Article 5Improvements

Section § 1917.050

Explanation

This law allows borrowers to add the cost of significant improvements to their property to the property's cost when calculating deferred interest, but they must follow certain steps. After completing improvements worth more than $2,500 within a year, the borrower must notify the lender within 60 days and provide proof of costs. The lender then has 90 days to appraise the property to check the value increase due to these improvements. Borrowers can dispute the lender's appraisal and get their own independent appraisal within 120 days. If the borrower's appraisal is higher, the final value used is the average of both appraisals. The lower of the actual cost or value increase can be credited, unless the borrower did most of the work, in which case the improvement cost is used.

The borrower may have the cost of capital improvements to the security property completed within any 12-month period, and with an appraised value in excess of two thousand five hundred dollars ($2,500), added to the borrower’s cost of the property, for purposes of determining the contingent deferred interest, but only if the procedures set forth in this article are followed.
(a)CA Civil Law Code § 1917.050(a) Within 60 days following the completion of the improvements, the borrower shall send by first-class mail a notice of the completion of the improvements to the lender and shall submit proof of cost of the improvements.
(b)CA Civil Law Code § 1917.050(b) Within 90 days following the completion of the improvements, the lender shall select an appraiser to perform an appraisal to determine the increase in value of the property, if any, by reason of the improvements. A copy of the appraisal shall be sent by first-class mail to the borrower, together with a notice informing the borrower that the appraisal will constitute a final and conclusive determination of the increase in the value of the property by reason of the improvement for purposes of computing the net appreciated value of the property, and that if the borrower disputes the amount of the appraisal, the borrower may procure an independent appraisal as provided in subdivision (c). The lender may require the borrower to pay for the cost of the appraisal.
(c)CA Civil Law Code § 1917.050(c) If the borrower disputes the amount of the appraisal, the borrower, within 120 days of the completion of the improvements, may secure at borrower’s expense, a qualified, independent appraiser to perform an appraisal to determine the increase in value of the property, if any, by reason of the improvements, and a copy of the appraisal shall be sent by first-class mail to the lender within that period of time.
(d)CA Civil Law Code § 1917.050(d) If the appraisal of the appraiser selected by the borrower is greater in amount than the appraisal by the appraiser selected by the lender, the amount of the appraisal, for the purposes of this section, shall be one-half of the sum of the two appraisals.
(e)CA Civil Law Code § 1917.050(e) The lesser of the borrower’s actual cost or the appraised increase in the value of the property by reason of the improvements shall be available as a credit to the buyer for purposes of determining net appreciated value, except as provided in subdivision (f).
(f)CA Civil Law Code § 1917.050(f) If 50 percent or more of the value of the labor or other work on the improvements was performed by the borrower, then the appraised increase in the value of the property by reason of the improvements shall be the cost of capital improvements for purposes of establishing the credit under this section.
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(Repealed and added by Stats. 1982, Ch. 466, Sec. 11. Inoperative January 1, 1990, by Stats. 1982, Ch. 466, Sec. 11.5.)