TITLE 14. LIEN
CHAPTER 2. MORTGAGE
Article 3. Disclosures on Purchase Money Liens on Residential
California Civil Code Section 2956-2967
2956. In a transaction for the purchase of a dwelling for not more
than four families in which there is an arranger of credit, which
purchase includes an extension of credit by the vendor, a written
disclosure with respect to that credit transaction shall be made, as
required by this article:
(a) To the purchaser, by the arranger of credit and the vendor
(with respect to information within the knowledge of the vendor).
(b) To the vendor, by the arranger of credit and the purchaser
(with respect to information within the knowledge of the purchaser).
If there is more than one arranger of credit and one of those
arrangers has obtained the offer by the purchaser to purchase the
property, that arranger shall make the disclosure, unless the parties
designate another person in writing.
2957. The following definitions shall apply for the purposes of
(a) "Arranger of credit" means:
(1) A person, other than a party to the credit transaction (except
as provided in paragraph (2)), who is involved in developing or
negotiating credit terms, participates in the completion of the
credit documents, and directly or indirectly receives compensation
for arrangement of the credit or from any transaction or transfer of
the real property which is facilitated by that extension of credit.
As used in this paragraph, "arranger of credit" does not apply to an
attorney who is representing one of the parties to the credit
(2) A party to the transaction who is either a real estate
licensee, licensed under provisions of Part 1 (commencing with
Section 10000) of Division 4 of the Business and Professions Code, or
is an attorney licensed under Chapter 4 (commencing with Section
6000) of Division 3 of the Business and Professions Code if neither
party to the transaction is represented by an agent who is a real
estate licensee. In any transaction in which disclosure is required
solely by the provisions of this paragraph, the obligations of this
article shall apply only to a real estate licensee or attorney who is
a party to the transaction, and not to any other party.
(3) An arranger of credit does not include a person acting in the
capacity as an escrow in the transaction.
(4) Persons described in paragraph (2) who are acting in the
capacity as an escrowholder in the transaction shall nevertheless be
deemed arrangers of credit where such persons act on behalf of a
party to the transaction or an agent of such party in the development
or negotiation of credit terms. Neither the completion of credit
documents in accordance with instructions of a party or his or her
agent nor the furnishing of information regarding credit terms to a
party or his or her agent shall be considered to be the development
or negotiation of credit terms.
(b) "Balloon payment note" means a note which provides for a final
payment as originally scheduled which is more than twice the amount
of any of the immediately preceding six regularly scheduled payments
or which contains a call provision; provided, however, that if the
call provision is not exercised by the holder of the note, the
existence of the unexercised call provision shall not cause the note
to be deemed to be a balloon payment note.
(c) "Call provision" means a note contract term that provides the
holder of the note with the right to call the note due and payable
either after a specified period has elapsed following closing or
after a specified date.
(d) "Credit" means the right granted by a vendor to a purchaser to
purchase property and to defer payment therefore.
The credit involved must be subject to a finance charge or payable
by written agreement in more than four installments, whether
providing for payment of principal and interest, or interest only,
not including a downpayment.
(e) "Credit documents" are those documents which contain the
binding credit terms, and include a note or a contract of sale if
the contract spells out terms upon which a vendor agrees to provide
financing for a purchaser.
(f) "Purchase" includes acquisition of equitable title by a real
property sales contract as defined in Section 2985, or lease with an
option to purchase, where the facts demonstrate intent to transfer
(g) "Security documents" include a mortgage, deed of trust, real
property sales contract as defined in Section 2985, or lease with an
option to purchase, where the facts demonstrate an intent to transfer
(h) "All inclusive trust deed" is an instrument which secures
indebtedness owed by the trustor to the beneficiary, which
indebtedness includes a debt or debts owed by that beneficiary to
the beneficiary of another security document secured by the same
property which is senior in priority.
2958. A disclosure is not required under this article, to a
purchaser when that purchaser is entitled to receive, a disclosure
pursuant to the Federal Truth-In-Lending Act (15 U.S. Code 1604, as
amended), the Real Estate Settlement Procedures Act (12 U.S. Code
2601, as amended), or Section 10240 of the Business and Professions
Code; or to a vendor if the vendor is entitled to receive, a
disclosure pursuant to Sections 10232.4 and 10232.5 of the Business
and Professions Code, or disclosure pursuant to a qualification under
Section 25110 of the Corporations Code or disclosure pursuant to
regulations of the Department of Corporations granting an exemption
from Section 25110 of the Corporations Code.
2959. The disclosures required by this article shall be made as
soon as practicable, but before execution of any note or security
documents. If any disclosure is made after the execution of credit
documents by the purchaser, such documents shall be contingent on the
purchaser's approval of the disclosures prior to execution of the
security documents. The disclosure statement shall be receipted for
by the purchaser and the vendor. The disclosure shall be signed by
the arranger of credit and a copy shall be delivered respectively to
the purchaser and the vendor and the arranger shall retain a true
copy of the executed statements for three years.
The provisions of this section do not apply to the disclosures
required by Section 2966.
2960. If information disclosed in accordance with this article is
subsequently rendered inaccurate as a result of any act, occurrence,
or agreement between the parties to the transaction subsequent to the
delivery of the required disclosures, the inaccuracy resulting
therefrom shall not constitute a violation of this article. If, at
the time disclosure is to be made, an item of information required
to be disclosed is unknown or not available to the vendor, purchaser,
or arranger of credit, and the arranger of credit has made a
reasonable effort to ascertain it, the disclosure may employ an
approximation of the information, provided the approximation is
clearly identified as such, is reasonable, is based on the best
information available to the arranger, and is not used for the
purpose of circumventing or evading the provisions of this article.
2961. Every disclosure required by this article and every act which
is to be performed in making that disclosure shall be made in good
faith. For the purposes of this article, "good faith" means honesty
in fact in the conduct of the transaction.
2962. Any disclosure made pursuant to this article may be amended
in writing by the person making the disclosure, provided that any
amendment shall be subject to the provisions of Section 2959.
2963. The disclosures required to both purchaser and vendor by this
(a) An identification of the note or other credit documents or
security documents and of the property which is the security for the
(b) A description of the terms of the promissory note or other
credit documents or a copy of the note or other credit documents.
(c) Insofar as available, the principal terms and conditions of
each recorded encumbrance which constitutes a lien upon the property
which is or will be senior to the financing being arranged,
including the original balance, the current balance, the periodic
payment, any balloon payment, the interest rate (and any provisions
with respect to variations in the interest rate), the maturity date,
and whether or not there is any current default in payment on that
(d) A warning that, if refinancing would be required as a result
of lack of full amortization under the terms of any existing or
proposed loans, such refinancing might be difficult or impossible in
the conventional mortgage marketplace.
(e) If negative amortization is possible as a result of any
variable or adjustable rate financing being arranged, a clear
disclosure of this fact and an explanation of its potential effect.
(f) In the event that the financing involves an all inclusive
trust deed, the disclosure shall indicate whether the credit or
security documents specify who is liable for payment or responsible
for defense in the case of an attempted acceleration by a lender or
other obligee under a prior encumbrance, and whether or not the
credit or security documents specify the responsibilities and rights
of the parties in the event of a loan prepayment respecting a prior
encumbrance which may result in a requirement for refinancing, a
prepayment penalty, or a prepayment discount and, if such
specification occurs, a recital of the provisions which apply.
(g) If the financing being arranged or any of the financing
represented by a prior encumbrance could result in a balloon payment,
or in a right in the lender or other obligee under such financing
to require a prepayment of the principal balance at or after a
stipulated date, or upon the occurrence of a stipulated event, a
disclosure of the date and amount of any balloon payment or the
amount which would be due upon the exercise of such right by the
lender or obligee, and a statement that there is no assurance that
new financing or loan extension will be available at the time of such
(h) If the financing being arranged involves an all inclusive
trust deed or real property sales contract, a disclosure of the party
to whom payments will be made and who will be responsible for
remitting these funds to payees under prior encumbrances and vendors
under this transaction and a warning that, if that person is not a
neutral third party, the parties may wish to agree to have a neutral
third party designated for these purposes.
(i) A disclosure on the identity, occupation, employment, income,
and credit data about the prospective purchaser, as represented to
the arranger by the prospective purchaser; or, specifically, that no
representation as to the credit-worthiness of the specific
prospective purchaser is made by the arranger. A warning should also
be expressed that Section 580b of the Code of Civil Procedure may
limit any recovery by the vendor to the net proceeds of the sale of
the security property in the event of foreclosure.
(j) A statement that loss payee clauses have been added to
property insurance protecting the vendor, or that instructions have
been or will be directed to the escrowholder, if any, in the
transaction or the appropriate insurance carriers for addition of
such loss payee clauses, or a statement that, if such provisions have
not been made, that the vendor should consider protecting himself or
herself by securing such clauses.
(k) A statement that a request for notice of default under Section
2924b has been recorded, or that, if it has not been recorded, the
vendor should consider recording a request for notice of default.
(l) That a policy of title insurance has been obtained or will be
obtained and be furnished to the vendor and purchaser, insuring the
respective interests of the vendor and purchaser, or that the vendor
and purchaser individually should consider obtaining a policy of
(m) That a tax service has been arranged to report to the vendor
whether property taxes have been paid on the property, and who will
be responsible for the continued retention and compensation of tax
service; or that the vendor should otherwise assure for himself or
herself that the taxes on the property have been paid.
(n) A disclosure whether the security documents on the financing
being arranged have been or will be recorded pursuant to Section
27280 of the Government Code, or a statement that the security of the
vendor may be subject to intervening liens or judgments which may
occur after the note is executed and before any resort to security
occurs if the security documents are not recorded.
(o) If the purchaser is to receive any cash from the proceeds of
the transaction, a statement of that fact, the amount, the source of
the funds, and the purpose of the disbursement as represented by the
(p) A statement that a request for notice of delinquency under
Section 2924e has been made, or that, if it has not been made, the
vendor should consider making a request for a notice of delinquency.
2964. The specification of items for disclosure in this article
does not limit or abridge any obligation for disclosure created by
any other provision of law or which may exist in order to avoid
fraud, misrepresentation, or deceit in the transaction.
2965. The validity of any credit document or of any security
document subject to the provisions of this article shall not be
invalidated solely because of the failure of any person to comply
with this article. However, any person who willfully violates any
provision of this article shall be liable in the amount of actual
damages suffered by the vendor or purchaser as the proximate result
of the violation.
No person may be held liable in any action under this article if
it is shown by a preponderance of the evidence that the violation was
not intentional and resulted from a bona fide error notwithstanding
the maintenance of procedures reasonably adopted to avoid any such
2966. (a) In a transaction regulated by this article, which
includes a balloon payment note when the term for repayment is for a
period in excess of one year, the holder of the note shall, not less
than 90 nor more than 150 days before the balloon payment is due,
deliver or mail by first-class mail, with a certificate of mailing
obtained from the United States Postal Service, to the trustor, or
his or her successor in interest, at the last known address of such
person a written notice, to include:
(1) A statement of the name and address of the person to whom the
balloon payment is required to be paid.
(2) The date on or before which the balloon payment was or is
required to be paid.
(3) The amount of the balloon payment, or if its exact amount is
unknown a good faith estimate of the amount thereof, including unpaid
principal, interest, and any other charges (assuming payment in full
of all scheduled installments coming due between the date of the
notice and the date when the balloon payment is due).
(4) A description of the trustor's right, if any, to refinance the
balloon payment, including a summary of the actual terms of the
refinancing or an estimate or approximation thereof, to the extent
If the due date of the balloon payment of a note subject to this
subdivision is extended prior to the time notice is otherwise
required under this subdivision, this notice requirement shall apply
only to the due date as extended (or as subsequently extended).
(b) Failure to provide notice as required by subdivision (a) does
not extinguish any obligation of payment by the trustor, except that
the due date for any balloon payment shall be the date specified in
the note, or 90 days from the date the delivery or mailing of the
notice, or the date specified in the notice, whichever date is later.
If the operation of this section acts to extend the term of any
such note, interest shall continue to accrue for the extended term at
the contract rate and payments shall continue to be due at any
periodic interval and on any scheduled payment schedule specified in
the note and shall be credited to principal or interest under terms
of the note. Default in any extended periodic payment shall be
considered a default under terms of the note or security instrument.
(c) Any failure to comply with the provisions of this section
shall not affect the validity of a sale in favor of a bona fide
purchaser or the rights of an encumbrancer for value and without
(d) Every note subject to the provisions of this section shall
include the following statement:
"This note is subject to Section 2966 of the Civil Code, which
provides that the holder of this note shall give written notice to
the trustor, or his successor in interest, of prescribed information
at least 90 and not more than 150 days before any balloon payment is
Failure to include this notice shall not invalidate the note.
(e) The provisions of this section shall apply to any note
executed on or after July 1, 1983.
2967. Any action arising under this article may be brought within
two years from the date on which the liability arises, except that
where any material disclosure under this article has been materially
and willfully misrepresented, the action may be brought within two
years of discovery of the misrepresentation.
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