California Code of Regulations
Title 10 - Investment
Chapter 3 - Commissioner of Financial Protection and Innovation
Subchapter 2 - Corporate Securities
Article 4 - Standards for the Exercise of the Commissioner's Authority
Subarticle 10 - Real Estate Programs
Conflicts of Interest and Investment Restrictions
Section 260.140.114.10 - Lending Practices

(a) On financing made available to the program by the sponsor, the sponsor may not receive interest and other financing charges or fees in excess of the amounts which would be charged by unrelated lending institutions on comparable loans for the same purpose in the same locality of the property. No prepayment charge or penalty shall be required by the sponsor on a loan to the program secured by either a first or a junior or all-inclusive trust deed, mortgage or encumbrance on the property, except to the extent that such prepayment charge or penalty is attributable to the underlying encumbrance. Except as permitted by subsection (b) of this section, the sponsor shall be prohibited from providing permanent financing for the program.

(b) The sponsor may provide permanent financing for the purchase of property by the program through use of an "all-inclusive" or "wrap around" note provided all of the following conditions are complied with:

(c) For purposes of this Section, the term "permanent financing" shall mean all indebtedness encumbering program properties or incurred by the program, the principal amount of which is scheduled to be paid over a period of not less than 48 months, and not more than 50 percent of the principal amount of which is scheduled to be paid during the first 24 months. Nothing in this definition shall be construed as prohibiting a bona-fide prepayment provision in the financing agreement.