California SB 978

[Account Closed]

Anybody familiar with this new CA law that starts Jan 1, 2013?

Sounds like when you sell a trust deed investment you have to make sure the buyer is “suitable”, if it is determined they are not you can be subject to some strict civil penalties. I’m thinking that if the TD investment doesn't work out as expected the investor will no doubt claim they were not suitable and try to recover losses from TD seller.

Any thoughts?

[Joffrey Long]

K. Marie Poe

You indicated that it appears that most of SB 978 is aimed at securities offerings. You're right.

However, there are almost no exemptions.

All trust deeds offered to private investors, whole loans, or fractional interests in loans, are "securities" in the eyes of the law. It can all be found in 10238 of the Business and Professions code, available online.

So, to avoid registration of the "securities," you can sell or offer the securities to private investors and take advantages of the exemptions from registering the securities - but they're still securities.

The procedures for getting the exemption are no big secret - all available for free in 10238 of B and P.

And a single first trust deed is not exempt.

All that said, it's not an impossible law to comply with. Actually, those of us who operate under the real estate broker license ALREADY had an obligation to look at suitability, it just wasn't as clearly spelled out.

It also brought those who broker and solicit investors for single loans under many of the same rules that only those who offered "fractionalized" or multi-lender loans were under before.

Aaron Norris Great observations - thanks for pointing out the questionnaire, that's something everyone needs to be aware of.

(Available for you to view at www.dre.ca.gov Click on FORMS, then on Mortgage Lending Brokers.)

I consider the law an advantage in many ways. It forced some of the "whole loan" arrangers to comply with laws I already had to comply with, (I often do multi-lender loans.) it raises the bar on requirements, so fewer people can do this, (legally) and it lays the foundation for better protection for investors, which then makes more dollars available for investment, provided the dollars are invested through someone who follows the law.

And for all the laws we have to follow in hard money lending, all I can say is, I sure wish they were all as feasible as this one is to comply with. Whew! That would be nice.

Joffrey Long

P.S. Nobody rely on this, ok? Check with competent counsel (attorneys) who really know what they're doing. This is just to give you ideas and questions to ask the smart people about.