b'Consumer Laws / Business Loans continued from page 10make business purpose loans secured bya practice of overcharging per diem, orcovered on a state level as well.A similar a borrowers residence, a lender may notmaking sure they only do so when theanalysis with regards to ensuring accidental enforce a prepayment penalty equal toproperty securing the loan is a commercialdiscrimination would apply here as well, as greater than six months advance interest.or multifamily property. post-audits of loan files and applications This is meant to protect homeowners fromwill be helpful to make sure a lenders aggressive prepayment penalties and to3.hazard insurancepractices are above board.allow the ability to easily refinance loansrequirementssecured by a borrowers residence. B. California Laws Applicable Most states include a restriction on hazardto Loans Arranged by DRE 2.per diem interestinsurance and California is no exception.Licensed Brokersrestrictions Per California Civil Code, no lender shall require a borrower, as a condition ofIn addition to the various CA regulations Another restriction which applies whenreceiving or maintaining a loan securedabove that apply to all lenders in California, the property securing a loan is a 1-4 familyby real property, to provide hazardthere are several regulations which apply residence is a restriction on when per dieminsurance coverage against risks to thespecifically to loans that are brokered by a interest can start to accrue.Often times,improvements on that real property in anCalifornia DRE licensed broker.Of course, lenders will send loan proceeds into anamount exceeding the replacement valuerelevant loans disclosures like the MLDS, escrow a few days before the loan closesof the improvements on the property.35LPDS, and other investor disclosures will and funds to the borrower.For commercialIn other words, a lender can only requireapply on all transactions.In addition to and multifamily properties, the lenderhazard insurance in an amount equal to thethose, the following are several regulations could start charging per diem interest asreplacement costs of the improvementswhich additionally apply to business soon as they send proceeds to the escrowat the property.Sometimes lenderspurpose loans arranged by a licensed company.For loans secured by 1-4 familywill push back on this, stating that theCalifornia broker.residences, the lender may not charge perloan amount is greater than the hazard diem interest until the day before the loaninsurance coverage available.The purpose 34 1. late chargesfunds to the borrower. of this kind of insurance is to be able to replace any structures at the property inA loan arranged by a licensed broker must The statute allows for additional per diemthe event of a total or partial loss to theinclude a minimum 10 day grace period interest to be charged in very limitedstructure.The land and its value will remain,for payment of monthly installment circumstances.In particular, the borrowerwhich is oftentimes why the amount ofpayments.37In addition, when assessing must have requested the loan fund onhazard insurance coverage may not fullya late charge, the charge is capped at the a day following a weekend or a holiday,align with your valuation of the property.greater of 10% of the installment owed, requiring the lender to have funded theA recommendation here would be toor $5.00.38Often times lenders will ask escrow several days before.In this case,determine both the value of the propertywhether they can charge a late charge on a there is a mandatory document to provideas a whole as well as the specific value oflate balloon payment.California prohibits to the borrower which demonstrates thethe structures to confirm you have hazarda late charge from being charged on a borrower requesting funding on a dateinsurance in the proper amount. balloon payment, so while a lender could certain.Some loan document packages willcharge a late charge on any additional include this form as a boilerplate document4. fair lending installment payment that was due on the included on every loan transaction.This ismaturity date, the lender could not apply NOT recommended practice, and insteadSimilar to the federal Fair Housing Act andthat late charge on to the remainder of should only be provided to the borrowerthe anti-discrimination section of ECOAthe principal balance that is due.The for completion if it is actually relevant indiscussed above, California like many statesreasoning behind this is that late charges the loan transaction at hand. also has anti-discriminatory legislationmust be reasonably related to the harm in place.Specifically, lenders may notcaused to the lender for having to manage The DBO in particular has issued variousdiscriminate based on geographic orthe late charge.This would typically guidance on this issue in the form ofneighborhood conditions or characteristicsinclude mailing notices, preparing demand educational materials and advisoryor based on an applicants race, color,letters, and other means of contacting the opinions.This is often times the subjectreligion, sec, marital status, domesticborrower to remind them to make their of many audits and when an auditor haspartnership, national origin, or ancestry.36payments, all of which are likely reimbursed determined that a lender has overchargedThis applies particularly to loans securedby the 10% fee on the installment payment. per diem they must review all loan files andby 1-4 family properties.That being said,When a maturity date payment comes due reimburse their borrowers accordingly.Itif lenders are careful to make sure they is recommended that lenders do not makecomply with federal standards, they will becontinued on page 12Points of InterestFall 2019Page 11'