2007 California Financial Code Article 2. Loan Limits

CA Codes (fin:1220-1241)

1220.  For the purpose of this article:
   (a) "Obligations" means the total sums for the payment of which a
person is obligated, primarily or secondarily, to a commercial bank.

   (b) Obligations of a person include obligations of others to a
commercial bank arising out of loans made by the bank for the benefit
of the person.
   (c) Obligations of an individual include the obligations of a
partnership or association for which obligations the individual is
liable.
   (d) Obligations of a partnership include the obligations of its
members who are liable for its obligations.
   (e) Obligations of a corporation include the obligations of all
subsidiaries in which it owns or controls a majority interest, except
to the extent and under such restrictions as the commissioner may
prescribe in specific instances upon special application made by any
bank prior to the creation of the obligations.
   (f) Obligations of a sovereign government or agency include the
obligations of instrumentalities or political subdivisions of the
government or agency, except to the extent and under such
restrictions as the commissioner may prescribe in specific instances
upon special application made by any bank prior to the creation of
the obligations.
   (g) Obligations of a limited liability company include the
obligations of all subsidiaries in which it owns or controls a
majority interest, except to the extent and under any restrictions
the commissioner may prescribe in specific instances upon special
application made by any bank prior to the creation of the
obligations.


1221.  The obligations, as defined in Section 1220, excepting the
obligations described in Section 1226 and the obligations described
in Section 1224, of any one person owing to a commercial bank at any
one time shall not exceed the following limitations:
   (a) Obligations which are unsecured shall not exceed 15 percent of
the sum of the shareholders' equity, allowance for loan losses,
capital notes, and debentures of the bank.
   (b) Obligations, secured and unsecured, in all shall not exceed 25
percent of the sum of the shareholders' equity, allowance for loan
losses, capital notes, and debentures of the bank.
   Obligations arising out of the discount of commercial or business
paper actually owned by the person negotiating the same and endorsed
by such person without limitation, together with the secured and
unsecured obligations, if any, of such person, shall not exceed 40
percent of the sum of the shareholders' equity, allowance for loan
losses, capital notes, and debentures of the bank.
   No commercial bank shall be required, solely by reason of the
amendments of this article, to dispose of or reduce any loan which
complied with the applicable  limitations of this division at the
time such loan was made, nor shall any such bank be prevented solely
by reason of the provisions of this article from renewing any such
loan from time to time.



1223.  An obligation shall not be deemed secured by personal
property or collateral unless the personal property or collateral
held as security is of a kind which has not been declared ineligible
by the commissioner and unless it has a market value at least 15
percent greater than the amount of the obligations secured thereby
or, if the security is a bank deposit, it shall have a face value at
least equal to the amount of the obligations secured thereby.  The
commissioner may by general regulation declare any particular kinds
or classes of personal property ineligible as security.  An
obligation shall not be deemed secured by real property unless the
obligation and the lien securing the same conform to the provisions
of Section 1227, 1228, 1236, 1238, or 1239 or the first sentence of
Section 1235.  Secured and unsecured loans shall be represented by
separate notes and shall not be combined in any way within one note
or notes.


1224.  (a) In addition to the limitations contained in Section 1221
a commercial bank may issue letters of credit and a commercial bank
may accept drafts or bills of exchange drawn upon it having not more
than six months' sight to run, exclusive of days of grace, which grow
out of transactions involving the importation or exportation of
goods; or which grow out of transactions involving the domestic
shipment of goods; or which are secured at the time of acceptance by
a warehouse receipt or other such document conveying or securing
title covering readily marketable staples.  A commercial bank shall
not accept such drafts or bills in the aggregate to an amount
exceeding 150 percent of the sum of its shareholders' equity,
allowance for loan losses, capital notes, and debentures or, when
authorized by the commissioner, to an amount exceeding 200 percent of
the sum of its shareholders' equity, allowance for loan losses,
capital notes, and debentures.  A commercial bank shall not accept
such drafts or bills for any one person to an amount exceeding 10
percent of the sum of its shareholders' equity, allowance for loan
losses, capital notes, and debentures, unless the bank is and remains
secured by either attached documents or some other actual security
growing out of the same transaction as the acceptance.
   (b) With respect to a bank which issues an acceptance, the
limitations contained in this section shall not apply to that portion
of an acceptance which is issued by such bank and which is covered
by a participation agreement sold to another institution.



1225.  With the approval of the commissioner a commercial bank may
accept drafts or bills of exchange drawn upon it having not more than
three months' sight to run, exclusive of days of grace, drawn by
banks or bankers in foreign countries for the purpose of furnishing
dollar exchange as required by the usages of trade in the respective
countries; provided, no commercial bank shall accept such drafts or
bills of exchange for any one bank to any amount exceeding 10 percent
of the sum of the shareholders' equity, allowance for loan losses,
capital notes, and debentures of the accepting bank unless the draft
or bill of exchange is accompanied by documents conveying or securing
title or unless the bank is secured by some other adequate security.
  A commercial bank shall not accept such drafts or bills, whether
secured or unsecured, in the aggregate to an amount exceeding 50
percent of the sum of its shareholders' equity, allowance for loan
losses, capital notes, and debentures.



1226.  The limitations of Section 1221 shall not apply to the
following and the following shall not be included among the
obligations of a person for the purpose of applying these
limitations:
   (a) Loans secured by obligations of the United States or by
obligations unconditionally guaranteed both as to principal and
interest by the United States, having a market value at least 10
percent in excess of the loans secured thereby.
   (b) Loans in an amount and of a type or class previously approved
in writing by the commissioner that are secured by not less than a
like amount of obligations of the United States or by obligations
unconditionally guaranteed both as to principal and interest by the
United States.
   (c) Loans to the extent that they are covered by guarantees or by
commitments to take over or to purchase without recourse made by (1)
any Federal Reserve bank, (2) the United States, (3) any department,
bureau, board, commission, agency, or establishment of the United
States, including any corporation wholly owned directly or indirectly
by the United States, or (4) any small business development
corporation, urban development corporation, or rural development
corporation incorporated pursuant to the California Job Creation Law
(Part 5 (commencing with Section 14000) of Division 3 of Title 1 of
the Corporations Code).
   (d) Drafts or bills of exchange drawn in good faith against actual
existing values with negotiable bills of lading attached, whether or
not accepted by the drawee.
   (e) Bankers' acceptances of other banks which are eligible for
rediscount with a Federal Reserve bank.
   (f) Obligations resulting from daily clearances through any
clearinghouse association.
   (g) Obligations that are fully guaranteed or fully insured or
covered by a commitment to fully guarantee or fully insure by the
Federal Housing Administrator.
   (h) Obligations described in Section 1336.
   (i) Obligations, including portions thereof, to the extent secured
by a segregated deposit account in the lending bank, provided a
security interest in the deposit has been perfected under applicable
law, and subject to all of the following conditions:
   (1) Where the deposit is eligible for withdrawal before the
secured obligation matures, the lending bank shall establish internal
procedures to prevent release of the security without the lending
bank's prior consent.
   (2) A deposit that is denominated and payable in a currency other
than that of the obligation that it secures may be eligible for this
exception if the currency is freely convertible to United States
dollars.
   (A) This exception applies only to that portion of the obligation
that is covered by the United States dollar value of the deposit.
   (B) The lending bank shall establish procedures to periodically
revalue foreign currency deposits to ensure that the loan or
extension of credit remains fully secured at all times.



1227.  A commercial bank may lend on the security of a first lien on
real property or a first lien on a leasehold under a lease which
does not expire, or which has been extended or renewed so that it
does not expire, for at least 10 years beyond the maturity date of
the loan, if:
   (a) The term of the loan does not exceed 10 years and the amount
does not exceed 60 percent of the sound market value of the property
or leasehold, together with the improvements located on the property
which are made subject to the lien, as determined by proper
appraisal.
   (b) The term of the loan does not exceed 30 years, is repayable in
substantially equal installments not less often than monthly (or a
variation therefrom as may be authorized under a loan executed
pursuant to Section 1916.5 or 1916.8 of the Civil Code), with
payments commencing not later than 60 days from the date of the loan
or, in the case of a construction loan, commencing not later than one
year from the date of the loan, and the amount does not exceed 90
percent of the sound market value of the property or leasehold,
together with the improvements located on the property which are made
subject to the lien, as determined by proper appraisal, provided,
however, the loan may exceed 90 percent of the sound market value of
the property or leasehold if that portion of the loan which is in
excess of 90 percent is guaranteed or insured by a private insurer
licensed by the Insurance Commissioner.
   (c) The loan is made pursuant to and in conformance with
regulations adopted under Section 1916.12 of the Civil Code.
   (d) The loan is on a farm or productive agricultural lands, the
term does not exceed 30 years, is repayable in substantially equal
installments not less often than annually, and the amount does not
exceed 90 percent of the sound market value of the property or
leasehold, together with the improvements located on the property
which are made subject to the lien, as determined by proper
appraisal.
   (e) The term of the loan does not exceed six months and the amount
does not exceed 85 percent of the sound market value of the property
or leasehold, together with the improvements located on the property
which are made subject to the lien, as determined by proper
appraisal.
   (f) The term of the loan does not exceed 60 months, the amount
does not exceed 85 percent of the sound market value of the property
or leasehold, together with the improvements located on the property
which are made subject to the lien, as determined by proper
appraisal, and the loan is for the purpose of financing building
operations under a plan providing for payment of the loan or
providing for refinancing by loans otherwise permitted by this
chapter.
   A commercial bank may make a loan without regard to the above
restrictions when necessary to facilitate the sale of real property
owned by the bank.



1227.2.  (a) The provisions of any deed of trust or mortgage on real
property which authorize any state or nationally chartered bank to
accelerate the maturity date of the principal and interest on any
loan secured thereby or to exercise any power of sale or other remedy
contained in the deed of trust or mortgage, upon the failure of the
trustor or mortgagor to pay, at the times provided under the terms of
the deed of trust or mortgage, any taxes, rents, assessments, or
insurance premiums with respect to the real property securing the
loan, or upon the failure to pay any advances made with respect to
the deed of trust or mortgage by the state or nationally chartered
bank, shall be enforceable whether or not an impairment of the
security interest in the real property has resulted from the failure
of the trustor or mortgagor to pay the taxes, rents, assessments,
insurance premiums, or advances.
   (b) "State or nationally chartered bank," as used in this section
and Section 1227.3, includes any  person authorized by this state to
make or arrange loans secured by real property, or a holding company
of a state or nationally chartered bank or any successor in interest.



1227.3.  The provisions of any deed of trust or mortgage on real
property which authorize any state or nationally chartered bank to
receive and control the disbursement of the proceeds of any policy of
fire, flood, or other hazard insurance respecting the real property
shall be enforceable whether or not an impairment of the security
interest in the property has resulted from the event that caused the
proceeds of the insurance policy to become payable.



1228.  A commercial bank may lend on the security of a first lien on
real property or a first lien on a leasehold under a lease which
does not expire, or which has been extended or renewed so that it
does not expire, for at least 10 years beyond the maturity date of
the loan, if the criteria of any of the following subdivisions are
satisfied:
   (a) The loan is fully guaranteed or insured or covered by a
commitment to guarantee or insure by the United States, the Federal
Housing Administrator, or by any other agency of the United States
which the commissioner shall have approved for the purposes of this
subdivision as an issuer of insurance or guarantees of loans on real
property, whether the proceeds of the guarantee or insurance is
payable in cash or in obligations of the United States.
   (b) The loan is fully guaranteed by the United States or any
agency thereof pursuant to the "Servicemen's Readjustment Act of 1944"
or any act of Congress supplementary or amendatory thereof, or, if a
portion of the loan is so guaranteed, then if the unguaranteed
portion of the loan does not exceed 80 percent of the sound market
value of the property or leasehold for loan purposes as determined by
proper appraisal.
   (c) The loan is one in which the Small Business Administration
cooperates through agreements to participate on an immediate or
deferred basis under the Small Business Act, as amended.



1229.  A commercial bank shall not lend in the aggregate more than 5
percent of its assets upon the security of the stock of any one
corporation or upon the security of the bonds of any one obligor
except bonds of the United States or for the payment of which the
credit of the United States is pledged, bonds of the State of
California or for the payment of which the credit of the State of
California is pledged, and bonds of any county, city and county,
city, metropolitan water district, school district, or irrigation
district of the State of California which qualify as investments for
savings banks.


1231.  No loan shall be made by any commercial bank upon the
securities of one or more corporations, the payment of which loan is
undertaken, in whole or in part, severally, but not jointly, by two
or more persons in any of the following circumstances:
   (a) If the borrowers or underwriters are obligated absolutely or
contingently to purchase the securities, or any of them, collateral
to the loan, unless the borrowers or underwriters have paid on
account of the purchase of the securities an amount in cash, or its
equivalent, equal to at least 25 percent of the several amounts for
which they remain obligated in completing the purchase of the
securities.
   (b) If the commercial bank making the loan is liable, directly or
indirectly,  or contingently, for the repayment of the loan or any
part thereof.
   (c) If its term, including any renewal thereof by agreement,
express or implied, exceeds the period of one year.
   (d) Or to an amount under any circumstances in excess of 25
percent of the sum of the commercial bank's shareholders' equity,
allowance for loan losses, capital notes, and debentures.




1232.  A commercial bank shall not make a loan upon the capital
stock of any other bank unless such bank has been in existence at
least two years and has earned and paid a dividend on its capital
stock, nor, without the written approval of the commissioner, shall
it make a loan on the security of the capital stock of another bank
if by the making of such loan the capital stock of such other bank
owned or held as collateral by the lending bank will exceed in the
aggregate 25 percent of the stock of such other bank.



1234.  Nothing in this chapter restricts a commercial bank in taking
any lien on or pledge of any property as additional security for a
loan already made in good faith.



1235.  A commercial bank holding a first lien on real property may
take, or purchase and hold, or loan upon another and immediately
junior lien but all such loans shall not exceed in the aggregate 90
percent of the sound market value of the property as determined by
proper appraisal.  A commercial bank may loan not to exceed the face
value of a deed of trust or mortgage which constitutes a first lien
upon real property, but in no event shall any such loan exceed 90
percent of the sound market value of the property covered by said
mortgage or deed of trust as determined by proper appraisal.



1236.  A commercial bank may lend on the security of a first
security interest on stock or a membership certificate issued to a
tenant-stockholder or resident-member by a completed fee simple
cooperative housing corporation, as defined in Section 216 of the
U.S. Internal Revenue Code, and the assignment by way of security of
the borrower's interest in the proprietary lease or right of tenancy
in property issued by such cooperative housing corporation, provided
all of the real property owned by such corporation is located within
the state, and further provided, that:
   (a) The term of the loan does not exceed 30 years, is repayable in
substantially equal installments (or such variation therefrom as may
be authorized under a loan executed pursuant to Section 1916.5 or
1916.8 of the Civil Code), not less often than monthly, with payments
commencing not later than 60 days from the date of the loan, and the
amount does not exceed 80 percent of the sound market value of such
certificates of stock or membership certificates; and
   (b) The proprietary lease or right of tenancy in the property
provides:
   (1) That no sublease in excess of one year, amendment or
modification to such proprietary lease or right of tenancy in the
property shall be permitted or created without the lender's prior
written consent, and
   (2) That in the event of the borrower's default under such loan,
the lender shall have the right, without the prior consent or
approval of the cooperative housing corporation, to sell such shares
or membership certificates at public or private sale following at
least 30 days prior written notice to the borrower and to the
cooperative housing corporation, at the address of the premises
subject to the proprietary lease or right of tenancy in the property,
and assign such proprietary lease or right of tenancy in the
property to the purchaser who shall agree as a condition of such
assignment to cure any defaults thereunder.
   For all purposes of this division, such loan shall be considered a
secured residential real estate loan and shall be subject to rules
and regulations implementing the provisions of this section issued by
the commissioner.



1238.  (a) A commercial bank may make amortized loans upon the
security of residential real property to finance the purchase and
installation of material or equipment designed to promote energy
conservation or the efficient use of energy in the residential real
property securing the loan, if,
   (1) The residential real property securing the loan consists of
not more than four dwelling units;
   (2) The loan is made in connection with a concurrent loan
authorized under Section 1227; and
   (3) The loan is in an amount not to exceed 10 percent of the loan
made under the authority of Section 1227.
   (b) A commercial bank may make additional advances, or additional
loans, to an existing borrower in order to finance the purchase and
installation of material and equipment designed to promote energy
conservation or the efficient use of energy in the residential real
property securing the loan, if,
   (1) The residential real property securing the loan consists of
not more than four dwelling units; and
   (2) The aggregate of the additional loan or advance and the unpaid
balance of the existing loan will not exceed that percent of the
appraised value of the residential real property securing the loan
permitted by Section 1227 immediately after the purchase and
installation of such material and equipment.



1241.  (a) Any state-chartered bank that makes a refund anticipation
loan to a covered borrower, as defined in Section 232 of Title 32 of
the Code of Federal Regulations, as published on August 31, 2007, in
Volume 72 of the Federal Register, shall comply with the provisions
of Section 670 of Public Law 109-364 and Section 232 of Title 32 of
the Code of Federal Regulations, as published on August 31, 2007, in
Volume 72 of the Federal Register pertaining to refund anticipation
loans.
   (b) With respect to any refund anticipation loan covered by
Section 670 of Public Law 109-364 and Section 232 of Title 32 of the
Code of Federal Regulations, as published on August 31, 2007, in
Volume 72 of the Federal Register, a person that does not market or
extend those loans to covered borrowers shall not be in violation of
Section 394 of the Military and Veterans Code.