Code Section Group

Health and Safety Code - HSC

DIVISION 107. STATEWIDE HEALTH PLANNING AND DEVELOPMENT [127000 - 130070]

  ( Division 107 added by Stats. 1995, Ch. 415, Sec. 9. )

PART 6. FACILITIES LOAN INSURANCE AND FINANCING [129000 - 129590]

  ( Part 6 added by Stats. 1995, Ch. 415, Sec. 9. )

CHAPTER 1. Health Facility Construction Loan Insurance [129000 - 129355]

  ( Chapter 1 added by Stats. 1995, Ch. 415, Sec. 9. )

ARTICLE 3. Defaults [129125 - 129174.1]
  ( Article 3 added by Stats. 1995, Ch. 415, Sec. 9. )

129125.
  

In any case when the lender under a loan to a nonprofit corporation insured under this chapter shall have foreclosed and taken possession of the property under a mortgage in accordance with regulations of, and within a period to be determined by the office, or shall, with the consent of the office, have otherwise acquired the property from the borrower after default, the lender shall be entitled to receive the benefit of the insurance as provided in this section, upon (a) the prompt conveyance to the office of title to the property that meets the requirements of the regulations of the office in force at the time the loan was insured, and that is evidenced in the manner prescribed by the regulations, and (b) the assignment to the office of all claims of the lender against the borrower or others arising out of the loan transaction or foreclosure proceedings except claims that may have been released with the consent of the office. Upon the conveyance and assignment, the office shall notify the Treasurer, who shall issue to the lender debentures having a total face value equal to the outstanding value of the loan.

For the purposes of this section, the outstanding value of the loan shall be determined, in accordance with the regulations prescribed by the office, by (a) adding to the amounts of the original principal obligation of the loan and interest that are accrued and unpaid the amount of all payments that have been made by the lender for the following: taxes and assessments, ground rents, water rates, and other liens that are prior to the mortgage; charges for the administration, operation, maintenance and repair of the health facility property; insurance on the project property, loan insurance premiums, and any tax imposed by a city or county upon any deed or other instrument by which the property was acquired by the lender and transferred or conveyed to the office; and the costs of foreclosure or of acquiring the property by other means actually paid by the lender and approved by the office; and by (b) deducting from the total amount any amounts received by the lender after the borrower’s default on account of the loans or as rent or other income from the property.

(Added by Stats. 1995, Ch. 415, Sec. 9. Effective January 1, 1996.)

129130.
  

In any case when a political subdivision defaults on the payment of interest or principal accrued and due on bonds or other evidences of indebtedness insured under this chapter, debentures in an amount equal to the outstanding original principal obligation and interest on the bonds that were accrued and unpaid on the date of default and bearing interest at a rate equal to and payment schedule identical with those of the bonds shall be issued by the Treasurer upon notification thereof by the office to the bondholders upon the surrender of the bonds to the office.

In any case in which a hospital district defaults on the payment of interest or principal accrued and due on an insured loan secured by a first mortgage, first deed of trust, or other security agreement as authorized by Section 32127.2, debentures in an amount equal to the outstanding original principal obligation and interest on the bonds that were accrued and unpaid on the date of default and bearing interest at a rate equal to and payment schedule identical with those of the bonds shall be issued by the Treasurer upon notification thereof by the office to the bondholders upon surrender of the bonds to the office after the state has enforced its rights under the first mortgage, first deed of trust, or other security agreement.

(Added by Stats. 1995, Ch. 415, Sec. 9. Effective January 1, 1996.)

129135.
  

Notwithstanding any requirement contained in this chapter relating to acquisition of title and possession of the project property by the lender and its subsequent conveyance and transfer to the office, and for the purpose of avoiding unnecessary conveyance expense in connection with payment of insurance benefits under the provisions of this chapter, the office may, subject to regulations that it may prescribe, permit the lender to tender to the office a satisfactory conveyance of title and transfer of possession direct from the borrower or other appropriate grantor and to pay to the lender the insurance benefits to which it would otherwise be entitled if the conveyance had been made to the lender and from the lender to the office.

(Added by Stats. 1995, Ch. 415, Sec. 9. Effective January 1, 1996.)

129140.
  

Upon receiving notice of the default of any loan insured under this chapter, the office, in its discretion and for the purpose of avoiding foreclosure under Section 129125 and notwithstanding the fact that it has previously approved a request of the lender for extensions of the time for curing the default and of the time for commencing foreclosure proceedings or for otherwise acquiring title to the project property, or has approved a modification of the loan for the purpose of changing the amortization provisions by recasting the unpaid balance, may acquire the loan and security agreements securing the loans upon the issuance to the lender of debentures in an amount equal to the unpaid principal balance of the loan plus any accrued unpaid loan interest plus reimbursement for the costs and attorney’s fees of the lender enumerated in Section 129125.

After the acquisition of the loan and security interests therefor by the office, the lender shall have no further rights, liabilities, or obligations with respect thereto. The provisions of Section 129125 relating to the issuance of debentures incident to the acquisition of foreclosed properties shall apply with respect to debentures issued under this section, and the provisions of this chapter relating to the rights, liabilities, and obligations of a lender shall apply with respect to the office when it has acquired an insured loan under this section, in accordance with and subject to any regulations prescribed by the office modifying the provisions to the extent necessary to render their application for these purposes appropriate and effective.

(Added by Stats. 1995, Ch. 415, Sec. 9. Effective January 1, 1996.)

129145.
  

Notwithstanding any other provision of this chapter, after the office determines that the lender and borrower have exhausted all reasonable means of curing any default, the office within its discretion may, when it is in the best interests of the state, the borrower, and the lender, cure the default of the borrower by making payment from the fund directly to the lender of any amounts of the original principal obligation and interest of the loan that are accrued and unpaid. The payment shall be secured by an assignment to the office of a pro rata share of the security agreements made to the lender and, upon the payment, the borrower shall become liable for repayment of the amount thereof to the office over a period and at a rate of interest as shall be determined by the office.

(Added by Stats. 1995, Ch. 415, Sec. 9. Effective January 1, 1996.)

129150.
  

The office may at any time, under the terms and conditions that it may prescribe, consent to the lender’s release of the borrower from its liability under the loan or the security agreement securing the loan, or consent to the release of parts of the project property from the lien of any security agreement.

(Added by Stats. 1995, Ch. 415, Sec. 9. Effective January 1, 1996.)

129152.
  

If a borrower fails to submit a required report, or upon any other default of any regulatory or contractual term or covenant, whether or not a default has been declared, the office first shall informally communicate with the borrower. If the borrower fails to submit the required report or otherwise cure the default, the office shall issue a formal demand in writing stating the nature of the default and requiring the borrower to submit a detailed plan of correction that is acceptable to the office. If the borrower fails to either submit a plan, or timely cure the default, the office shall perform an onsite visit. If the office determines the borrower is not making sufficient progress in submitting any required reports or otherwise curing any default, the office may require the borrower, at the borrower’s expense, to employ an independent consultant or professional, acceptable to the office, to conduct a program audit. If the borrower fails to adopt the recommendations of the independent consultant or professional made in the program audit, or if the borrower fails to otherwise timely cure the default, the office shall have all the remedies set forth in the Section 129173.

(Added by Stats. 1999, Ch. 848, Sec. 19. Effective January 1, 2000.)

129155.
  

Debentures issued under this chapter shall be in the form and denomination, subject to the terms and conditions, and include provisions for redemption, if any, as may be prescribed by the office with the approval of the Treasurer, and may be in coupon or registered form.

(Added by Stats. 1995, Ch. 415, Sec. 9. Effective January 1, 1996.)

129160.
  

(a)  (1) All debentures issued under this chapter to any lender or bondholder shall be executed in the name of the fund as obligor, shall be signed by the Treasurer, and shall be negotiable. Pursuant to Sections 129125 and 129130, all debentures shall be dated as of the date of the institution of foreclosure proceedings or as of the date of the acquisition of the property after default by other than foreclosure, or as of another date as the office, in its discretion, may establish.

(2) The debentures shall bear interest from that date at a rate equal to the insured loan or bonds, and shall be payable on a payment schedule identical with payments on the insured loan or bonds. The Treasurer shall take appropriate steps to the extent feasible to provide that interest on the debentures is exempt from federal income taxation under Section 103 of the Internal Revenue Code to the extent interest on the insured loan or bonds is exempt from federal income taxation under Section 103 of the Internal Revenue Code on the date the insured loan or bonds is exchanged for debentures. All debentures shall be exempt, both as to principal and interest, from all taxation now or hereafter imposed by the state or local taxing agencies, shall be paid out of the fund, which shall be primarily liable therefor, and shall be, pursuant to Section 4 of Article XVI of the California Constitution, fully and unconditionally guaranteed as to principal and interest by the State of California, which guaranty shall be expressed on the face of the debentures.

(3) If the fund fails to pay upon demand, when due, the principal of, or interest on, any debentures issued under this chapter, the Treasurer shall pay to the holders the amount thereof, which amount, notwithstanding Section 13340 of the Government Code, is hereby continuously appropriated from the General Fund, without regard to fiscal years, and thereupon to the extent of the amount so paid the Treasurer shall succeed to all the rights of the holders of the debentures. The fund shall be liable for repayment to the General Fund of any money paid from the General Fund pursuant to this section in accordance with procedures jointly established by the Treasurer and the office.

(b)  Any debenture issued under this article shall be paid on a par with general obligation bonds issued by the state.

(Amended by Stats. 2016, Ch. 86, Sec. 200. (SB 1171) Effective January 1, 2017.)

129165.
  

Notwithstanding any other provision of law relating to the acquisition, management or disposal of real property by the state, the office shall have power to deal with, operate, complete, lease, rent, renovate, modernize, insure, or sell for cash or credit, in its discretion, any properties conveyed to it in exchange for debentures as provided in this chapter; and notwithstanding any other provision of law, the office shall also have power to pursue to final collection by way of compromise or otherwise all claims against borrowers assigned by lenders to the office as provided in this chapter. All income from the operation, rental, or lease of the property and all proceeds from the sale thereof shall be deposited in the fund and all costs incurred by the office in its exercise of powers granted in this section shall be met by the fund.

The power to convey and to execute in the name of the office deeds of conveyance, deeds of release, assignments and satisfactions of loans and mortgages, and any other written instrument relating to real or personal property or any interest therein acquired by the office pursuant to the provisions of this chapter may be exercised by the office or by any officer of the office appointed by it.

(Added by Stats. 1995, Ch. 415, Sec. 9. Effective January 1, 1996.)

129170.
  

No lender or borrower shall have any right or interest in any property conveyed to the office or in any claim assigned to it, nor shall the office owe any duty to any lender or borrower with respect to the management or disposal of this property.

(Added by Stats. 1995, Ch. 415, Sec. 9. Effective January 1, 1996.)

129172.
  

Notwithstanding any other provision of law, if, prior to foreclosing on any collateral provided by a borrower, the office institutes a judicial proceeding or takes any action against a borrower to enforce compliance with the obligations set out in the regulatory agreement, the contract of insurance, or any other contractual loan closing document or law, including, but not limited to, Section 129173, that remedy or action shall not constitute an action within the meaning of subdivision (a) of Section 726 of the Code of Civil Procedure, or in any way constitute a violation of the intent or purposes of Section 726 of the Code of Civil Procedure, or constitute a money judgment or a deficiency judgment within the meaning of Sections 580a, 580b, 580d, or subdivision (b) of Section 726 of the Code of Civil Procedure. However, these provisions of the Code of Civil Procedure shall apply to any judicial proceeding instituted, or nonjudicial foreclosure action taken by the office to collect the principal and interest due on the loan with the borrower.

(Added by Stats. 1995, Ch. 415, Sec. 9. Effective January 1, 1996.)

129173.
  

(a)  In fulfilling the purposes of this article, as set forth in Section 129005, and upon making a determination that the financial status of a borrower may jeopardize a borrower’s ability to fulfill its obligations under any insured loan transaction so as to threaten the economic interest of the office in the borrower or to jeopardize the borrower’s ability to continue to provide needed health care services in its community, including, but not limited to, a declaration of default under any contract related to the transaction, the borrower missing any payment to its lender, or the borrower’s accounts payable exceeding three months, the office may assume or direct managerial or financial control of the borrower in any or all of the following ways:

(1)  The office may supervise and prescribe the activities of the borrower in the manner and under the terms and conditions as the office may stipulate in any contract with the borrower.

(2)  Notwithstanding the provisions of the articles of incorporation or other documents of organization of a nonprofit corporation borrower, this control may be exercised through the removal and appointment by the office of members of the governing body of the borrower sufficient so that the new members constitute a voting majority of the governing body.

(3)  In the event the borrower is a nonprofit corporation or a political subdivision, the office may request the Secretary of the California Health and Human Services Agency to appoint a trustee. The trustee shall have full and complete authority of the borrower over the insured project, including all property on which the office holds a security interest. No trustee shall be appointed unless approved by the office. A trustee appointed by the secretary pursuant to this subdivision may exercise all the powers of the officers and directors of the borrower, including the filing of a petition for bankruptcy. No action at law or in equity may be maintained by any party against the office or a trustee by reason of their exercising the powers of the officers and directors of a borrower pursuant to the direction of, or with the approval of, the secretary.

(4)  The office may institute any action or proceeding, or the office may request the Attorney General to institute any action or proceeding against any borrower, to obtain injunctive or other equitable relief, including the appointment of a receiver for the borrower or the borrower’s assets, in the superior court in and for the county in which the assets or a substantial portion of the assets are located. The proceeding under this section for injunctive relief shall conform with the requirements of Chapter 3 (commencing with Section 525) of Title 7 of Part 2 of the Code of Civil Procedure, except that the office shall not be required to allege facts necessary to show lack of adequate remedy at law, or to show irreparable loss or damage. Injunctive relief may compel the borrower, its officers, agents, or employees to perform each and every provision contained in any regulatory agreement, contract of insurance, or any other loan closing document to which the borrower is a party, or any obligation imposed on the borrower by law, and require the carrying out of any and all covenants and agreements and the fulfillment of all duties imposed on the borrower by law or those documents.

A receiver may be appointed pursuant to Chapter 5 (commencing with Section 564) of Title 7 of Part 2 of the Code of Civil Procedure. In cooperation with the Attorney General, the office shall develop and maintain a list of receivers who have demonstrated experience both in the health care field and as a receiver. Upon a proper showing, the court shall grant the relief provided by law and requested by the office or the Attorney General. No receiver shall be appointed unless approved by the office. The office shall establish reporting requirements for receivers to ensure that the office is fully apprised of all costs incurred and progress made by the receiver. A receiver appointed by the superior court pursuant to this subdivision and Section 564 of the Code of Civil Procedure may, with the approval of the court, exercise all of the powers of the officers and directors of the borrower, including the filing of a petition for bankruptcy. No action at law or in equity may be maintained by any party against the office, the Attorney General, or a receiver by reason of their exercising the powers of the officers and directors of a borrower pursuant to the order of, or with the approval of, the superior court.

(5)  The borrower shall inform the office in advance of all meetings of its governing body. The borrower shall not exclude the office from attending any meeting of the borrower’s governing body.

(b)  Other than the loan insured under this chapter, the office shall not be liable for any debt of a borrower, or to a borrower, as a result of the office asserting its legal remedies against a borrower insured under this chapter.

(c)  It is the intent of the Legislature that this section is remedial in nature, and is applicable retroactively to any health facility construction loans in existence at the time of its enactment, to the extent that the application of this section does not unlawfully impair existing contract rights.

(Amended by Stats. 1999, Ch. 848, Sec. 20. Effective January 1, 2000.)

129174.
  

(a)  In the event a borrower has defaulted in making its payments on the loan insured by the office to the lender or the borrower’s bond trustee, at any time thereafter, the office may do any of the following:

(1)  Decease a portion or all of the bonds or may purchase a portion or all of the bonds at a private or public sale or on the open market. For this purpose, the office may use any funds available, including, but not limited to, funds in the Health Facility Construction Loan Insurance Fund, funds that the office may receive either from settlement or recoveries from lawsuits, funds from the sale of assets of the borrower, or funds held by the borrower’s bond trustee. If requested by the office, the Treasurer shall purchase the bonds on behalf of the office. Upon the purchase of any bonds under this section, the office shall direct the borrower’s bond trustee to cancel the bonds purchased.

(2)  Issue bonds used for the sole purpose of refunding any part or all of the defaulted bonds, provided that, in the opinion of the office, there are adequate present value savings to refund all or part of the defaulted bonds. If requested by the office, the Treasurer shall act as the issuer for this purpose.

(3)  Require the lender or borrower’s bond trustee to accelerate the borrower’s debt and the maturity dates of the bonds, if any. If the bond trustee accelerates the bond debt and maturity dates, the office shall pay from the fund to the lender or borrower’s bond trustee the full amount of the remaining principal of the loan, any interest accrued and unpaid on this amount, and any costs enumerated in Section 129125.

(b)  For the purposes of this section, “bonds” mean bonds, certificate of participation, notes, or other evidence of indebtedness of a loan insured by the office.

(Amended by Stats. 2002, Ch. 351, Sec. 6. Effective January 1, 2003.)

129174.1.
  

In the event an obligor on a loan insured by the office is the subject of an order for relief in bankruptcy and that a plan has been proposed for confirmation, upon a certification by the office that the insurance is in place and would be in place if the plan were confirmed, then the office shall have the right to vote whether to accept or reject the plan on behalf of the holders of the loan insured by the office.

(Amended by Stats. 2009, Ch. 500, Sec. 50. (AB 1059) Effective January 1, 2010.)

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