Cal. Civ. Code § 1916.5(a) requires certain conditions to be made within a security instrument, or other evidence of a variable interest rate debt such as a promissory note, which is made by a lender “other than a supervised financial organization,” in order for the lender to collect a higher interest rate than the initial interest rate.
Among other provisions is the requirement for the following notice to print:
“NOTICE TO BORROWER: THIS DOCUMENT CONTAINS PROVISIONS FOR A VARIABLE INTEREST RATE.”
“Supervised financial organizations,” who are not required to provide this notice, include state or federally regulated banks, savings associations, savings banks, credit unions, state regulated industrial loan companies, licensed lenders under the California Finance Lenders Law, licensed lenders under the California Residential Mortgage Loan Act, holding companies, affiliates, or subsidiaries of these, or institutions of the Farm Credit System (see Ibid.§ 1916.5[d][1])
This practically excludes all entities which generate loans through our system, except lenders licensed under the Real Estate Law, which means that licensees under the RELsuch entities must have the foregoing notice on their security instruments and promissory notes.
This notice appears on our standard conventional and FHA California security instruments, as well as a special addendum to ARM notes (Cx17110). While we currently have this notice on our security instruments print when “CA License Type” (Field 51790) equals “CA Real Estate Law,” there are some clients who are not setting this field, which can result in the notice not printing for them when it should (thus legally preventing them from collecting a higher rate of interest than the initial one).
In order to prevent this, we will be configuring the notice on Cx312 and 365 to print when “California License Type” equals either “CA Real Estate Law” or “Not Selected.” Clients who would prefer to have this notice not print for them are encouraged to set Field 51790 to the licensing (or exempt) status that applies to them.
This change will take effect on March 3, 2014. If you have any questions or concerns, please contact Client Support at 1.800.497.3584.
February 22, 2014
DR 148603