BILL ANALYSIS
AB 620
Page 1
ASSEMBLY THIRD READING
AB 620 (Leno)
As Amended April 28, 2003
Majority vote
BANKING AND FINANCE 12-0
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|Ayes:|Wiggins, Bogh, Calderon, | | |
| |Chan, Chavez, Corbett, | | |
| |Correa, Houston, Leslie, | | |
| |Monta?ez, Strickland, | | |
| |Vargas | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Allows construction or rehabilitation loans with
multiple lenders to be made based on the value of the property
after improvements are completed. Specifically, this bill
allows that the term "current market value" may be the value of
the completed project if the following safeguards are met:
1)An independent, neutral third-party escrow account is used for
all deposits and disbursements.
2)A comprehensive, detailed, draw schedule is used to ensure
proper and timely disbursements to allow for completion of the
project.
3)The loan is fully funded with the entire loan amount put in
escrow prior to recording the deed or deeds of trust.
4)The transaction documents include a detailed description of
actions that may be taken in the event of a failure to
complete the project.
5)The disbursement draws 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.
6)An appraisal is completed by a qualified and licensed
appraiser in accordance with the Uniform Standards of
AB 620
Page 2
Professional Appraisal Practice.
7)The loan amount does not exceed $2.5 million.
EXISTING LAW :
1)Permits licensed real estate brokers to arrange loans with
multiple lenders (where more than one private investor has a
partial ownership interest in a mortgage note secured by real
property). This provision, known as the multi-lender law,
governs transactions that involve the sale of 10 or less notes
secured by real property.
2)Provides that loans made under the multi-lender law are
regulated by the Department of Real Estate and must meet
specified requirements in order to protect those who invest in
the loan.
8)Exempts transactions completed under the multi-lender law from
securities' laws under the jurisdiction of the Department of
Corporations.
FISCAL EFFECT : None
COMMENTS : Real estate brokers typically make loans under the
multi-lender law for construction and rehabilitation projects.
These loans have historically been made based on the value of
properties after construction or rehabilitation projects were
completed. This bill allows that practice to continue and
creates new protections for investors.
Analysis Prepared by : Margaret Gladstein / B. & F. / (916)
319-3081
FN: 0000570