Cal. Code Regs. Tit. 25, § 8057 - Loan Approvals
(a) The local entity shall review and evaluate each prospective borrower's application for a deferred payment loan to determine whether the requirements of this subchapter would be met if the loan were funded. In performing this review, the local entity shall evaluate whether the State's security interest would be protected and whether the loan funds will be repaid. The local entity's evaluation shall also include a determination on each of the specific criteria set forth below in subdivision (d) of this section.
(b) For those loans which it recommends for funding, the local entity shall submit loan files to the department, which contain copies of the documents described in subdivision (e)(1) of this section, as well as the local entity's determination on each of the specific criteria set forth in subdivision (d) of this section. The department may disapprove a deferred payment loan submitted by the local entity if the deferred payment loan does not meet the requirements of this subchapter, and shall notify the local entity in writing within 30 working days following receipt of the deferred payment loan file of the reasons for denial.
(c) Where there are indications that the prospective borrower may not meet the deferred payment loan requirements of subdivision (a) of this section, the local entity may request departmental approval of the deferred payment loan, providing there are mitigating circumstances, which apply to the prospective borrower.
(d) When reviewing loans for approval, the local entity evaluation shall include determinations on each of the following criteria:
(1) The prospective borrower's loan application is consistent with the performance goals set forth in the Standard Agreement;
(2) the prospective borrower's loan application is complete and accurate;
(3) the deferred payment loan amount is consistent with the requirements of section 8048;
(4) the prospective borrower is eligible pursuant to section 8043;
(5) the loan security shall meet the requirements as specified in section 8050;
(6) the prospective borrower's credit report indicates an ability to repay all debts, including:
(A) no credit accounts past due at the time the prospective borrower's deferred payment loan is recorded;
(B) no outstanding unpaid judgments or involuntary liens; and
(C) no bankruptcies, which have not been dismissed prior to deferred payment loan recordation;
(7) the preliminary title report shows:
(A) proper vesting of title with the prospective borrower;
1. If the prospective borrower holds title with another party also who is not applying for the loan, the other party shall sign all required loan documents.
2. In cases where a joint tenancy or tenants-in-common is dissolved, the title documents must be corrected to reflect the change.
(B) the legal description of property;
(C) all encumbrances on the property. Any encumbrances which have been repaid shall be reconveyed and recorded prior to recording of the deferred payment loan; and
(D) no judgments, mechanic liens, or property tax liens due on the property.
(8) the mortgage verification for each existing encumbrance on the property indicates:
(A) a date not more than three months prior to deferred payment loan approval;
(B) that payments are current at the time of verification and, in the past, have not been more than 60 days delinquent;
(C) the financing terms including, but not limited to, variable interest rate, balloon payments, or negatively amortizing loans, which may jeopardize the state's security and the borrower's ability to repay the deferred payment loan; and
(D) the current balance of the mortgage and of any impound accounts for taxes and assessments.
(9) the prospective borrower has demonstrated an ability to maintain the property;
(10) the proposed uses of funds are eligible pursuant to section 8044(a);
(11) the cost estimates and work write-ups adequately describe the existing conditions and problems which require rehabilitation and accurately specify the rehabilitation work, room additions and improvements and accurately specify the work necessary to correct the deficiencies;
(12) the selected contractor's bid proposal is reasonable and meets the requirements of section 8046(e); and
(13) all other provisions of this subchapter have been met.
(e) The local entity shall maintain a loan file for each deferred payment loan application which shall contain, at a minimum, the following documents which shall be obtained in accordance with the following schedule:
(1) prior to loan approval:
(A) loan application;
(B) verification of the prospective borrower's income;
(C) a credit report;
(D) a preliminary title report;
(E) mortgage verifications;
(F) property appraisal;
(G) a cost estimate and work write-up;
(H) a contractors' selection statement which indicates all bids received and the contractor selected;
(I) the selected contractor's bid proposal, drawings, specifications, and proposed contract;
(J) commitment letters from other funding sources used to leverage state funds in completing a rehabilitation project;
(K) map of the property location;
(L) any other documents or justifications necessary to determine the eligibility of the borrower and to approve the deferred payment loan.
(2) After loan approval, but prior, or concurrent with, loan recordation:
(A) the properly executed and recorded deferred payment loan documents pursuant to section 8056(c);
(B) proof of hazard insurance, which names the department as loss payee, in an amount sufficient to cover the amount of the deferred payment loan and all liens recorded in a senior position, or the replacement value of the property, whichever is less;
(C) a title insurance policy insuring the department in the amount of the deferred payment loan, which shall also include a legal description of the property, the property street address, the county tax assessor's value, property tax information, the deferred payment loan as recorded, and any superior liens recorded against the property;
(D) the construction contract between the contractor and the borrower;
(E) verification of the worker's compensation and liability insurance maintained by the contractor and verification of the contractor's license as required in the construction agreement; and
(F) evidence of commitment of other funds that are leveraging state funds to complete the rehabilitation.
(3) After loan closing and prior to disbursement of final contractor retention payment:
(A) all records of contractor progress payments;
(B) all change orders;
(C) all building permits with appropriate approvals;
(D) a copy of the properly recorded Notice of Completion;
(E) copies of lien releases from the general contractor or general contractors; and
(F) a title update, which reflects all trust deeds, liens, judgements, attachments and all encumbrances, voluntary or involuntary, on title.
(f) Notwithstanding the requirement specified in subdivision (b) of this section that the local entity shall submit deferred payment loan files for department approval, the department may authorize the local entity to directly approve deferred payment loan files in accordance with the following requirements;
(1) The department shall review at least the first five deferred payment loans containing the documents specified in subdivision (e)(1) of this section and provide written comments on each file to the local entity regarding its compliance with program requirements pursuant to this subchapter. The department has the sole decision on the number of deferred payment loans to be reviewed prior to granting authorization to a local entity to approve deferred payment loans and shall base that decision on evidence that the local entity is fully capable of meeting all applicable requirements of this subchapter. Upon written request by the local entity and determination by the department that the local entity has the capability to evaluate and package deferred payment loans, the department shall certify the local entity and delegate approval authority.
(2) After certifying the local entity and delegating approval authority, the department shall periodically review deferred payment loans that have closed and provide a written review to the local entity on compliance with the program and contract requirements. The department shall randomly select any loan files for review. The local entity shall be notified that continued problems in the local entity's evaluation and approval of deferred payment loans pursuant to subdivision (a) of this section shall result in the discontinuation of the authorization and certification.
(3) The department shall condition its certification of the local entity and authorization to approve deferred payment loans on the basis of certification of specific loan officers employed by the local entity. If the certified loan officer ceases to serve in the capacity of approving loans, the local entity must notify the department and the authorization to approve deferred payment loans shall be discontinued by the department until such time as a new loan officer employed by the local entity is certified by the department.
(4) When the local entity has been certified to approve deferred payment loans, the local entity shall request department approval of the deferred payment loan if the borrower is seeking an exception to the deferred payment loan limits or loan-to-value requirements.
(g) Notwithstanding subdivision (f) of this section, local entity approval authority may be rescinded, and future deferred payment loans shall be subject to department approval prior to the disbursement of funds. Rescission of deferred payment loan approval authority shall occur if the department determines that local entity performance no longer indicates capability to make deferred payment loans in accordance with the requirements of this subchapter. The local entity may appeal the rescission of authority to the director.
(h) The local entity shall transmit to the department for monitoring and management each completed deferred payment loan file containing the original documents specified in subdivision (e) of this section within forty-five days following completion of construction and disbursement of the final retention payment. Local entities shall keep copies of all deferred payment loan files for five years after completion of rehabilitation work and recordation of the notice of completion. The department shall require the local entity to rectify any errors or omissions discovered in the deferred payment loan files.
Note: Authority cited: Section 50668.5(g), Health and Safety Code. Reference: Sections 50662, 50668.5 and 50668.5(a), Health and Safety Code.
2. New section refiled 3-26-90 as an emergency; operative 3-30-90 (Register 90, No. 16). A Certificate of Compliance must be transmitted to OAL within 120 days or emergency language will be repealed by operation of law on 7-30-90.
3. New section filed 7-26-90 as an emergency; operative 7-26-90 (Register 90, No. 38). A Certificate of Compliance must be transmitted to OAL by 11-23-90 or emergency language will be repealed by operation of law on the following day.
4. Amendment of subsection (a) filed 8-27-90 as an emergency; operative 8-27-90 (Register 90, No. 42). A Certificate of Compliance must be transmitted to OAL by 12-26-90 or emergency language will be repealed by operation of law on the following day.
5. New section refiled 11-16-90 as an emergency; operative 11-16-90 (Register 90, No. 51). A Certificate of Compliance must be transmitted to OAL by 3-18-91 or emergency language will be repealed by operation of law on the following day.
6. Readoption of 8-27-90 order filed 12-21-90 as an emergency; operative 12-21-90 (Register 91, No. 7). A Certificate of Compliance must be transmitted to OAL by 4-22-91 or emergency language will be repealed by operation of law on the following day.
7. Certificate of Compliance as to 11-30-89 order, readopted and operative on 3-30-90, 7-26-90 and 11-16-90, including amendment of subsections (a), (b), (c), (d), (e), (f), (g) and (h) transmitted to OAL 11-30-90 and filed 12-31-90 (Register 91, No. 7).
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