This case study walks a composite California §10238 multi-lender note scenario in which the broker ran the lender-investor count across the ten-investor cap on a single assignment cycle. The composite runs against recurring patterns documented on DRE enforcement records on §10238 violations. Specific dollar figures, identities, and timelines are omitted to keep the case study general.

The setup

The broker ran a California real estate broker license and a §10238 multi-lender note arrangement against a lender-investor base of ten lender-investors. The note ran identical interests across the base, ran within the §10238(h) LTV cap on the security property, ran the RE 851A disclosure on each lender-investor on the funding cycle, and ran the RE 860 Multi-Lender Notice filed against the Department of Real Estate.

The assignment

One of the ten lender-investors elected to liquidate the lender-investor’s position and sell the fractional interest. The broker arranged an assignment cycle and split the lender-investor’s fractional interest across two successor lender-investors — neither of which ran as existing lender-investors on the note. The split moved the lender-investor count from ten to eleven on the note.

The violation

The eleventh lender-investor on the note ran the §10238 framework against the arrangement. The §10238 ten-investor cap runs the maximum lender-investor count across the loan term on a single multi-lender note. The split-assignment cycle ran the count across the cap on the completion of the second assignment, and the note ran outside the §10238 framework on the assignment cycle.

The DRE audit

The Department of Real Estate ran a routine audit cycle on the broker’s §10238 multi-lender portfolio. The audit ran the lender-investor inventory against the §10238 ten-investor cap on each multi-lender note and ran the eleven-investor count on the subject note into the audit finding. The DRE ran the finding into the broker’s corrective-action framework on the §10238 violation.

The restructuring

The broker ran a restructuring cycle on the note to cure the §10238 violation. The cycle ran a buyout against one of the two successor lender-investors and ran the bought-out fractional interest absorbed across an existing lender-investor on the note. The cycle restored the lender-investor count to ten and restored the §10238 framework on the arrangement. The broker ran the restructuring documented against the DRE’s corrective-action framework and ran the audit cycle to completion on the restructuring evidence.

The lessons

The case ran four lessons against California §10238 multi-lender note management. First, the lender-investor count check runs against the cap on each assignment cycle — not just on the initial funding. Second, a split assignment across non-existing successor lender-investors runs the investor-count framework against the cap and runs a §10238 violation if the split crosses the cap. Third, the cure runs a restructuring against existing lender-investors on the note, not against the addition of further non-existing lender-investors. Fourth, the self-disclosure framework runs the broker through the DRE corrective-action framework rather than into an adversarial enforcement framework on the §10238 violation.

Related Topics

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 and the §10232.4 threshold-broker reporting framework. 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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