California real estate disclosure laws California Real Estate Disclosures | Page 47

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Loan servicing arrangements or lack thereof in other than multi-lender
transactions;

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The broker’s capacity in the secured transaction as an agent or principal,
or as both an agent and principal (a broker may initially hold
himself/herself out as arranging a loan but ultimately make the loan with
his/her own funds or with broker-controlled funds); and

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If the broker in other than multi-lender transactions will directly or
indirectly obtain the use or benefit of some or all of the funds other than
for commissions, fees, costs, and expenses for services as an agent, a
detailed statement of the intended use and disposition of the funds,
including an explanation of the nature of the benefit to the broker.

The lender/purchaser must receive the statement before becoming obligated
to complete the loan transaction. The broker must also deliver the statement
to the Department of Real Estate (DRE) in advance of accepting loan funds
if the broker will directly or indirectly obtain the use or benefit of the funds.

2. Multi-Lender Transactions.
Certain multi-lender transactions arranged by a real estate broker are exempt
from qualification and registration under the Corporate Securities Law of
1968 through the Department of Corporations. Unless a securities permit
issued by the Department of Corporations or other bona fide exemption, the
broker must comply with all the provisions of Business and Professions
Code Sections 10237 et seq., including specified notices, advertising, trust
accounting, reporting to the Department of Real Estate, disclosure to the
prospective lenders or note purchasers and other related requirements. The
interests of each lender/purchaser is to be secured directly by a recorded
deed of trust on California property describing each lender’s interest or an
assignment of fractionalized interest in the deed of trust. The deed of trust or
an assignment of the interest in the deed of trust must be properly recorded
and in no event later than 10 days as set forth Business and Professions Code
10234. These transactions, commonly known as “fractionalized” loans, may
not include more than ten lenders or note purchasers, as defined. Each lender
or note purchaser must have a qualified net worth or annual income, as
specified.
(CAL. BUS. & PROF. § 10238)
“Self-dealing” is not permitted in multi-lender transactions except in limited
circumstances that are statutorily defined and the transaction must be fully
disclosed in the Lender/Purchaser Disclosure Statement. Further, multilender transactions must provide for loan servicing by a real estate broker or
other authorized party and, therefore, are to include servicing agreements
with the identified loan servicing agent. In addition, the broker shall disclose

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