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 › Miscellaneous Provisions › Section 260.140.118.1 - Deferred Payments

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
Deferred payments or similar arrangements on account of
						  the purchase price of program interests shall not be allowed except as set
						  forth below:
(a) Mandatory Deferred
						Payments may be allowed in the case of specified property programs to the
						extent such payments bear a reasonable and demonstrable relationship to the
						capital needs and objectives of the program as described in the presentation of
						the business development plan in the prospectus, but in any event such
						arrangements shall be subject to the following conditions:
(1) A minimum of 50% of the purchase price of
						the program interests must be paid by the investor at the time of sale, with
						the remainder to be paid within three years of the earlier of the completion of
						the offering or one year following the effective date of the offering or such
						shorter period as the Commissioner, under the circumstances, deems
						appropriate.
(2) Mandatory Deferred
						Payments shall be evidenced by a promissory note of the investor. Such notes
						shall be with recourse, shall not be negotiable and shall be assignable only
						subject to defenses of the maker. Such notes shall not contain a provision
						authorizing a confession of judgment. In any event, the notes shall provide for
						venue in the jurisdiction of the investor.
(3) The program shall not sell or assign the
						mandatory deferred payment notes at a discount.
(4) Selling commissions for program interests
						sold on a mandatory deferred payment basis are payable pro rata only as cash
						payments are made by the participant.
(5) In the event of default in the payment of
						Mandatory deferred payments by a participant, the participant's interest may be
						subject to a reasonable reduction as set forth in the prospectus and acceptable
						to the Commissioner. Responses to defaults should be designed to protect the
						capital requirements of the program and the best interests of the
						non-defaulting participants while being fair to the defaulting
						participant.
(6) The program may
						take a security interest in the participant's program interests in the amount
						of the unpaid portion of the note provided that proceedings to enforce the
						security interest may not be commenced earlier than 30 days after default and
						notice for intent to foreclose on the security interest. Security interests on
						program interests that have been fully paid shall be dissolved
						promptly.
(7) Unless mandatory
						deferred payments are guaranteed by the sponsor or by a surety bond or other
						arrangement satisfactory to the Commissioner, prior to the time the
						qualification becomes effective, the sponsor shall not be allowed to purchase
						program interests recovered as a result of defaults in mandatory deferred
						payments unless, after recovery, such program interests have first been offered
						to the non-defaulting participants.
(8) Any certificates evidencing program
						interests purchased or a mandatory deferred payment basis shall so
						indicate.
(9) Upon receipt of any
						request to assign or transfer program interests purchased on a mandatory
						deferred payment basis and having an unpaid balance, the sponsor, before the
						assignment or transfer, at its own cost, shall notify the proposed
						assignee/transferee of the material terms of the mandatory deferred payment
						obligation, including: the schedule of payments, the status of payments, the
						status of any encumbrance held by the program or the program interests; the
						terms of default, the consequences thereof, and the procedure for curing the
						default. In lieu of such notification the sponsor may accept a written
						statement containing such information and signed by the
						assignee/transferee.
(10) A default
						shall include the failure to make a scheduled payment on the mandatory deferred
						payment obligation within 30 days after its due date. A participant shall be
						allowed to cure a default and avoid any reduction in the participant's interest
						in the program if within a minimum of 30 days from default and notice thereof
						the participant makes the delinquent payment with interest at the rate set
						forth in the prospectus for curing defaults.
(11) Default provisions shall have the
						integrity of the program's capital as a priority. Depending on the
						circumstances, arrangements which may be appropriate include:
(A) a reduction in the participant's
						percentage interest in program revenues based on the ratio of the cost to the
						program of the unpaid mandatory deferred payment obligation to all capital
						contribution;
(B) a reallocation of
						the defaulting participant's revenues and application for such revenues to make
						up the cost to the program of the unpaid mandatory deferred payment
						obligations;
(C) a reallocation of
						the defaulting participant's right to receive revenues from the program to
						those non-defaulting participants who have voluntarily paid the defaulting
						participant's obligation until such time as such non-defaulting participants
						have recovered from this reallocation 200% of the proportionate amount of the
						defaulted payment which they forwarded;
(D) a forced sale of the program interest
						complying with applicable procedures for notice and sale;
(E) a delayed buy-out of the defaulting
						participant's interest; or
(F) a
						foreclosure of the security interest held by the program. "Cost to the program"
						shall be defined in the prospectus and may include the reasonable costs to the
						program of collecting unpaid installments, reselling the interests, and/or
						additional financing costs caused by the default.