2009 California Civil Code - Section 1917-1917.006 :: Chapter 3.5. Shared Appreciation Loans

CIVIL CODE
SECTION 1917-1917.006

1917.  For purposes of this chapter:
   (a) "Contingent deferred interest" means the sum a borrower is
obligated to pay to a lender pursuant to the documentation of a
shared appreciation loan as a share of (1) the appreciation in the
value of the security property (2) rents and profits attributable to
the subject property, or (3) both.
   (b) A "shared appreciation loan" means any loan made upon the
security of an interest in real property which additionally obligates
the borrower to pay to the lender contingent deferred interest
pursuant to the loan documentation. "Shared appreciation loan" does
not include any loan made upon the security of an interest in real
property containing one to four residential units at least one of
which at the time the loan is made is or is to be occupied by the
borrower.

1917.001.  The relationship of the borrower and the lender in a
shared appreciation loan transaction is that of debtor and creditor
and shall not be, or be construed to be, a joint venture, equity
venture, partnership, or other relationship.

1917.002.  A shared appreciation loan shall not be subject to any
provisions of this code or the Financial Code which limits the
interest rate or change of interest rate of variable, adjustable, or
renegotiable interest instruments, or which requires particular
language or provisions in security instruments securing variable,
adjustable, or renegotiable rate obligations or in evidences of such
debts except for those specifically imposed by Chapter 4 (commencing
with Section 1917.010) or Chapter 7 (commencing with Section
1917.320) for loans subject to those chapters. This section is
declaratory of existing law.

1917.003.  The lien or liens of a deed or deeds of trust securing a
shared appreciation loan shall include and secure the principal
amount of the shared appreciation loan, and all interest, whether
accrued or to be accrued, including all amounts of contingent
deferred interest.

1917.004.  (a) The lien of a shared appreciation loan, including the
principle amount and all interest, whether accrued or to be accrued,
and all amounts of contingent deferred interest, shall attach from
the time of the recordation of the deed of trust securing the loan,
and the lien, including the lien of the interest accrued, or to be
accrued, and of the contingent deferred interest, shall have priority
over any other lien or encumbrance affecting the property encumbered
by the shared appreciation deed of trust which is recorded after the
time of recordation of the shared appreciation deed of trust.
Nothing in this section shall preclude a junior or subordinate lien
to the deed of trust securing the shared appreciation loan.
   (b) Any deed of trust that acts as security for a shared
appreciation loan shall indicate on the document that the deed of
trust secures a shared appreciation loan.

1917.005.  Lenders shall be exempt from the usury provisions of
Article XV of the California Constitution with respect to shared
appreciation loan transactions. This section is declaratory of
existing law.

1917.006.  For purposes of this chapter:
   (a) "Shared appreciation loan" means, in addition to the meaning
defined in Section 1917, a loan that obligates the borrower to pay to
the lender contingent deferred interest pursuant to the loan
documentation and that is made upon the security of an interest in
real property that is an owner-occupied residence in compliance with
all of the following conditions:
   (1) The loan is made by, and all contingent deferred interest paid
with respect to the loan is used by, a local public entity to
provide financial assistance in the acquisition of housing that is
affordable to persons and families of low or moderate income, as
defined in Section 50093 of the Health and Safety Code.
   (2) The loan is made or acquired with assets of the local public
entity other than the proceeds of a bond meeting the requirements of
Section 143 of the United States Internal Revenue Code of 1986.
   (3) The loan documentation assures that the obligation to pay
contingent deferred interest is subject to a superior right of the
borrower, upon termination of the loan, to receive repayment of money
paid by the borrower for purchase of the security property
(including downpayment, installment payments of mortgage principal,
escrow fees, transfer taxes, recording fees, brokerage commissions
and similar costs of acquisition actually paid by the borrower) and
money paid by the borrower for capital improvements to the security
property, plus not less than the legal rate of interest on those cash
payments.
   (4) The loan documentation assures that the amount of contingent
deferred interest shall not exceed that percentage of the
appreciation in appraised fair market value of the security property
that equals the local public entity's proportionate share of the
total initial equity in the security property. The amount of the
total initial equity and of the local public entity's share of the
initial equity shall be agreed upon by the borrower and the local
public entity at the time of executing the shared appreciation loan
and shall include the local public entity's cash investment, the
difference between the price of land provided by the local public
entity and the fair market value of the land, the amount of fees
waived by the local public entity, and the value of in-kind
contributions made by or on behalf of the local public entity. Funds
borrowed by the borrower, the repayment of which are secured by the
security property, shall not be included in the calculation of total
initial equity of the borrower.
   (5) At least 30 days in advance of executing the loan
documentation, the borrower receives full disclosure of the terms and
conditions of the loan, including the economic consequences to the
borrower of the obligation to pay contingent deferred interest.
   (b) "Local public entity" means a city and county, or a housing
authority or redevelopment agency of a city and county.
   (c) "Owner-occupied residence" means real property containing one
to four residential units at least one of which at the time the loan
is made is, or is to be, occupied by the borrower.


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