California Business and Professions Code §10238 — the Multi-Lender Law — runs the framework on private real estate notes held by more than one lender-investor. The framework runs an investor-count cap at ten lender-investors on a single multi-lender note, runs the identical-interests requirement on the lender-investor framework, and runs the broker-arranged-and-serviced framework on the note. This guide walks the §10238 ten-investor framework from the investor-count cap through the beneficial-ownership structure and the broker servicing requirements.

What a §10238 multi-lender note is

A §10238 multi-lender note runs as a single promissory note secured by a single deed of trust against California real estate, with two or more lender-investors holding fractional beneficial interests in the note and the security. The framework runs the broker as the arranging and servicing party against the lender-investor base and runs the borrower against the broker-serviced trust account. The framework runs the lender-investor protection on disclosure, on identical interests, on broker servicing, and on the trust-account framework under §10145.

The ten-investor cap

§10238 runs the lender-investor count cap at ten lender-investors per multi-lender note. The cap runs the maximum number of fractional beneficial owners on the note across the loan term — not a per-quarter or per-year count. A broker who arranges a multi-lender note against eleven or more lender-investors runs the §10238 framework against the broker’s arrangement and runs into the §25102(f) Corporate Code framework or an alternative non-public offering framework. The cap runs the structural anchor on a §10238 multi-lender note.

The identical-interests requirement

§10238 runs the identical-interests requirement on the lender-investor framework. Each lender-investor runs the same beneficial interest in the note — the same priority on the security, the same interest rate, the same payment terms, the same default rights, and the same prepayment rights. The lender-investors run fractional ownership percentages that aggregate to one hundred percent of the note, but the underlying rights run identical across the lender-investor base. A broker who structures a multi-lender note against differentiated lender-investor rights — a senior tranche, a junior tranche, a preferred return — runs the multi-lender note into a securitized framework and runs the §10238 framework against the structure.

Fractional ownership percentages

Each lender-investor runs a fractional ownership percentage of the note. The percentages run the investor’s funding-share basis — twenty percent on a lender-investor funding twenty percent of the principal, ten percent on a lender-investor funding ten percent of the principal, and so on across the lender-investor base. The percentages aggregate to one hundred percent on the note and run the pro-rata-distribution basis on principal, interest, late fees, prepayment penalties, and other note proceeds. The Lender/Purchaser Disclosure Statement runs the percentages on the disclosure form against each lender-investor.

The Lender/Purchaser Disclosure (RE 851)

§10238 runs the Lender/Purchaser Disclosure Statement on each lender-investor on a multi-lender note. The Department of Real Estate runs three Lender/Purchaser Disclosure forms — RE 851A on a new note arrangement, RE 851B on a note assignment, and RE 851C on a note sale. Each form runs the borrower’s identification, the property identification, the loan terms, the priority position, the appraisal framework, the loan-to-value ratio, the broker’s arrangement framework, and the lender-investor’s fractional ownership percentage. The disclosure runs in front of each lender-investor on the funding cycle and runs signed-and-dated into the broker’s recordkeeping framework.

The Multi-Lender Notice (RE 860)

§10238 runs the Multi-Lender Notice (RE 860) filing against the Department of Real Estate within thirty days of the first multi-lender transaction in a twelve-month period. The notice runs the broker’s self-identification on the multi-lender activity against the Department and runs the broker into the §10238 reporting framework. A broker who runs an initial multi-lender transaction and does not file the RE 860 notice runs a §10238 violation against the broker’s license. The notice runs as a one-time filing on the broker’s initial multi-lender activity and runs the broker into the §10238 framework on subsequent activity.

LTV caps under §10238(h)

§10238(h) runs loan-to-value caps on multi-lender notes against the security property type. The caps run eighty percent on owner-occupied single-family residences, seventy-five percent on non-owner-occupied single-family residences, sixty-five percent on commercial and income properties, sixty-five percent on residential lots, and fifty percent on undeveloped land. A broker who arranges a multi-lender note against an LTV ratio above the §10238(h) cap runs the §10238 framework against the arrangement and runs the lender-investor protection against the over-leveraged security. The LTV cap runs the structural anchor on the §10238 multi-lender framework.

Broker servicing requirements

§10238 runs the broker-servicing requirement on the multi-lender note. The broker runs the trust account against the lender-investor base under §10145, runs the trust-account reconciliation against the system of record under Reg 2831.2, runs the signatory framework under Reg 2834, and runs the lender-investor distribution cycle against the borrower-payment receipt. The framework runs the broker as the single point of contact between the borrower and the lender-investor base and runs the lender-investor protection on broker-servicing rather than on direct borrower contact. A broker who runs the multi-lender note against direct borrower-to-lender-investor payments runs into the §10238 framework against the broker’s arrangement and the §10145 trust-fund framework against the broker’s fiduciary obligations.

Adding and removing lender-investors

A lender-investor who assigns the lender-investor’s fractional interest to a successor lender-investor runs an assignment cycle on the multi-lender note. The broker runs the assignment against the §10238 framework — the successor runs the identical interests, the RE 851B disclosure runs against the successor, and the note runs unchanged on the lender-investor count against the ten-investor cap. A lender-investor who runs out of the note on a payoff or a buyout runs a reduction on the lender-investor count, and the remaining lender-investors run the fractional recalibration. The broker who runs the lender-investor count across the ten-investor cap on an assignment or addition runs into the §10238 framework against the arrangement.

Want to learn more about multi-lender note compliance?

The §10238 ten-investor framework runs against the broker’s arrangement and servicing scale and the broker’s fiduciary obligations on the lender-investor base. A professional third-party servicer runs the trust-account reconciliation under Reg 2831.2, the lender-investor distributions on the pro-rata basis, the borrower-payment processing, the §6050H Form 1098 reporting on the lender-investor share basis, the §1024.35 error-resolution file, the §1026.41 periodic statement on residential consumer-purpose loans, and the §10238 reporting support against the broker’s recordkeeping framework. Note Servicing Center supports California broker portfolios against the §10238 multi-lender framework and the broker’s trust-account reconciliation obligations.

Frequently Asked Questions

What does “identical interests” mean on a §10238 multi-lender note?

The identical-interests requirement runs each lender-investor on the same beneficial interest in the note — the same priority on the security, the same interest rate, the same payment terms, the same default rights, and the same prepayment rights. The lender-investors run different fractional ownership percentages, but the underlying rights run identical across the lender-investor base. A multi-lender structure that runs senior and junior tranches, preferred returns, or differentiated default rights runs outside the §10238 identical-interests framework.

Can lender-investors hold different ownership percentages?

Lender-investors run different fractional ownership percentages on the multi-lender note. The percentages run the lender-investor’s funding-share basis — the percentage of principal funded by the lender-investor runs the lender-investor’s percentage on the note. The percentages aggregate to one hundred percent on the note. Different percentages run the pro-rata distribution basis on note proceeds, but the underlying note rights run identical across the lender-investor base under the identical-interests requirement.

What happens beyond ten lender-investors?

A note arranged against eleven or more lender-investors runs outside the §10238 multi-lender framework. The arrangement runs the §25102(f) California Corporate Code framework on a non-public offering — up to thirty-five lender-investors with a pre-existing relationship to the broker and no general solicitation — or runs a federal Regulation D framework under SEC Rules 506(b) or 506(c). The non-§10238 framework runs different disclosure, investor-qualification, and broker-arrangement requirements and runs outside the §10238 broker-servicing framework.

Does §10238 apply to commercial loans?

§10238 runs against California real estate broker arrangements on California real estate notes — the framework runs against commercial-purpose and business-purpose multi-lender notes as well as consumer-purpose multi-lender notes. The §10238(h) LTV cap on commercial and income properties runs sixty-five percent. The §10238 broker-servicing framework runs against the broker’s arrangement and the trust-account framework under §10145 regardless of the borrower-purpose classification on the note.

How does the RE 860 differ from the RE 851?

The RE 851 series — RE 851A, RE 851B, RE 851C — runs the Lender/Purchaser Disclosure Statement on each lender-investor on a §10238 transaction. The forms run lender-investor-specific disclosure on the note, the security, the loan-to-value, and the lender-investor’s fractional ownership. The RE 860 runs the Multi-Lender Notice — a one-time broker filing against the Department of Real Estate on the broker’s initial multi-lender activity in a twelve-month period. The RE 851 runs against each lender-investor; the RE 860 runs against the broker.

Can the broker run as a lender-investor on the note?

A broker who runs as a lender-investor on a broker-arranged multi-lender note runs into the broker-self-dealing framework under §10176 and the §10238 disclosure framework. The broker runs a specific written disclosure of the broker’s lender-investor position against each non-broker lender-investor on the note. The broker runs the broker’s lender-investor share against the identical-interests framework — the broker’s share runs no priority, no preferred return, and no differentiated rights against the non-broker lender-investor base. The broker-investor combination runs against the broker’s fiduciary framework on the non-broker lender-investors.

How does a third-party servicer support the §10238 framework?

A professional third-party servicer runs the trust-account framework, the lender-investor distributions, the borrower-payment processing, the §10238 recordkeeping support, and the broker-level reporting support on the §10238 multi-lender framework. The broker retains the arrangement framework, the §10238 reporting against the Department of Real Estate, and the lender-investor disclosure framework, but the servicer runs the operational backbone on the trust-account reconciliation, the pro-rata distribution cycle, the §6050H Form 1098 reporting on each lender-investor share, and the audit-record framework.

Want to learn more about §10238 multi-lender compliance?

The §10238 multi-lender framework runs against the broker’s arrangement and servicing scale and the broker’s fiduciary obligations on the lender-investor base. Note Servicing Center runs the multi-lender note against the trust-account framework under §10145, the reconciliation discipline under Reg 2831.2, the signatory framework under Reg 2834, and the §10238 reporting support against the broker’s recordkeeping framework.

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This article is educational and does not constitute legal advice. The §10238 Multi-Lender Law runs under the California Department of Real Estate licensing framework — Cal Code Regs Title 10 §§2830–2835 and California Business and Professions Code §10238 on multi-lender loans — and runs alongside the §10145 trust-fund framework, the §10232.4 threshold-broker reporting framework, and the §10176 broker-conduct framework. Federal servicing rules under Regulation X and Regulation Z run on residential consumer-purpose loans where applicable. Consult qualified legal counsel and a qualified CPA on the specific structuring and disclosure requirements that apply to any California multi-lender note arrangement.

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