Health and Safety Code section 50406.4
(a)
(1)All hard debt, including the additional debt, is underwritten with a debt-service coverage ratio of at a minimum 1.15 and is demonstrated to project positive cash flow for 15 consecutive years.(2)
For the purposes of this subdivision, “hard debt” means debt that must be repaid via an amortizing payment or at a specified maturity date.(b)
Any new debt is subordinate to the department’s lien and regulatory agreement, as applicable, unless the department reasonably determines that subordination of the department’s lien is necessary for the feasibility of a project and to fund reasonable rehabilitation or improvements, including soft costs.(c)
(1)Any extracted equity is any of the following:(A)
With the department’s approval, contributed to other projects that will increase or improve the supply of deed-restricted affordable housing serving low-income households in the state.(B)
Utilized in the purchase of a limited partner interest of a tax credit investor in the project, provided that the amount used to purchase that interest shall be subject to the guidelines adopted pursuant to subdivision (h) of 50560.(C)
Utilized in the payment of any unpaid deferred developer fee for the project pursuant to any applicable department regulations.(D)
Applied toward payment for necessary repairs and rehabilitation of the project.(E)
Utilized for the establishment or replenishment of department-approved project reserves.(F)
Utilized for any other purposes approved by the department.(2)
For the purposes of this subdivision, “extracted equity” means debt added to a department-regulated property that is not used for any of the following purposes:(A)
Approved project rehabilitation work.(B)
To pay off existing debt.(C)
Replenishment of reserves.(D)
Other department-approved project specific uses.(d)
The department’s regulatory agreement remains in place for the project for its remaining term. If equity is extracted for purposes of paragraph (1) of subdivision (c), the department’s regulatory agreement will be recorded in a senior position.(e)
The department continues to be entitled to receive monitoring fees to ensure compliance with the existing regulatory agreement.
Source:
Section 50406.4, https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=HSC§ionNum=50406.4. (updated Jun. 30, 2025; accessed Jul. 14, 2025).
