were
the broker.
(b) If any person other than an affiliate of a broker makes or
keeps any of the books, accounts, or other records maintained in
connection with a transaction described in this article, or in the
case of an affiliate other than a parent or subsidiary of the broker,
the provisions of this article and of any regulation or order issued
under this article shall apply to the person with respect to those
books, accounts, and other records to the same extent as if the
person were the affiliate.
10239.4. This article applies only to the exemption from securities
qualification claimed under Section 25102.5 of the Corporations
Code. This article does not apply to any other exemption from
securities qualification, including subdivision (e) of Section 25102
of the Corporations Code, which may be claimed without complying with
this article, or to any permit to qualify the offer and sale of
securities under the Corporate Securities Law of 1968. A real estate
broker, when engaging in acts for which a license is required, who
arranges a transaction pursuant to this article or pursuant to an
offering subject to the Corporations Code, shall clearly indicate in
the broker's transaction file the provision of the Corporate
Securities Law of 1968 pertaining to qualification or exemption from
qualification under which the transaction is being conducted, and
shall retain this information for the period specified in subdivision
(a) of Section 10148.
