The relationship of the borrower and the lender, as to a shared appreciation loan, is that of debtor and creditor and shall not be, or be construed to be, a joint venture, equity venture, partnership, or other relationship.
Article 6General Provisions
Section § 1917.160
This law clarifies that when it comes to a shared appreciation loan, the borrower and lender are in a simple debtor-creditor relationship, meaning one owes money to the other. They are not partners or involved in any joint business venture together.
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Section § 1917.161
If a borrower gives up their rights under this chapter, it doesn't count and can't be enforced.
Any waiver of any right of a borrower under the provisions of this chapter shall be void and unenforceable.
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Section § 1917.162
This section says that in shared appreciation loans, lenders can demand full repayment if the property is sold, unless another law specifically prevents it. The law acknowledges that enforcing a "due-on-sale" clause has been viewed as challenging, but it is important for lenders due to the risks associated with these types of loans. Allowing this clause makes shared appreciation loans more feasible by reducing lender risk, especially for longer-term loans that benefit affordability.
(a)CA Civil Law Code § 1917.162(a) Notwithstanding Section 711, a provision in a shared appreciation loan made pursuant to this chapter permitting the lender to accelerate the maturity date of the principal and accrued interest on the loan upon sale of the property shall be valid and enforceable against the borrower, except as may be precluded by Section 2924.6.
(b)CA Civil Law Code § 1917.162(b) The Legislature finds and declares that potential exposure to liability for enforcement of a “due-on-sale” clause consistent with Section 711, as interpreted
by the courts, makes use of such a provision impractical. Moreover, the additional risks to the lender inherent in shared appreciation financing are greater with longer loan terms (which are more desirable from the standpoint of housing affordability), but this risk is reduced with an enforceable “due-on-sale” clause. Therefore, in order to facilitate shared appreciation financing, it is necessary to establish the exception specified in subdivision (a).
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Section § 1917.163
This law section explains that shared appreciation loans in California must follow the specific rules laid out in this chapter. However, it clarifies that these rules do not apply if the shared appreciation financing involves property types mentioned in another section or if they are made through different legal guidelines. It also states that this section doesn’t affect shared appreciation loans for commercial properties or residential ones that don’t match a certain set of criteria.
This chapter facilitates the making of shared appreciation financing in this state which conforms to the provisions of this chapter. The terms and conditions of any shared appreciation loan made pursuant to this chapter shall be consistent with this chapter. This chapter does not, however, apply to or limit shared appreciation financing of real property of a type specified in Section 1917.130 that is made pursuant to other provisions of law, or which is not otherwise unlawful. Nothing in this chapter shall be construed to in any way affect shared appreciation financing of
commercial property or residential property not meeting the criteria specified in Section 1917.130.
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Section § 1917.164
This law states that shared appreciation loans don't have to follow rules about specific interest rate limits, required language, or provisions for loans with changing rates. It's basically saying this is already how the law is understood.
A shared appreciation loan shall not be subject to any provision of this code or the Financial Code which limits the interest rate or change of interest rate of variable interest rate or renegotiable interest instruments, or which requires particular language or provisions in security instruments securing variable or renegotiable rate obligations or in evidences of those debts.
This section is declaratory of existing law.
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Section § 1917.165
This law states that if you have a shared appreciation loan with a deed of trust, the loan's lien covers the main amount of the loan, as well as any interest. This includes interest that builds up over time and any additional interest that may be delayed until later.
The lien of a deed of trust securing a shared appreciation loan shall include and secure the principal amount of the shared appreciation loan, and all interest, whether accrued or to be accrued, including all amounts of contingent deferred interest.
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Section § 1917.166
This law says that when you take out a shared appreciation loan, the agreement for that loan gets recorded and its lien, which is the lender's legal claim to your property, becomes prioritized over other claims recorded after it. This includes all the interest you owe, both what you've already accrued and what you'll accrue in the future. It also covers any special interest payments that might be deferred. Other loans or claims can exist on the property, but they can't take precedence over the shared appreciation loan. The law clarifies that it doesn't override another specific rule about property liens.
The lien of a shared appreciation loan, including the principal amount and all interest, whether accrued or to be accrued, and all amounts of contingent deferred interest, shall attach from the time of the recordation of the deed of trust securing the loan, and the lien, including the lien of the interest accrued or to be accrued and of the contingent deferred
interest, shall have priority over any other lien or encumbrance affecting the property secured by the shared appreciation instrument, recorded after the time of recordation of the shared appreciation instrument. However, nothing in this section or Section 1917.165 shall preclude a junior lien or encumbrance subordinate to the obligation of the shared appreciation loan. In no case may a junior lien achieve priority over the lien securing the obligation of the shared appreciation loan, provided that nothing in this section shall be construed to supersede Section 8450.
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Section § 1917.167
This law says that if a shared appreciation loan starts with a fixed interest rate that follows California's limits on interest rates (usury laws), it won't be considered illegal interest (usurious) just because it includes future interest payments that depend on certain conditions happening.
A shared appreciation loan which at origination bears a fixed interest rate complying with the usury provisions of Article XV of the California Constitution shall not be deemed to become usurious by reason of the payment of contingent deferred interest pursuant to this chapter.
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Section § 1917.168
This law states that certain qualification requirements typically needed for financial transactions don't apply to a particular type of loan called a 'shared appreciation loan,' if it meets a specific exemption under another section of the Corporations Code.
The qualification requirements of Sections 25110, 25120, and 25130 of the Corporations Code do not apply to a shared appreciation loan to the extent the exemption afforded by subdivision (p) of Section 25100 of that code is applicable.
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