CA Health & Safety Code Section 129050

A loan shall be eligible for insurance under this chapter if all of the following conditions are met:

(a)

The loan shall be secured by a first mortgage, first deed of trust, or other first priority lien on a fee interest of the borrower or by a leasehold interest of the borrower having a term of at least 20 years, including options to renew for that duration, longer than the term of the insured loan. The security for the loan shall be subject only to those conditions, covenants and restrictions, easements, taxes, and assessments of record approved by the office, and other liens securing debt insured under this chapter. The office may require additional agreements in security of the loan.

(b)

The borrower obtains an American Land Title Association title insurance policy with the office designated as beneficiary, with liability equal to the amount of the loan insured under this chapter, and with additional endorsements that the office may reasonably require.

(c)

The proceeds of the loan shall be used exclusively for the construction, improvement, or expansion of the health facility, as approved by the office under Section 129020. However, loans insured pursuant to this chapter may include loans to refinance another prior loan, whether or not state insured and without regard to the date of the prior loan, if the office determines that the amount refinanced does not exceed 90 percent of the original total construction costs and is otherwise eligible for insurance under this chapter. The office may not insure a loan for a health facility that the office determines is not needed pursuant to subdivision (k).

(d)

The loan shall have a maturity date not exceeding 30 years from the date of the beginning of amortization of the loan, except as authorized by subdivision (e), or 75 percent of the office’s estimate of the economic life of the health facility, whichever is the lesser.

(e)

The loan shall contain complete amortization provisions requiring periodic payments by the borrower not in excess of its reasonable ability to pay as determined by the office. The office shall permit a reasonable period of time during which the first payment to amortization may be waived on agreement by the lender and borrower. The office may, however, waive the amortization requirements of this subdivision and of subdivision (g) of this section when a term loan would be in the borrower’s best interest.

(f)

The loan shall bear interest on the amount of the principal obligation outstanding at any time at a rate, as negotiated by the borrower and lender, as the office finds necessary to meet the loan money market. As used in this chapter, “interest” does not include premium charges for insurance and service charges if any. Where a loan is evidenced by a bond issue of a political subdivision, the interest thereon may be at any rate the bonds may legally bear.

(g)

The loan shall provide for the application of the borrower’s periodic payments to amortization of the principal of the loan.

(h)

The loan shall contain those terms and provisions with respect to insurance, repairs, alterations, payment of taxes and assessments, foreclosure proceedings, anticipation of maturity, additional and secondary liens, and other matters the office may in its discretion prescribe.

(i)

The loan shall have a principal obligation not in excess of an amount equal to 90 percent of the total construction cost.

(j)

The borrower shall offer reasonable assurance that the services of the health facility will be made available to all persons residing or employed in the area served by the facility.

(k)

The office has determined that the facility is needed by the community to provide the specified services. In making this determination, the office shall do all of the following:

(1)

Require the applicant to describe the community needs the facility will meet and provide data and information to substantiate the stated needs.

(2)

Require the applicant, if appropriate, to demonstrate participation in the community needs assessment required by Section 127350.

(3)

Survey appropriate local officials and organizations to measure perceived needs and verify the applicant’s needs assessment.

(4)

Use any additional available data relating to existing facilities in the community and their capacity.

(5)

Contact other state and federal departments that provide funding for the programs proposed by the applicant to obtain those departments’ perspectives regarding the need for the facility. Additionally, the office shall evaluate the potential effect of proposed health care reimbursement changes on the facility’s financial feasibility.

(6)

Consider the facility’s consistency with the Cal-Mortgage state plan.

(l)

In the case of acquisitions, a project loan shall be guaranteed only for transactions not in excess of the fair market value of the acquisition. Fair market value shall be determined, for purposes of this subdivision, pursuant to the following procedure, that shall be utilized during the office’s review of a loan guarantee application:

(1)

Completion of a property appraisal by an appraisal firm qualified to make appraisals, as determined by the office, before closing a loan on the project.

(2)

Evaluation of the appraisal in conjunction with the book value of the acquisition by the office. When acquisitions involve additional construction, the office shall evaluate the proposed construction to determine that the costs are reasonable for the type of construction proposed. In those cases where this procedure reveals that the cost of acquisition exceeds the current value of a facility, including improvements, then the acquisition cost shall be deemed in excess of fair market value.

(m)

Notwithstanding subdivision (i), any loan in the amount of ten million dollars ($10,000,000) or less may be insured up to 95 percent of the total construction cost. In determining financial feasibility of projects of counties pursuant to this section, the office shall take into consideration any assistance for the project to be provided under Section 14085.5 of the Welfare and Institutions Code or from other sources. It is the intent of the Legislature that the office endeavor to assist counties in whatever ways are possible to arrange loans that will meet the requirements for insurance prescribed by this section.

(n)

The project’s level of financial risk meets the criteria in Section 129051.