California real estate disclosure laws California Real Estate Disclosures | Page 49

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An independent neutral third party escrow holder is used for all deposits
and disbursements. This safeguard specifically excludes real estate
brokers from issuing construction or improvement loan disbursements
and requires the use of joint control agents pursuant to Financial Code
Section 17005.1;

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The loan must be fully funded up front with all loan proceeds deposited
in an authorized escrow prior to recording the deed or deeds of trust;

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A comprehensive, clearly drafted and detailed “draw schedule” must be
developed and included in the loan documentation to ensure proper and
timely disbursements to allow for the completion of the construction,
land development or building improvement project;

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The disbursement “draws” are to be based upon verification from an
independent qualified person who certifies the work completed to the
date of inspection meets the related building codes and construction
standards, and that the “draws” were made in accordance with the
construction, development or building improvement contract and
“draw” schedule;

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The qualified person may not be an employee, agent, or affiliate of the
real estate broker and is defined to be licensed architect, general
contractor, structural engineer, or a local government building inspector
acting in an official capacity;
NOTE: It is unlikely that a local government building inspector could
or would provide the service required to meet this safeguard standard
within the scope of his/her official capacity.

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The appraisal is to be completed in accordance with the Uniform
Standards of Professional Appraisal Practice (USPAP) by an
appropriately state licensed or certified appraiser. As required by
USPAP, the appraisal report is to include “as is” and “as completed”
values when the appraisal report is based upon a hypothetical condition,
e.g., improvements to be constructed or a development to be
accomplished in the future.
NOTE: This means that to finance a construction, development, or
building improvement project without knowing in advance the form,
type, quality, square footage, etc., of the improvements based upon
plans, specifications, and estimated cost breakdowns and the prices of
comparable improved properties in that marketplace would be
inappropriate. This limitation would also apply to loans secured by raw
land where subsequent loan disbursements are contemplated to fund the
development project including, but not limited to, the acquisition of
entitlements and the cost of preparation by a registered civil engineer or

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