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CAL. FIN.

CODE 4970 : California Code - Section 4970


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For purposes of this division:

(a)"Annual percentage rate" means the annual percentage rate for the loan calculated according to the provisions of the federal Truth in Lending Act and the regulations adopted thereunder by the Federal Reserve Board.

(b)"Covered loan" means a consumer loan in which the original principal balance of the loan does not exceed the most current conforming loan limit for a single-family first mortgage loan established by the Federal National Mortgage Association in the case of a mortgage or deed of trust, and where one of the following conditions are met:

(1)For a mortgage or deed of trust, the annual percentage rate at consummation of the transaction will exceed by more than eight percentage points the yield on Treasury securities having comparable periods of maturity on the 15th day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor.

(2)The total points and fees payable by the consumer at or before closing for a mortgage or deed of trust will exceed 6 percent of the total loan amount.

(c)"Points and fees" shall include the following:

(1)All items required to be disclosed as finance charges under Sections 226.4(a) and 226.4(b) of Title 12 of the Code of Federal Regulations, including the Official Staff Commentary, as amended from time to time, except interest.

(2)All compensation and fees paid to mortgage brokers in connection with the loan transaction.

(3)All items listed in Section 226.4(c)(7) of Title 12 of the Code of Federal Regulations, only if the person originating the covered loan receives direct compensation in connection with the charge.

(d)"Consumer loan" means a consumer credit transaction that is secured by real property located in this state used, or intended to be used or occupied, as the principal dwelling of the consumer that is improved by a one-to-four residential unit. "Consumer loan" does not include a reverse mortgage, an open line of credit as defined in Part 226 of Title 12 of the Code of Federal Regulations (Regulation Z), or a consumer credit transaction that is secured by rental property or second homes. "Consumer loan" does not include a bridge loan. For purposes of this division, a bridge loan is any temporary loan, having a maturity of one year or less, for the purpose of acquisition or construction of a dwelling intended to become the consumer's principal dwelling.

(e)"Original principal balance" means the total initial amount the consumer is obligated to repay on the loan.

(f)"Licensing agency" shall mean the Department of Real Estate for licensed real estate brokers, the Department of Corporations for licensed residential mortgage lenders and licensed finance lenders and brokers, and the Department of Financial Institutions for commercial and industrial banks and savings associations and credit unions organized in this state.

(g)"Licensed person" means a real estate broker licensed under the Real Estate Law (Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code), a finance lender or broker licensed under the California Finance Lenders Law (Division 9 (commencing with Section 22000)), a residential mortgage lender licensed under the California Residential Mortgage Lending Act (Division 20 (commencing with Section 50000)), a commercial or industrial bank organized under the Banking Law (Division 1 (commencing with Section 99)), a savings association organized under the Savings Association Law (Division 2 (commencing with Section 5000)), and a credit union organized under the California Credit Union Law (Division 5 (commencing with Section 14000)). Nothing in this division shall be construed to prevent any enforcement by a governmental entity against any person who originates a loan and who is exempt or excluded from licensure by all of the licensing agencies, based on a violation of any provision of this division. Nothing in this division shall be construed to prevent the Department of Real Estate from enforcing this division against a licensed salesperson employed by a licensed real estate broker as if that salesperson were a licensed person under this division. A licensed person includes any person engaged in the practice of consumer lending, as defined in this division, for which a license is required under any other provision of law, but whose license is invalid, suspended or revoked, or where no license has been obtained.

(h)"Originate" means to arrange, negotiate, or make a consumer loan.

(i)"Servicer" has the same meaning provided in Section 6 (i)(2) of the Real Estate Settlement Procedures Act of 1974.

2010 California Code Business and Professions Code Article 7. Real Property Loans
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BUSINESS AND PROFESSIONS CODE SECTION 10240-10248.3

10240.

(a) Every real estate broker, upon acting within the meaning

of subdivision (d) of Section 10131, who negotiates a loan to be secured directly or collaterally by a lien on real property shall, within three business days after receipt of a completed written loan application or before the borrower becomes obligated on the note, whichever is earlier, cause to be delivered to the borrower a statement in writing, containing all the information required by Section 10241. It shall be personally signed by the borrower and by the real estate broker negotiating the loan or by a real estate licensee acting for the broker in negotiating the loan. When so executed, an exact copy thereof shall be delivered to the borrower at the time of its execution. The real estate broker negotiating the loan shall retain on file for a period of three years a true and correct copy of the statement as signed by the borrower. No real estate licensee shall permit the statement to be signed by a borrower if any information required by Section 10241 is omitted. (b) For the purposes of applying the provisions of this article, a real estate broker is acting within the meaning of subdivision (d) of Section 10131 if he or she solicits borrowers, or causes borrowers to be solicited, through express or implied representations that the broker will act as an agent in arranging a loan, but in fact makes the loan to the borrower from funds belonging to the broker. (c) In a federally regulated residential mortgage loan transaction

in which the principal loan amount exceeds the principal loan levels set forth in Section 10245, a real estate broker satisfies the requirements of this section if the borrower receives (1) a "good faith estimate" that satisfies the requirements of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C.A. 2601 et seq.), and that sets forth the broker's real estate license number and a clear and conspicuous statement on the face of the document stating that the "good faith estimate" does not constitute a loan commitment, (2) all applicable disclosures required by the Truth in Lending Act (15 U.S.C.A. 1601 et seq.), and (3) if the loan contains a balloon payment provision, the disclosure described in subdivision (h) of Section 10241, the balloon disclosure required for that loan by Fannie Mae or Freddie Mac, or an alternative disclosure determined by the commissioner to satisfy the requirements of the Truth in Lending Act. Prior to becoming obligated on the loan the borrower shall acknowledge, in writing, receipt of the "good faith estimate" and all applicable disclosures required by the Truth in Lending Act. The real estate broker shall retain on file for a period of three years a true and correct copy of the signed acknowledgment and a true and correct copy of the "good faith estimate" and all applicable disclosures required by the Truth in Lending Act as acknowledged by the borrower.

10240.1.

The provisions of this article, exclusive of the

provisions of Section 10240, apply only to loans secured by a dwelling.

10240.2.

As used in this article, " dwelling" means any of the

following units which are owned by a signatory to the mortgage or deed of trust secured by the dwelling unit at the time of execution of the mortgage or deed of trust: (a) A single dwelling unit in a condominium or cooperative. (b) Any parcel containing only residential buildings if the total number of units on the parcel is four or less.

10240.3.

(a) The commissioner shall apply the guidance on

nontraditional mortgage product risks published on November 14, 2006, by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, and the Statement on Subprime Mortgage Lending published on July 17, 2007, by the aforementioned entities and the National Association of Consumer Credit Administrators, to real estate brokers acting within the meaning of Section 10131.1 or subdivision (d) of Section 10131. (b) The commissioner may adopt emergency and final regulations to clarify the application of this section as soon as possible. (c) A real estate broker acting within the meaning of Section 10131.1 or subdivision (d) of Section 10131 shall adopt and adhere to policies and procedures that are reasonably intended to achieve the objectives set forth in the documents described in subdivision (a).

10241.

The statement required by Section 10240, the form of which

shall be approved by the commissioner, shall set forth separately the following items: (a) The estimated maximum costs and expenses of making the loan, which are to be paid by the borrower, including but not limited to, the following: (1) Appraisal fees. (2) Escrow fees. (3) Title charges. (4) Notary fees. (5) Recording fees. (6) Credit investigation fees. If a real estate licensee performs or is to perform any of the services for which costs and expenses are disclosed pursuant to this subdivision, the licensee shall be entitled to those costs and expenses in addition to the charges specified in subdivision (b). (b) The total of the brokerage or commissions contracted for, or to be received by, the real estate broker for services performed as an agent in negotiating, procuring, or arranging the loan or the total of loan origination fees, points, bonuses, and other charges in lieu of interest to be received by the broker if he or she elects to act as a lender rather than agent in the transaction. (c) Any liens against the real property, as disclosed by the borrower, the approximate amount thereof, and whether each lien will remain senior, or will be subordinate, to the lien that will secure the loan. (d) The estimated amounts to be paid on the order of the borrower,

as disclosed by the borrower, including, but not limited to: (1) Fire insurance premiums. (2) Amounts due on prior liens, including interest or other charges arising in connection with the payment, release, reconveyance, extinction, or other removal of record of the prior liens. (3) Amounts due other creditors. (4) Assumption, transfer, forwarding, and beneficiary statement fees. (e) The estimated balance of the loan funds to be paid to the borrower after deducting the total of amounts disclosed pursuant to subdivisions (a), (b), and (d). (f) The principal amount of the loan. (g) The rate of interest. (h) The term of the loan, the number of installments, the amount of each installment, and the approximate balance due at maturity, and the following notice in 10-point bold typeface:

"NOTICE TO BORROWER:

IF YOU DO NOT HAVE THE FUNDS TO PAY THE BALLOON

PAYMENT WHEN IT COMES DUE, YOU MAY HAVE TO OBTAIN A NEW LOAN AGAINST YOUR PROPERTY TO MAKE THE BALLOON PAYMENT. IN THAT CASE, YOU MAY AGAIN HAVE TO PAY COMMISSIONS, FEES, AND EXPENSES FOR THE ARRANGING OF THE NEW LOAN. IN ADDITION, IF YOU ARE UNABLE TO MAKE THE MONTHLY PAYMENTS OR THE BALLOON PAYMENT, YOU MAY LOSE THE PROPERTY AND ALL OF YOUR EQUITY THROUGH FORECLOSURE. KEEP THIS IN MIND IN DECIDING UPON THE AMOUNT AND TERMS OF THIS LOAN."

(i) A statement containing the name of the real estate broker

negotiating the loan, his or her license number, and the address of his or her licensed place of business. (j) If the broker anticipates that the loan to the borrower may be made wholly or in part from broker-controlled funds, a statement to that effect. For purposes of this section, "broker-controlled funds" means funds owned by the broker, by a spouse, child, parent, grandparent, brother, sister, father-in-law, mother-in-law, brother-in-law, or sister-in-law of the broker, or by any entity in which the broker alone or together with any of the above relatives of the broker has an ownership interest of 10 percent or more. (k) The terms of prepayment privileges and penalties, if any. (l) A statement that the purchase of credit or credit disability insurance is not required as a condition for the making of the loan. (m) If the loan is one that is within the limits specified in Section 10245, a certification by the real estate licensee negotiating the loan that the loan is being made in compliance with the provisions of this article.

10241.1.

(a) The purchase of credit life insurance on the life of

the borrower or credit disability insurance to provide indemnity for payments becoming due on the indebtedness shall not be required as a condition of making a loan under this article. (b) The licensee may provide through duly licensed agents, and collect from the borrower the costs of purchasing, credit life insurance on the life of a borrower and credit disability insurance

to provide indemnity for payments becoming due on the indebtedness, with the borrower's consent. The form and rate of the insurance shall be approved by the Insurance Commissioner, as provided in Section 779.9 of the Insurance Code. The insurance shall be in an amount not in excess of that reasonably necessary to discharge the obligation of the borrower, and for a term not exceeding the term of the loan. Only one premium for credit disability insurance may be collected by the licensee in connection with any loan contract irrespective of the number of borrowers, and only one borrower may be insured, except that where more than one borrower is a party to a loan contract and each borrower is a wage earner whose earnings are reasonably relied upon by the lender for the repayment of the loan, each borrower may be insured. (c) The licensee may collect from the borrower the costs of purchasing fire and hazard insurance on the property offered as security for a loan in order to reasonably insure against loss for a reasonable term considering the circumstances of the loan, (1) if the policy or policies of insurance are made payable to the borrower or any member of his or her family, regardless of whether a customary mortgagee clause is attached, and (2) if the insurance is sold at standard rates through duly licensed agents. (d) If premiums for any insurance provided under this section are to be paid from the proceeds of the loan, any amount so paid and any commission under subdivision (b) of Section 10242 attributable to borrowing that amount, shall not be considered in determining whether the loan is exempt from this article under Section 10245.

10241.2.

If the broker elects to make a loan subject to Section

10240 which consists wholly or in part of broker-controlled funds as defined in subdivision (j) of Section 10241, the broker shall advise the borrower of that fact not later than the next business day after making the election, but in any event before the close of escrow of the loan transaction.

10241.3.

In any loan transaction in which a fee is charged to a

borrower for an appraisal of the real property that will serve as security for the loan, a copy of the appraisal report shall be given by or on behalf of the broker to both the borrower and the lender at or before the closing of the loan transaction.

10241.4.

(a) Prior to a borrower becoming obligated on any loan

secured by a dwelling that provides for a balloon payment and is otherwise subject to Section 10240, if any agreement includes a promise, representation, or similar undertaking to extend or seek the extension of the term of the loan or refinancing of the loan, and the undertaking is not set forth in the promissory note evidencing the loan or in a rider to that note, the undertaking shall be in writing and the notice required by this section shall be provided to the borrower. (b) The notice required by subdivision (a), shall state in at

least 10-point boldface capitalized type: "AS THIS LOAN PROVIDES FOR A BALLOON PAYMENT, SEE THE MORTGAGE LOAN DISCLOSURE STATEMENT/GOOD FAITH ESTIMATE FOR IMPORTANT INFORMATION ON BALLOON PAYMENTS. ALSO, REFER TO THE LOAN DOCUMENTS AND THIS EXTENSION AGREEMENT FOR YOUR SPECIFIC RIGHTS AND OBLIGATIONS." (c) The notice shall also contain, in at least 10-point boldface capitalized type, either of the following statements depending upon which statement best describes the nature of the undertaking: (1) The lender or noteholder has agreed to an extension, refinancing, or renegotiation of the terms of this loan, and the lender's or noteholder's signed agreement is attached (or the notice may describe the method used to furnish that signed document). Transmission by a broker of a lender's or noteholder's undertaking or the broker's representation of that undertaking, pursuant to this section, does not of itself, create or alter any agency or similar relationship between the lender or noteholder and the borrower, or the lender or noteholder and the broker. (2) The broker, ____ (insert name of broker making or arranging the loan), has agreed to use his or her best efforts to obtain a future extension, refinancing, or renegotiation of the loan by the lender or note owner. There can be no assurance or guarantee that the lender or note owner will agree.

10242.

The maximum amount of expenses, charges and interest to be

paid by a borrower with respect to any loan subject to this article shall be as follows:

(a) The maximum amount of all costs and expenses referred to in subdivision (a) of Section 10241, exclusive of actual title charges and recording fees, shall not exceed 5 percent of the principal amount of the loan or three hundred ninety dollars ($390), whichever is greater but in no event to exceed seven hundred dollars ($700), provided that in no event shall said maximum amount exceed actual costs and expenses paid, incurred or reasonably earned. (b) The maximum amount of the charges referred to in subdivision (b) of Section 10241 shall not exceed the following amounts: (1) In the case of a loan secured directly or collaterally, in whole or in part by a first trust deed, 5 percent of the principal amount of the loan where the term of the loan is a period of less than three years and 10 percent where the term is a period of three years or more. (2) In the case of a loan secured directly or collaterally by a trust deed other than a first trust deed, 5 percent of the principal amount of the loan where the term of the loan is a period of less than two years, 10 percent where the term is a period of two years but less than three years, and 15 percent where the term is a period of three years or more. (3) With respect to a further advance on a note, the charges shall not exceed the charges for an original loan in the same amount as the further advance and made for a term equal to the remaining term of the note on which the further advance is being made, including any extension thereof. (c) No interest may be charged with respect to any period prior to the date that the proceeds of the loan are made available to the borrower or are deposited in escrow.

10242.5.

(a) A charge imposed for late payment of an installment

due on a loan secured by a mortgage or deed of trust on real property shall not exceed an amount equal to 10 percent of the installment due, except that a minimum charge of five dollars ($5) may be imposed when the late charge permitted by this section would otherwise be less than that minimum charge. The charge permitted by this section may be assessed only as a percentage of the increment of any installment due that is attributable to principal and interest. (b) No charge may be imposed more than once for the same late payment of an installment. No late charge may be imposed on any installment which is paid or tendered in full within 10 days after its scheduled due date, even though an earlier maturing installment or a late charge on an earlier installment may not have been paid in full. For purposes of this subdivision, a payment or tender of payment made within 10 days of a scheduled installment due date shall be deemed to have been made or tendered for payment of that installment. (c) A late-payment charge may be imposed pursuant to this subdivision for the payment of any balloon payment more than 10 days after the date due. The charge shall not exceed an amount equal to the maximum late charge that could have been assessed with respect to the largest single monthly installment previously due, other than the balloon payment, multiplied by the sum of one plus the number of months occurring since the late-payment charge began to accrue. For

purposes of this subdivision, "month" means the period between a particular day of a calendar month and the same day of the next calendar month.

10242.6.

(a) The principal and accrued interest on any loan secured

by a mortgage or deed of trust on real property containing only a single-family, owner-occupied dwelling may be prepaid in whole or in part at any time but only a prepayment made within seven years of the date of execution of such mortgage or deed of trust may be subject to a prepayment charge and then solely as herein set forth. An amount not exceeding 20 percent of the unpaid balance may be prepaid in any 12-month period. A prepayment charge may be imposed on any amount prepaid in any 12-month period in excess of 20 percent of the unpaid balance which charge shall not exceed an amount equal to the payment of six months' advance interest on the amount prepaid in excess of 20 percent of the unpaid balance. (b) Notwithstanding subdivision (a), there shall be no prepayment penalty charged to a borrower under a loan subject to this section if the dwelling securing the loan has been damaged to such an extent by a natural disaster for which a state of emergency is declared by the Governor, pursuant to Chapter 7 (commencing with Section 8550) of Division 1 of Title 2 of the Government Code, that the dwelling cannot be occupied and the prepayment is causally related thereto. (c) As used in this section, "owner-occupied dwelling" means a dwelling which will be owned and occupied by a signatory to the mortgage or deed of trust secured by the dwelling within 90 days of

the execution of the mortgage or deed of trust.

10243.

If the loan is not consummated due to the failure of the

borrower to disclose the outstanding liens of record or the correct current vested title which is material to the loan upon the real property as provided by subdivision (c) of Section 10241, the borrower shall be liable for the costs and expenses provided in subdivision (a) of Section 10241 which have been paid or incurred, and shall be liable for the payment of one-half of the charges provided in subdivision (b) of Section 10241. An exclusive agreement authorizing or employing a licensee to negotiate a loan secured directly or collaterally by a lien on real property shall be limited to a term of not more than 45 days. If the loan is not consummated and the broker is entitled to any charges, costs or expenses authorized by this article, he or she may not record a lien or encumbrance against the borrower's property except subsequent to the filing of a legal action pursuant to the Code of Civil Procedure to recover said charges, costs or expenses. However, nothing contained herein shall prohibit a broker from recording a lien pursuant to a voluntary lien agreement in conjunction with a stipulation to dismiss an actual or proposed complaint for damages entitling the broker to such charges, costs or expenses after written notice to the borrower that the broker proposes or has initiated a complaint for damages pursuant to the Code of Civil Procedure.

10244.

Any loan made by any person and secured directly by a lien

on real property, other than a note given back to the seller by the purchaser on account of the purchase price, which provides for installment payments and the term of which is less than three years, shall require substantially equal installment payments over the period of the loan with the final payment not payable until the maturity date thereof. No installment including the final installment shall be greater than twice the amount of the smallest installment. If any loan having an original maturity period of less than three (3) years is renewed or refinanced, the total amount of charges to be paid on both the original obligation and the balance of such obligation, as renewed or refinanced, shall not in the aggregate exceed the amount of charges as provided in Section 10242, and if such a loan is renewed or refinanced through the person who negotiated the original loan, the total amount of costs and expenses to be paid on both the original obligation and the renewed or refinanced obligation shall not exceed in the aggregate the amount of costs and expenses authorized in subdivision (a) of said section. The provisions of this section do not apply to a bona fide loan, secured by a first trust deed on real property, made in connection with the financing of the usual costs of the development of 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 insuring the priority of the security as against mechanic's and materialmen's liens or for the final disbursement of at least ten (10) percent of the loan funds

after the expiration of the period for the filing of mechanics and materialmen's liens.

10244.1.

Notwithstanding the provisions of Section 10244, on a loan

secured directly or collaterally by a lien on real property comprising an owner-occupied dwelling, for a term of six years or less, no installment, whether providing for payment of principal and interest or interest only, shall be greater than twice the amount of the smallest installment. This section does not apply to a note given back to the seller by the purchaser on account for the purchase price or any collateral loans secured solely by such a note. As used in this section, "owner-occupied dwelling" means a single dwelling unit in a condominium or cooperative or a residential building of less than three separate dwelling units, one of which will be owned and occupied by a signatory to the mortgage or deed of trust secured by such dwelling within 90 days of the execution of the mortgage or deed of trust.

10245.

The provisions of this article, exclusive of the provisions

of Sections 10240, 10240.3, 10242.5, and 10242.6, do not apply to any bona fide loan secured directly or collaterally by a first trust deed, the principal of which is thirty thousand dollars ($30,000) or more, or to any bona fide loan secured directly or collaterally by any lien junior thereto, the principal of which is twenty thousand

dollars ($20,000) or more.

10246.

If any amount:

(a) In excess of the charges referred to in Section 10241 and limited by Section 10242, (b) In excess of the charges permitted by Section 10242.5, or (c) Prohibited by Section 10248.1, is received, the borrower may recover, from the person who shall have taken or received the excess or prohibited amount, three times the amount of the excess or prohibited amount and the borrower shall be entitled to costs and a reasonable attorney's fee; provided that any action for recovery must be brought within two (2) years from the date such excess or prohibited charge was received. However, if the excess or prohibited amount is the result of a bona fide error the borrower may only recover such excess or prohibited amount.

10247.

The provisions of this article pertaining to maximum costs

and expenses, charges and interest, together with the penalties stated in this article, shall apply to any transaction involving a third party as a purported lender or any other transaction which is used as a subterfuge or means of avoiding or evading the provisions of this article.

10248.

Every person who, for compensation to be received directly

or indirectly, sells, offers to sell, purchases for resale or offers to purchase for resale, or who negotiates or arranges for the purchase, sale or exchange of a promissory note secured directly or collaterally by a lien on real property, may receive only the maximum total charges provided for in Section 10242.

10248.1.

No real estate licensee shall charge, receive, or

negotiate for the payment by the borrower of any service charge or fee other than charges and fees specified in Sections 10241, 10241.1, 10242, and 10242.5, prepayment penalties as authorized by law, beneficiary-statement, payoff-demand, extinction, release, reconveyance or other removal of record fees, and trustee's costs and fees, and any other fees if in accordance with the Civil Code and the Code of Civil Procedure.

10248.2.

(a) A borrower may not waive any right or remedy under

this article. This subdivision shall not be deemed to prohibit a bona fide settlement, release or compromise of any claim under this article. (b) If a loan is negotiated in violation of any section of this article, the licensee, on demand, shall return to the borrower any bonus, brokerage or commission paid or payable under subdivision (b)

of Section 10242 for negotiation of such loans. In the event such demand is not satisfied within 20 days from the date of written demand, the borrower may commence an action under this subdivision and may recover actual damages or twice any bonus, brokerage, or commission paid or payable under subdivision (b) of Section 10242 for the negotiation of said loan whichever is greater, plus costs and reasonable attorney's fees. The "date of written demand" shall mean either the date upon which the written demand is personally delivered to the licensee or the date upon which the written demand is mailed to the licensee. A licensee may not be held liable in any action brought under this section for a violation of this article if the licensee shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error. If the borrower proceeds under this section he may not proceed under Section 10246 as to the same breach. (c) If a real estate licensee subject to the provisions of this article violates any provision of Section 10241.1 he shall be liable for, and pay over to the borrower, any commission or experience rating dividend attributable to the insurance written on that loan received by the licensee as a result of the sale of such insurance to the borrower in violation of Section 10241.1 in addition to any premium loss due to short rate cancellation of any insurance subject to Section 10248.1 which was purchased by the borrower. (d) No action for damages shall be maintained under this section unless brought within two years after the maturity of the loan. (e) The provisions of this article are not exclusive. The remedies

provided for herein shall be in addition to any other procedures or remedies provided under law.

10248.3.

The provisions of this article shall apply only to those

loans otherwise subject to this article which are made or negotiated by real estate brokers acting within the meaning of subdivision (d) of Section 10131 or subdivision (b) of Section 10240.

In re: box decision

Information For New California Trust Deed Investors


(This page is for Investor-Lenders only if you are looking for a hard money loan on your property, please see our Hard Money Loans page for borrowers). Thank you for your interest regarding California trust deed investments from Augusta Financial Inc . If you are new to investing in CA Trust Deeds, please take a moment to review the following important information.

Trust Deed Investors Summary Notes


A. We broker hard money loans to individual investors interested in making private real estate loans to our borrowers on different property types in California, and occasionally elsewhere. A Note and 1st, 2nd, or 3rd Deed of Trust secure these loans. B. We are not a financial source or resource for real estate investors looking for advance private funding for foreclosure sale property purchases or discounted real estate for sale, nor for venture capital funding for speculative real estate investing. A valid purchase contract signed by both buyer and seller is required for consideration of a hard money purchase loan. C. The majority of our borrower clients are individual property owners with 25% or more equity or stake in real estate, but have poor credit or non-documented income and cannot

D.

E.

F. G. H.

I.

qualify for conventional financing. In some cases, our clients are less credit challenged but are seeking private money as a more expedient route to their available equity and require faster turnaround than conventional lenders can provide. In other cases, our private money loans are used for commercial bridge money for different purposes. ALL hard money loans must comply with state and federal anti-predatory lending laws as they relate to owner-occupied property and covered loan limits. Also, and in accordance with real estate law as it relates to owner-occupied property loans, we do not arrange loans for clients who do not have the ability to repay the obligation, nor will we broker loans that are not in the best interest of the client, regardless of the investor's willingness to lend, as we have primary fiduciary responsibility under the law to the client. The properties we broker trust deed loans on are owner-occupied homes, 2nd homes, vacation properties, raw and improved land, and commercial real estate, including retail, mixed-use, offices, apartments, and industrial properties. Our loans include purchase money loans, refinance loans, construction loans, and rehab ("fix-and-flip") loans on CA real estate. We do not broker unsecured business loans or personal loans. Title to the properties we arrange loans for may be vested in individuals, LLCs, corporations, or trusts. We are not a "Note Broker" we do not buy or sell Notes on CA real estate. Augusta Financial Inc is NOT an investment company or Real Estate Investment Trust we are a CA licensed real estate mortgage broker that originates privately funded real estate loans in addition to a wide variety of other conventional and non-conventional residential and commercial real estate loans primarily in California. We also perform traditional real estate buyer and seller services within Los Angeles and Ventura Counties. We do not "pool" investors or investments. We do not produce any literature or a prospectus on our services or trust deed investments, nor do we act as a property information service, your investment advisor, your legal counsel, or as instructors with regards to real estate trust deed investments. If you entirely unfamiliar with investing in real estate trust deeds, you may wish to instead consider investing in a publicly traded Real Estate Investment Trust ("REIT), available from any number of investment brokers, or otherwise wait to invest until you have the necessary education and legal advice you'll need in order to successfully delve into investing in trust deeds, as these are not a "norisk" investment.

General information regarding CA real estate lending, including most applicable CA real estate law can be found at the CA Dept. of Real Estate's website: http://www.dre.ca.gov, and predatory lending law: http://www.dre.ca.gov/predlaw.htm. We recommend that new investors still retain a competent and experienced real estate attorney prior to investing in CA trust deeds. As potential borrowers inquire about hard money loans against their property, we contact investors in certain areas and present the details of the loan transaction for their immediate consideration. We do not guarantee a minimum of trust deed investment opportunities to you, nor do we guarantee the performance of any borrower in meeting his or her obligations under your Note and Deed of Trust. You may have to file the legal paperwork and foreclose on a property in order to recover your investment in the event of a borrower's default on your loan. In the event that you select a 2nd or 3rd Trust Deed position, you may have to "cure" the notes in

front of yours if the borrower defaults on superior liens in order to protect your investment. A fundamental understanding of "debt service" is important if you make subordinate loans in 2nd or 3rd position. As a hard money broker, we provide you with the borrower's current 1003 loan application, current credit report (if required), and preliminary title report if using our preferred title company, as well as all relevant details of the transaction to you for your consideration. If you require an appraisal, we can also arrange for this service at the borrower's expense. Our long-standing private real estate investors usually perform their own due diligence and consideration, draw their own loan docs, and service their own loans. If you are a new investor, we request that we service your loan for a low monthly fee, draw loan documents (at the borrower's expense), and process your transaction through our preferred escrow and title vendor, TICOR. In the event that foreclosure is required, we will handle assignment of a reconveyance firm to handle all necessary services in that regard at the borrower's expense. The investors we primarily use to fund our loans are typically high-wealth individuals with broad experience in real estate lending and investment, and are capable of making a commitment to lend (or not) within a matter of hours or a day or two. We will, in some cases, use newer or firsttime investors with smaller amounts to invest, but we are highly reluctant to use investors who need many days or weeks to scrutinize a potential investment before making a decision to lend, as our borrowers are usually in need of immediate funds and will go elsewhere if there are long delays in pre-approving a hard money loan application. The exception to this is when an appraised value is questionable and/or a more thorough review of the property is warranted, as is the case with some rural, unique, very expensive, or mixed-use real estate. Our general minimum brokered hard money loan for "owner-occupied" residential property is $50,000, though loan amounts less than $50,000 for owner-occupied property will be considered on a case-by-case basis, with an appropriate and lawful commission fee paid to us. The exception to this minimum investment standard is for investment property, commercial, and land transactions, which allow for substantially higher points and interest. Our minimum brokered loan for these property types is $25,000. You may submit your criteria for your preferred investments at my webpage here: http://cal-lending.com/loan-investors/investors-form.html. Any additional interest in specific investment and/or property types, LTV/CLTVs, demographic areas of interest, etc, may be made in the "Comments" section. Trust Deed investing is not the exclusive niche market it used to be. As the consumer public is fast becoming aware of the existence of privately funded real estate loans in conjunction with super-appreciated California property values, competition in this area of niche lending is increasing rapidly. We are beginning to see "shoppers" looking for the lowest interest rates, points, and prepayment penalties for hard money loans, regardless of how poor some of these individual's credit and other qualifying factors or circumstances may be. Conventional subprime lending has also become more liberal, and thus more competitive in areas where private money used to dominate.

Anti-predatory lending laws also severely limit the interest rate and overall fees allowed on owner-occupied, privately funded property loans of $250,000 or less. The days of private money interest rates at 15% returns and 10-point fees, at least for owner-occupied real estate loans under $250,000, are long gone. As such, you can secure more real estate investment opportunities with a lower required interest rate return and points charged. Likewise, the higher loan-to-value percentageyou are willing to loan against the properties you wish to lend on may also earn you more transaction opportunities, though there is an increased risk to you in the event of the borrower's default or declining market conditions. Finally, your willingness to consider less desirable property types, such as manufactured or modular homes (permanently attached to a foundation), raw and remote land parcels, unfinished construction, etc., will also open more investment opportunities, though, again, there is a higher risk in lending on these properties versus more conventional types. All loans MUST meet state and federal regulations for Section 32, AB489, and any/all other federal and state-level predatory lending regulations. Properties within the cities of Los Angeles and Oakland also have additional regulations and compliance that supercede state laws. As a broker, we are NOT your legal counsel or advisor as to the specifics of any applicable regulations applying to private mortgage lending in CA -- it is strongly recommended that you retain legal counsel and familiarize yourself with all laws and regulations PRIOR to investing in CA trust deeds. You should also NOT consider investing in trust deeds unless you have significant cash reserves available to protect your investment in the event of default and foreclosure. Our broker fee for hard money loans vary from 1.00% to 5.00% depending on the transaction type and amount. Again, all loans must still comply with maximum APR lending laws. Monthly loan servicing is an extra fee charged to the investor. Feel free to contact me directly at 1-800-644-8829 with any further questions or email me a completed Investor Inquiry Form to be added to our list of potential investors. Regards, John J. Harambasic Senior Loan Officer Augusta Financial Inc 1 (800) 644-8829 Send Email Online

Mortgage Lender Bulletin Recent Cases in Borrower Lawsuits Signal a Turning of the Tides

January 17th, 2012 California Lending & Mortgage Law, Foreclosure Defense Lawsuits, Foreclosures, Trust Deeds

By: Julia M. Wei, Esq.

A series of cases have come down in the last few weeks that have some very serious ramifications for lenders.

The most dramatic case is that of Lona v. Citibank, based on a property right here in my back yard. The fact pattern in Lona is that the bank foreclosed and Lona sued the bank to void the sale on the absurd theory that the lender made him an unconscionable loan he couldnt possibly afford therefore the loan was void. (Apparently, hes a mushroom farmer in Hollister making $40k/yr)*.

Lona alleged that he agreed to refinance the home, on which he owed $1.24 million at the time, in response to an ad. The monthly payments were more than four times his income, so unsurprisingly, he defaulted within five months and the home was sold at a trustees sale in August 2008.

Lona obtained two re-financed loans: the first being $1.125 million, a 30-year term and an interest rate that was fixed at 8.25% for five years and adjustable annually after that, with a cap of 13.255 and the second loan being $375,000, with a term of 15 years, a fixed rate of 12.25%, monthly payments of nearly $4,000, and a balloon payment of $327,000 at the end of the 15 year term.

Lona testified that English was not his first language, he was 50 years old at the time of the loan and he that he did not understand the loan documents. Of course, he also did not read the loan documents.

After Citibank foreclosed, it filed an unlawful detainer action (UD) to evict Lona, but the UD was consolidated with Lonas lawsuit to void and set aside the foreclosure

sale. According to Citibank, Lona had been living for free in the house and had not posted bond or paid any impound funds. (since 2007!!!)

San Benito County Superior Court Judge Harry Tobias said Lonas bare allegations were not enough to persuade him that the bank or the broker had engaged in misconduct and that it was hard to believe that the Lonas werent responsible for their own conduct, especially since they owned other property that had been foreclosed upon.

Despite the craziness of Plaintiffs theory, the appellate court rendered a 32 page opinion that discussed in major detail that: 1) The borrower did not have to tender offer (which goes against almost a century of a legal precedent); and 2) The borrowers allegations of the loan being unconscionable were not wholly disproven by the lenders.

The Court decision stated Lona had received $1.5 million from the lenders and had not made any payments since June 2007. Meanwhile, he and his wife continued to live in the house for free, without paying rent or any impound funds and so it was quite aware of the inequities or injustice of the situation. However, the Court still concluded that the Lenders did not meet their burden of proof on summary judgment and so the case may continue at its snail pace until trial. [Lona v. Citibank No. H036140. Court of Appeals of California, Sixth District. (December 21, 2011.)]

The other case that came down a week before Lona (Dec. 21) was the Bardasian (Dec. 15) case, where the borrower sued because the lenders trustee did not discuss loan mod options with her as required by Civil Code Section 2923.5. The court granted the borrowers injunction and like Lona, the borrowers did not tender, nor put up an undertaking or surety for the bond. The lower court had ruled at the injunction hearing that the trustee had not complied with the code and that Bardasian must bond

in the amount of $20k. When she failed to do so, the lower court dissolved the injunction.

On appeal, the appellate court concluded that since the injunction had been issued after the court had ruled on the merits stating:

Plaintiff seeks postponement of the foreclosure sale until the defendants comply with Civil Code [section] 2923.5. Plaintiff has established that BAC Home Loan Servicing did not comply with Civil Code section 2923.5 prior to the issuance of the notice of default on September 15, 2010. Plaintiff states under penalty of perjury that no contact was ever made at least 30 days before the notice of default was issued

that the injunction was not actually preliminary at all, but that the plaintiffs had essentially won their argument showing that the defendants had not complied with Section 2923.5 and so no Notice of Default could successfully issue and the trustees sale could not take place until Section 2923.5 had been complied with. (Bardasian v. Santa Clara Partners Mortgage C068488. Court of Appeals of California, Third District. (December 15, 2011).

So in one month, two appellate cases came down where the borrower could either pursue voiding a trustees sale or enjoin one without tendering!

2012 will prove to be an interesting year as more decisions stemming from the subprime meltdown start coming down the pipeline.

* The decision contained a footnote that Lonas loan application that apparently stated Lona made $20k/month, or $240k/yr. Clearly, as stated income loans go, that was a whopper!

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Wrong Opening Bid? Tough. Bidder Gets Benefit of Trustees Error.


November 3rd, 2011 Foreclosures, Trust Deeds

By Julia M. Wei, Esq.

In the recent case of Biancalana v. T.D. Service Company, California foreclosure bidder Biancalana came out the winner on appeal.

In September of 2008, Biancalana bid at the trustees sale of a property on Winchester Dr. in Watsonville (Santa Cruz County). Lucky for him, the trustee (and possibly the loan servicer), T.D. Service Company, erroneously stated that $22k was the opening bid. That amount was in fact, merely the delinquency and the lender was actually seeking an opening bid of $220k. Whoops!

There were no other bids so Biancalanas bid of $22k was the high bid. Later TD realized their error and refused to issue the Trustees Deed. Accordingly, Biancalana sued for specific performance.

TD brought a motion for summary judgment on the grounds that there was an error in the foreclosure process, and the sale was voidable. They lost but brought a motion for reconsideration due to new law from the case of Millenium Rock v. TD (yes, same defendant!) which came down November of 2009, just two months after TD had lost on their motion for summary judgment.

A quick review of Millenium the trustee had instructed TD to submit an opening bid of $382k, which they did but the auctioneer misread the script and announced the opening bid and legal description for a different property but attributing it to a different street address. The confusion resulted in the bidders high bid of $51k

being accepted. Accordingly, the Court in Millenium concluded that the auctioneers error was a fatal ambiguity which created a defect in the foreclosure process, which rendered the sale voidable.

Biancalana appealed. On appeal, the Sixth District concluded that the Trustee was the beneficiarys agent, that the error was caused by the Trustees own negligence and that this negligence was not a procedural irregularity in the foreclosure sale. This ruling was in line with the case of 6 Angels, Inc. v. Stuart-Wright Mortgage, Inc. (2001). the lender/beneficiary intended to set the opening bid at $100,000.00, but the trustee mistakenly set the opening bid at $10,000.00.

Plaintiff, 6 Angels, was the successful bidder, paying a dollar more than the opening bid of $10k. The trustee refused to deliver the Trustees Deed, and 6 Angels sued. The Court held that a successful challenge to a sale requires evidence of a defect in the sale procedures, causing prejudice to the person attacking the sale. Mere inadequacy of the price without a procedural irregularity is insufficient to set aside the sale.

In 6 Angels, the mistake in the opening bid was the lender/beneficiarys own negligence, and was totally outside of the foreclosure procedures (dehors the sale proceedings). The Trustee was ordered to deliver the Deed to 6 Angels.

Accordingly, TDs motion for summary judgment was instructed to be vacated and Biancalana, the bona fide purchaser at sale was awarded the costs of this appeal. Ultimately, it looks like the lender will suffer the consequence for the trustee's error and the trustee will need to make the lender whole. [Biancalana v. T. D. Service Company, Oct. 31, 2011]

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