Loan brokerage under the Real Estate Law and its disclosure statement

Identify the recipient and the trigger

California loan brokerage can require borrower disclosure, lender or purchaser disclosure, and disclosure of combined transaction and financing roles.

Borrower disclosure

Under Bus. & Prof. Code § 10240, a broker negotiating a loan secured directly or collaterally by a lien on real property must cause delivery of the written statement within three business days of receiving a completed written loan application or before the borrower becomes obligated on the note, whichever is earlier. Soliciting borrowers as an arranging agent, then funding the loan personally, does not avoid the rule.

The borrower and the negotiating broker or a licensee negotiating for that broker personally sign. Required information cannot be omitted when the borrower signs. Deliver an exact copy at execution; retain a true and correct signed copy for three years.

Section 10240.1 limits the article's provisions other than § 10240 to dwelling-secured loans. Do not extend every provision to all commercial property loans.

Contents and related protections

Section 10241 requires, among other information, the broker's name, license number and licensed business address; anticipated broker-controlled funding; prepayment privileges and penalties; and a statement that credit or credit disability insurance is not required as a loan condition. Broker-controlled funds include designated relatives' funds and qualifying entity funds, as well as the broker's own funds.

For a dwelling-secured balloon loan subject to § 10240, an extension or refinancing undertaking outside the note and its rider must be written and accompanied by the required notice before obligation under § 10241.4. Distinguish a lender's signed commitment from a broker's best-efforts undertaking: the latter does not assure an extension. Under § 10241.3, a borrower-paid appraisal in a covered transaction must be furnished to both borrower and lender at or before closing.

Different recipients, different duties

Under § 10232.4, the completed lender or purchaser statement generally goes to the prospective lender or purchaser as early as practicable before commitment and, subject to the statutory exception, before the broker receives funds. It is signed by that recipient and the broker or the broker's licensed salesperson; an exact executed copy goes to the recipient and a true copy is retained for three years. Statutory exemptions include the property seller taking back the purchaser's note.

Under 10 CCR § 2903, combining sale, lease or exchange agency with arranging related financing triggers written disclosure of both roles to all parties within 24 hours of undertaking the second role. All parties sign receipt acknowledgments. The retaining broker makes this disclosure when the person taking both roles is a salesperson. These duties have separate triggers; one statement does not substitute for the others.