2005 California Health and Safety Code Sections 129125-129174.1 Article 3. Defaults

129125.  In any case when the lender under a loan to a nonprofit
corporation insured under this chapter shall have foreclosed and
taken possession of the property under a mortgage in accordance with
regulations of, and within a period to be determined by the office,
or shall, with the consent of the office, have otherwise acquired the
property from the borrower after default, the lender shall be
entitled to receive the benefit of the insurance as provided in this
section, upon (a) the prompt conveyance to the office of title to the
property that meets the requirements of the regulations of the
office in force at the time the loan was insured, and that is
evidenced in the manner prescribed by the regulations, and (b) the
assignment to the office of all claims of the lender against the
borrower or others arising out of the loan transaction or foreclosure
proceedings except claims that may have been released with the
consent of the office.  Upon the conveyance and assignment, the
office shall notify the Treasurer, who shall issue to the lender
debentures having a total face value equal to the outstanding value
of the loan.
   For the purposes of this section, the outstanding value of the
loan shall be determined, in accordance with the regulations
prescribed by the office, by (a) adding to the amounts of the
original principal obligation of the loan and interest that are
accrued and unpaid the amount of all payments that have been made by
the lender for the following:  taxes and assessments, ground rents,
water rates, and other liens that are prior to the mortgage; charges
for the administration, operation, maintenance and repair of the
health facility property; insurance on the project property, loan
insurance premiums, and any tax imposed by a city or county upon any
deed or other instrument by which the property was acquired by the
lender and transferred or conveyed to the office; and the costs of
foreclosure or of acquiring the property by other means actually paid
by the lender and approved by the office; and by (b) deducting from
the total amount any amounts received by the lender after the
borrower's default on account of the loans or as rent or other income
from the property.
129130.  In any case when a political subdivision defaults on the
payment of interest or principal accrued and due on bonds or other
evidences of indebtedness insured under this chapter, debentures in
an amount equal to the outstanding original principal obligation and
interest on the bonds that were accrued and unpaid on the date of
default and bearing interest at a rate equal to and payment schedule
identical with those of the bonds shall be issued by the Treasurer
upon notification thereof by the office to the bondholders upon the
surrender of the bonds to the office.
   In any case in which a hospital district defaults on the payment
of interest or principal accrued and due on an insured loan secured
by a first mortgage, first deed of trust, or other security agreement
as authorized by Section 32127.2, debentures in an amount equal to
the outstanding original principal obligation and interest on the
bonds that were accrued and unpaid on the date of default and bearing
interest at a rate equal to and payment schedule identical with
those of the bonds shall be issued by the Treasurer upon notification
thereof by the office to the bondholders upon surrender of the bonds
to the office after the state has enforced its rights under the
first mortgage, first deed of trust, or other security agreement.
129135.  Notwithstanding any requirement contained in this chapter
relating to acquisition of title and possession of the project
property by the lender and its subsequent conveyance and transfer to
the office, and for the purpose of avoiding unnecessary conveyance
expense in connection with payment of insurance benefits under the
provisions of this chapter, the office may, subject to regulations
that it may prescribe, permit the lender to tender to the office a
satisfactory conveyance of title and transfer of possession direct
from the borrower or other appropriate grantor and to pay to the
lender the insurance benefits to which it would otherwise be entitled
if the conveyance had been made to the lender and from the lender to
the office.
129140.  Upon receiving notice of the default of any loan insured
under this chapter, the office, in its discretion and for the purpose
of avoiding foreclosure under Section 129125 and notwithstanding the
fact that it has previously approved a request of the lender for
extensions of the time for curing the default and of the time for
commencing foreclosure proceedings or for otherwise acquiring title
to the project property, or has approved a modification of the loan
for the purpose of changing the amortization provisions by recasting
the unpaid balance, may acquire the loan and security agreements
securing the loans upon the issuance to the lender of debentures in
an amount equal to the unpaid principal balance of the loan plus any
accrued unpaid loan interest plus reimbursement for the costs and
attorney's fees of the lender enumerated in Section 129125.
   After the acquisition of the loan and security interests therefor
by the office, the lender shall have no further rights, liabilities,
or obligations with respect thereto.  The provisions of Section
129125 relating to the issuance of debentures incident to the
acquisition of foreclosed properties shall apply with respect to
debentures issued under this section, and the provisions of this
chapter relating to the rights, liabilities, and obligations of a
lender shall apply with respect to the office when it has acquired an
insured loan under this section, in accordance with and subject to
any regulations prescribed by the office modifying the provisions to
the extent necessary to render their application for these purposes
appropriate and effective.
129145.  Notwithstanding any other provision of this chapter, after
the office determines that the lender and borrower have exhausted all
reasonable means of curing any default, the office within its
discretion may, when it is in the best interests of the state, the
borrower, and the lender, cure the default of the borrower by making
payment from the fund directly to the lender of any amounts of the
original principal obligation and interest of the loan that are
accrued and unpaid.  The payment shall be secured by an assignment to
the office of a pro rata share of the security agreements made to
the lender and, upon the payment, the borrower shall become liable
for repayment of the amount thereof to the office over a period and
at a rate of interest as shall be determined by the office.
129150.  The office may at any time, under the terms and conditions
that it may prescribe, consent to the lender's release of the
borrower from its liability under the loan or the security agreement
securing the loan, or consent to the release of parts of the project
property from the lien of any security agreement.
129152.  If a borrower fails to submit a required report, or upon
any other default of any regulatory or contractual term or covenant,
whether or not a default has been declared, the office first shall
informally communicate with the borrower.  If the borrower fails to
submit the required report or otherwise cure the default, the office
shall issue a formal demand in writing stating the nature of the
default and requiring the borrower to submit a detailed plan of
correction that is acceptable to the office.  If the borrower fails
to either submit a plan, or timely cure the default, the office shall
perform an onsite visit.  If the office determines the borrower is
not making sufficient progress in submitting any required reports or
otherwise curing any default, the office may require the borrower, at
the borrower's expense, to employ an independent consultant or
professional, acceptable to the office, to conduct a program audit.
If the borrower fails to adopt the recommendations of the independent
consultant or professional made in the program audit, or if the
borrower fails to otherwise timely cure the default, the office shall
have all the remedies set forth in the Section 129173.
129155.  Debentures issued under this chapter shall be in the form
and denomination, subject to the terms and conditions, and include
provisions for redemption, if any, as may be prescribed by the office
with the approval of the Treasurer, and may be in coupon or
registered form.
129160.  (a) All debentures issued under this chapter to any lender
or bondholder shall be executed in the name of the fund as obligor,
shall be signed by the State Treasurer, and shall be negotiable.
Pursuant to Sections 129125 and 129130, all debentures shall be dated
as of the date of the institution of foreclosure proceedings or as
of the date of the acquisition of the property after default by other
than foreclosure, or as of another date as the office, in its
discretion, may establish.  The debentures shall bear interest from
that date at a rate approved by the State Treasurer, equal to either
the rate applicable to the most recent issue of State General Fund
bonds or that specified in Section 129130, which shall be payable on
the dates as the office, in its discretion, may establish except in
the case of bonds or other evidences of indebtedness as specified in
Section 129130, and shall have the same maturity date as the loan
which they insured.  All debentures shall be exempt, both as to
principal and interest, from all taxation now or hereafter imposed by
the state or local taxing agencies, shall be paid out of the fund,
which shall be primarily liable therefor, and shall be, pursuant to
Section 4 of Article XVI of the California Constitution, fully and
unconditionally guaranteed as to principal and interest by the State
of California, which guaranty shall be expressed on the face of the
debentures.  In the event that the fund fails to pay upon demand,
when due, the principal of or interest on any debentures issued under
this chapter, the State Treasurer shall pay to the holders the
amount thereof which is authorized to be appropriated, out of any
money in the Treasury not otherwise appropriated, and thereupon to
the extent of the amount so paid the State Treasurer shall succeed to
all the rights of the holders of the debentures.  The fund shall be
liable for repayment to the Treasury of any money paid therefrom
pursuant to this section in accordance with procedures jointly
established by the State Treasurer and the office.
   (b) In the event of a default, any debenture issued under this
article shall be paid on a par with general obligation bonds issued
by the state.
129165.  Notwithstanding any other provision of law relating to the
acquisition, management or disposal of real property by the state,
the office shall have power to deal with, operate, complete, lease,
rent, renovate, modernize, insure, or sell for cash or credit, in its
discretion, any properties conveyed to it in exchange for debentures
as provided in this chapter; and notwithstanding any other provision
of law, the office shall also have power to pursue to final
collection by way of compromise or otherwise all claims against
borrowers assigned by lenders to the office as provided in this
chapter.  All income from the operation, rental, or lease of the
property and all proceeds from the sale thereof shall be deposited in
the fund and all costs incurred by the office in its exercise of
powers granted in this section shall be met by the fund.
   The power to convey and to execute in the name of the office deeds
of conveyance, deeds of release, assignments and satisfactions of
loans and mortgages, and any other written instrument relating to
real or personal property or any interest therein acquired by the
office pursuant to the provisions of this chapter may be exercised by
the office or by any officer of the office appointed by it.
129170.  No lender or borrower shall have any right or interest in
any property conveyed to the office or in any claim assigned to it,
nor shall the office owe any duty to any lender or borrower with
respect to the management or disposal of this property.
129172.  Notwithstanding any other provision of law, if, prior to
foreclosing on any collateral provided by a borrower, the office
institutes a judicial proceeding or takes any action against a
borrower to enforce compliance with the obligations set out in the
regulatory agreement, the contract of insurance, or any other
contractual loan closing document or law, including, but not limited
to, Section 129173, that remedy or action shall not constitute an
action within the meaning of subdivision (a) of Section 726 of the
Code of Civil Procedure, or in any way constitute a violation of the
intent or purposes of Section 726 of the Code of Civil Procedure, or
constitute a money judgment or a deficiency judgment within the
meaning of Sections 580a, 580b, 580d, or subdivision (b) of Section
726 of the Code of Civil Procedure.  However, these provisions of the
Code of Civil Procedure shall apply to any judicial proceeding
instituted, or nonjudicial foreclosure action taken by the office to
collect the principal and interest due on the loan with the borrower.
129173.  (a) In fulfilling the purposes of this article, as set
forth in Section 129005, and upon making a determination that the
financial status of a borrower may jeopardize a borrower's ability to
fulfill its obligations under any insured loan transaction so as to
threaten the economic interest of the office in the borrower or to
jeopardize the borrower's ability to continue to provide needed
health care services in its community, including, but not limited to,
a declaration of default under any contract related to the
transaction, the borrower missing any payment to its lender, or the
borrower's accounts payable exceeding three months, the office may
assume or direct managerial or financial control of the borrower in
any or all of the following ways:
   (1) The office may supervise and prescribe the activities of the
borrower in the manner and under the terms and conditions as the
office may stipulate in any contract with the borrower.
   (2) Notwithstanding the provisions of the articles of
incorporation or other documents of organization of a nonprofit
corporation borrower, this control may be exercised through the
removal and appointment by the office of members of the governing
body of the borrower sufficient so that the new members constitute a
voting majority of the governing body.
   (3) In the event the borrower is a nonprofit corporation or a
political subdivision, the office may request the Secretary of the
California Health and Human Services Agency to appoint a trustee.
The trustee shall have full and complete authority of the borrower
over the insured project, including all property on which the office
holds a security interest.  No trustee shall be appointed unless
approved by the office.  A trustee appointed by the secretary
pursuant to this subdivision may exercise all the powers of the
officers and directors of the borrower, including the filing of a
petition for bankruptcy. No action at law or in equity may be
maintained by any party against the office or a trustee by reason of
their exercising the powers of the officers and directors of a
borrower pursuant to the direction of, or with the approval of, the
secretary.
   (4) The office may institute any action or proceeding, or the
office may request the Attorney General to institute any action or
proceeding against any borrower, to obtain injunctive or other
equitable relief, including the appointment of a receiver for the
borrower or the borrower's assets, in the superior court in and for
the county in which the assets or a substantial portion of the assets
are located.  The proceeding under this section for injunctive
relief shall conform with the requirements of Chapter 3 (commencing
with Section 525) of Title 7 of Part 2 of the Code of Civil
Procedure, except that the office shall not be required to allege
facts necessary to show lack of adequate remedy at law, or to show
irreparable loss or damage.  Injunctive relief may compel the
borrower, its officers, agents, or employees to perform each and
every provision contained in any regulatory agreement, contract of
insurance, or any other loan closing document to which the borrower
is a party, or any obligation imposed on the borrower by law, and
require the carrying out of any and all covenants and agreements and
the fulfillment of all duties imposed on the borrower by law or those
documents.
   A receiver may be appointed pursuant to Chapter 5 (commencing with
Section 564) of Title 7 of Part 2 of the Code of Civil Procedure.
In cooperation with the Attorney General, the office shall develop
and maintain a list of receivers who have demonstrated experience
both in the health care field and as a receiver.  Upon a proper
showing, the court shall grant the relief provided by law and
requested by the office or the Attorney General.  No receiver shall
be appointed unless approved by the office.  The office shall
establish reporting requirements for receivers to ensure that the
office is fully apprised of all costs incurred and progress made by
the receiver.  A receiver appointed by the superior court pursuant to
this subdivision and Section 564 of the Code of Civil Procedure may,
with the approval of the court, exercise all of the powers of the
officers and directors of the borrower, including the filing of a
petition for bankruptcy.  No action at law or in equity may be
maintained by any party against the office, the Attorney General, or
a receiver by reason of their exercising the powers of the officers
and directors of a borrower pursuant to the order of, or with the
approval of, the superior court.
   (5) The borrower shall inform the office in advance of all
meetings of its governing body.  The borrower shall not exclude the
office from attending any meeting of the borrower's governing body.
   (b) Other than the loan insured under this chapter, the office
shall not be liable for any debt of a borrower, or to a borrower, as
a result of the office asserting its legal remedies against a
borrower insured under this chapter.
   (c) It is the intent of the Legislature that this section is
remedial in nature, and is applicable retroactively to any health
facility construction loans in existence at the time of its
enactment, to the extent that the application of this section does
not unlawfully impair existing contract rights.
129174.  (a) In the event a borrower has defaulted in making its
payments on the loan insured by the office to the lender or the
borrower's bond trustee, at any time thereafter, the office may do
any of the following:
   (1) Decease a portion or all of the bonds or may purchase a
portion or all of the bonds at a private or public sale or on the
open market.  For this purpose, the office may use any funds
available, including, but not limited to, funds in the Health
Facility Construction Loan Insurance Fund, funds that the office may
receive either from settlement or recoveries from lawsuits, funds
from the sale of assets of the borrower, or funds held by the
borrower's bond trustee.  If requested by the office, the Treasurer
shall purchase the bonds on behalf of the office.  Upon the purchase
of any bonds under this section, the office shall direct the borrower'
s bond trustee to cancel the bonds purchased.
   (2) Issue bonds used for the sole purpose of refunding any part or
all of the defaulted bonds, provided that, in the opinion of the
office, there are adequate present value savings to refund all or
part of the defaulted bonds.  If requested by the office, the
Treasurer shall act as the issuer for this purpose.
   (3) Require the lender or borrower's bond trustee to accelerate
the borrower's debt and the maturity dates of the bonds, if any.  If
the bond trustee accelerates the bond debt and maturity dates, the
office shall pay from the fund to the lender or borrower's bond
trustee the full amount of the remaining principal of the loan, any
interest accrued and unpaid on this amount, and any costs enumerated
in Section 129125.
   (b) For the purposes of this section, "bonds" mean bonds,
certificate of participation, notes, or other evidence of
indebtedness of a loan insured by the office.
129174.1.  In the event a loan insured by the office has gone into
bankruptcy and that a plan has been proposed for adoption, upon a
certification by the office that the insurance is in place and would
be in place if the plan were adopted, then the office shall have the
right to vote on the plan on behalf of the holders of the loan
insured by the office.