Section 5285 - Demand Procedures(a) The lender shall be authorized to make a demand upon the corporation executing the guarantee for repayment of the unpaid loan principal and interest pursuant to the terms of the guarantee, upon compliance with the following: (1) Providing proof to the corporation that the borrower is in default and lender has delivered to both the borrower and the corporation a minimum of two letters subsequent to the delinquency, at least thirty (30) days apart, explaining the consequences for failure to remedy the delinquency. This requirement shall not apply if borrower is in bankruptcy.(2) If the guarantee is a collection guarantee, providing proof that the lender has complied with the liquidation requirements of section 5286.(b) The lender shall deliver to the corporation executing the guarantee a demand letter requesting immediate payment of the guaranteed portion of loan interest and principal, and documenting compliance with subsection (a).(c) Within five (5) days of receipt of the demand letter, the corporation shall contract with the California Department of Financial Institutions or an independent auditor to conduct an investigation to determine whether the lender has complied with the terms of the guarantee, and to issue a report to both the corporation and the agency. The investigation shall address each of the following issues: (1) Whether the loan agreement between the borrower and lender is consistent with the terms and conditions in the guarantee.(2) Whether all collateral for the loan and guarantee been perfected and maintained. Whether all collateral available for assignment to the corporation in the event that payment is made upon the demand. Whether any collateral is not available as a result of lender's negligence, breach of contract, foreclosure or other cause, and a description of any such collateral.(3) If the guarantee is a collection guarantee, whether the lender complied with the liquidation procedures of section 5286.(4) Calculation on the outstanding principal and interest owed.(5) Whether the lender complied with the procedures for making a demand under section 5285(b).(6) In a section entitled "Loan Information" the report shall include the following information obtained solely from a review of lender files: a description of the borrower's business, a description of the collateral for the loan, and a discussion as to whether the lender files contain any reference to matters material to borrower's compliance with any environmental laws or regulations. The description of collateral shall identify all real property collateral as one or more of the following: industrial, commercial, agricultural, single family residence, multi-unit residential, vacant lot, or unknown.(d) Within five (5) days of receiving the California Department of Financial Institutions or auditor's report, the corporation shall do one of the following: (1) Deliver to the agency a request for payment on the demand, along with: A copy of the report described in subsection (c); the demand; and a calculation of the amount owed pursuant to the guarantee; or,(2) Deliver to the lender, with a copy simultaneously delivered to the agency, a refusal to make payment pursuant to the demand, and detailing the reasons for refusal.(e) Within ten (10) calendar days from the date the agency receives the request for payment, the agency shall do one of the following and simultaneously inform the lender of such action:(1) Deliver or cause to be delivered to the corporation a check in an amount not to exceed the amount contained in the demand letter, made payable to the lender; or,(2) Deliver or cause to be delivered a denial of the request for payment to the corporation based upon fraud or gross negligence on the part of the lender known to the agency.(3) Deliver or cause to be delivered to the corporation a statement that the investigation was incomplete, and requiring the corporation to complete the investigation and resubmit the request for payment to the agency within five (5) calendar days from the date the statement is received by the corporation.(f) The amount paid to the lender pursuant to a demand letter shall be less than the amount contained in the demand letter only under the following circumstances:(1) The demand contains an incorrect calculation of the amount owing;(2) The amount owing on the loan has been reduced by subsequent payments from the borrower to the lender; or(3) The lender has engaged in fraudulent activities pertaining to the loan.(g) Within one working day of receiving the check from the agency, the corporation shall contact the lender and arrange to deliver the check to the lender. The corporation shall deliver the check and simultaneously collect an assignment by the lender of the lender's interest in the loan. The assignment shall include the loan note and all collateral, except as provided in section 5286.(h) Demand must be made upon the corporation no later than noon on the thirty-first calendar day following the date on which the guarantee terminates; provided, however, that if the thirty-first day is not a day upon which the corporation is open for business, the last day for making a demand shall occur on the next succeeding day upon which the corporation is open for business.Cal. Code Regs. Tit. 10, § 5285
1. New section filed 7-26-2006 as an emergency; operative 7-26-2006 (Register 2006, No. 30). This regulatory action is deemed an emergency, was filed directly with the Secretary of State, and shall remain in effect until revised or repealed by the Business, Transportation and Housing Agency pursuant to Public Resources Code section 42106. Note: Authority cited: Section 42106, Public Resources Code. Reference: Sections 42101 and 42102.4, Public Resources Code.
1. New section filed 7-26-2006 as an emergency; operative 7-26-2006 (Register 2006, No. 30). This regulatory action is deemed an emergency, was filed directly with the Secretary of State, and shall remain in effect until revised or repealed by the Business, Transportation and Housing Agency pursuant to Public Resources Code section 42106.