Cal. Civ. Code § 1916.5(a) stipulates the following:
“No increase in interest provided for in any provision for a variable interest rate contained in a security document, or evidence of debt issued in connection therewith, by a lender other than a supervised financial organization is valid unless that provision is set forth in the security document, and in any evidence of debt issued in connection therewith, and the document or documents contain the following provisions:
(6) A statement attached to the security document and to any evidence of debt issued in connection therewith printed or written in a size equal to at least 10-point boldface types, consisting of the following language:
NOTICE TO BORROWER: THIS DOCUMENT CONTAINS PROVISIONS FOR A VARIABLE INTEREST RATE.”
Subsection (b)(1) of this Section further stipulates that it “shall be applicable only to a mortgage contract, deed of trust, real estate sales contract, or any note or negotiable instrument issued in connection therewith, when its purpose is to finance the purchase or construction of real property containing four or fewer residential units or on which four or fewer residential units are to be constructed.”
Excluded from this requirement are “supervised financial organizations,” which are defined as “a state or federally regulated bank, savings association, savings bank, or credit union, or state regulated industrial loan company, a licensed finance lender under the California Finance Lenders Law, a licensed residential mortgage lender under the California Residential Mortgage Lending Act, or holding company, affiliate, or subsidiary there, or Institution of the Farm Credit System, as specified in 12 U.S.C. Sec. 2002.” (Ibid. § 1916.5[d])
Because a supervised financial organization includes practically all lenders, the notice is not required to be provided for them. Nevertheless, it is possible that a licensee under the California Real Estate Law will need to provide this notice.
For this reason, we will now be providing a new “CA ARM Notice Addendum” (Cx17110) in Closing packages, which contains the prescribed notice, when a loan is a purchase and/or construction loan, and if the lender is a licensee under the Bureau of Real Estate in California.
We will also be printing this notice on the CA Deed of Trust (Cx312) and CA Deed of Trust FHA (Cx365) under the same conditions.
These changes will become available on September 17, 2013. If you have any questions or concerns about these changes please contact Client Support at 1.800.497.3584.
September 10, 2013