The questions below recur from California private lender-investors on the §10238 multi-lender framework. Each answer runs against the California Business and Professions Code §10238 framework on multi-lender loans.

Does the ten-investor cap run against the funding cycle or the loan term?

The §10238 ten-investor cap runs across the loan term on the multi-lender note. The cap runs the maximum number of fractional beneficial owners on the note at any time across the loan term — not a per-quarter or per-year count. An assignment cycle that runs the lender-investor count across the cap on any single transaction runs the §10238 framework against the assignment.

Can a lender-investor split a fractional interest on assignment?

A lender-investor who runs an assignment cycle can split the fractional interest across multiple successor lender-investors — but the split runs the investor-count check against the §10238 ten-investor cap. A split that runs the lender-investor count across the cap runs the §10238 framework against the assignment. The broker runs the investor-count check on each split-assignment cycle and runs the split against existing lender-investors on the note where the cap is binding.

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

A broker who runs as a lender-investor on the 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 and runs the broker’s share against the identical-interests framework — no priority, no preferred return, and no differentiated rights against the non-broker lender-investor base.

Does the §10238 framework run against owner-occupied loans?

The §10238 framework runs against owner-occupied and non-owner-occupied California real estate notes. The §10238(h) LTV cap runs eighty percent on owner-occupied single-family residences and seventy-five percent on non-owner single-family residences. Owner-occupied multi-lender notes run an additional federal overlay under Regulation Z and the §32 high-cost-mortgage framework on consumer-purpose loans where applicable.

What runs as identical interests on the lender-investor base?

The identical-interests requirement runs each lender-investor on 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 — the funding-share basis runs the percentage — but the underlying note rights run identical across the lender-investor base. A senior-junior tranche structure, a preferred-return structure, or a differentiated-default-rights structure runs outside the §10238 identical-interests framework.

How does the broker handle a defaulted multi-lender note?

A defaulted multi-lender note runs the §10238 broker-servicing framework into a workout, foreclosure, or note-sale cycle on the lender-investor base. The broker runs the default-notice framework against the borrower, runs the lender-investor communication on the default and the workout options, and runs the lender-investor base into a workout-vote framework on the §10238 identical-interests structure. The broker runs the foreclosure cycle through the broker’s arranged-servicer or runs the cycle through a substitute-trustee framework on the security.

Can a multi-lender note run a balloon payment structure?

A §10238 multi-lender note runs a balloon payment structure where the note terms run the balloon — the identical-interests requirement runs the balloon date and balloon amount identical across the lender-investor base. The balloon structure runs the §10238(h) LTV cap against the loan-to-value calculation on the balloon-amortization framework and runs the lender-investor disclosure framework against the balloon-payment terms on the RE 851 form.

Does the §10238 framework run a CPA inspection trigger?

The §10238 framework runs an inspection trigger at the statutory dollar threshold on rolling three-month servicing aggregate or at the statutory investor-count threshold across the broker’s servicing portfolio. The trigger runs the broker into the §10238(k) inspection framework — a CPA inspection on the broker’s trust account and a report filed against the Department of Real Estate within thirty days of the trigger. The trigger runs the §10232.4 threshold-broker framework into a parallel inspection cycle against the broker’s arrangement and servicing portfolio.

Related Topics

• Multi-Lender Notes With Up to 10 Investors
• California Section 10238 Multi-Lender Loan Rules
• California Threshold-Broker §10232.4 CPA Inspection Trigger
• Fractional Note Distributions: The Pro-Rata Math
• Fidelity Bonds for Trust Account Signatories

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.

Sources

• California Business and Professions Code §10238 — Multi-Lender Law. California Legislative Information.
• California Business and Professions Code §10145 — Trust fund handling. California Legislative Information.
• California Corporations Code §25102 — Private offering exemption. California Legislative Information.
• California Department of Real Estate — Forms RE 851A, RE 851B, RE 851C, RE 860. California Department of Real Estate.
• California Code of Regulations Title 10 §2831.2 — Trust account reconciliation. California Department of Real Estate.