After leaving residential mortgage lenders guessing for many years, the California Department of Business Oversight (“DBO”) finally provided the industry with some guidance on the documentation licensees may use to verify compliance with the state’s per diem statutes.

The California per diem statutes (Financial Code § 50204(o) and Civil Code § 2948.5) prohibit a lender from requiring a borrower to pay interest for more than one day prior to the disbursement of loan proceeds, subject to some limited exceptions.

In 2007, the DBO issued Release No. 58-FS (the “2007 Release”), which provided guidance on acceptable evidence of compliance with Financial Code § 50204(o):

  • A final, certified HUD-1 that reflects the disbursement date;
  • Written or electronic records of communications between the licensee and the settlement agent verifying the disbursement date of loan proceeds and identifying the name of the settlement agent providing the information and the electronic or business address used to contact the settlement agent; or
  • Contemporaneous written or electronic records of oral communications between the licensee and the settlement agent verifying the disbursement date of loan proceeds and identifying the name and telephone number of the settlement agent providing the information.

Of course, much has changed since 2007, including the enactment and implementation of TRID, which replaced the HUD-1 with the Closing Disclosure. Even greater changes have come from the DBO itself, via informal (and unpublicized) positions on what the DBO would accept. The DBO has taken a step to correct its sub rosa positions (including stealthy statements at industry conferences) by issuing Release No. 58-FS (Revised) (the “2017 Release”). That 2017 Release responded to requests from licensees to identify what “other” documents, records, information, data, or other forms of verification could show a licensee’s compliance with the per diem statutes, and to address the changes to federal law.

While the DBO will still accept the records of communications identified in the 2007 Release, the DBO will not accept a Closing Disclosure standing alone. The DBO explains that the disbursement date on the Closing Disclosure is an estimate and may not be accurate. Rather, the DBO will require corroborating evidence to establish the actual disbursement date, regardless of whether the lender or a settlement agent prepared the disclosure. For example, the DBO will accept a copy of the settlement agent’s disbursement ledger or wire transfer confirmation as corroborating evidence of the disbursement date, provided they identify that date for a majority of the loan proceeds. Also, if the settlement agent verifies the accuracy of the disbursement date on the Closing Disclosure or after the actual disbursement date, the DBO will accept the settlement agent’s verification as evidence of the disbursement date. However, if the DBO believes compliance is uncertain or unclear, the DBO might request additional evidence. Alternatively, the licensee may prepare a certification under Code of Civil Procedure section 2015.5.7.

Other “corroborating evidence” may include:

  • The disbursement date as set forth on an ALTA Settlement Statement used by title insurance and settlement companies (the “ALTA Statement”), provided: (i) a settlement agent prepared the ALTA Statement; (ii) the ALTA Statement identifies the date that it was prepared; (iii) the preparation date is not before the disbursement date; and (iv) the ALTA Statement identifies the settlement agent who prepared it. If the disbursement date is after the date of preparation of the ALTA Statement, additional evidence will be necessary to establish that the disbursement date on the ALTA Statement constitutes the actual date disbursement occurred.
  • A settlement or closing statement that is not an ALTA Statement (“Non-ALTA Statement”) prepared by a settlement agent, provided the form: (i) identifies the settlement agent as the preparer; (ii) identifies the date the Non-ALTA Statement was prepared; and (iii) identifies the actual disbursement date. Again, if the disbursement date is after the date of preparation of the Non-ALTA Statement, additional evidence will be necessary to establish that the disbursement date on the Non-ALTA Statement constitutes the actual date disbursement occurred.

While the 2017 Release still leaves some questions, it provides some welcome guidance for the industry.