DOC Gives Notice of New Filing Requirements For Real Estate Issuers

by Allen Matkins
Contact

New Filing Requirements

Yesterday, the Commissioner of Corporation issued Release 121-C announcing new filings required by Corporations Code Section 25102.2 which takes effect on January 1, 2013. As discussed in Bill Targets Real Estate Industry And Borrowers, these requirements were intended to address abuses in securities offerings by hard money lenders. Unfortunately, the new requirements will be about as effective as Revalenta Arabica and much more deleterious.

Rather than focus on the identified malefactors, this new law will apply to any issuer that is “engaged in the business of purchasing, selling, financing, or brokering real estate” and that relies upon an exemption from qualification in Corporations Code section 25102, subdivisions (e) (evidences of indebtedness), (f) (limited offerings), (h) (small offerings), or (n) (limited advertising), or Corporations Code section 25100, subdivision (p) (promissory notes secured by real property) if the following two conditions are met:

  • The offering involves the offer or sale of securities to any person who is not an accredited investor, as defined in Regulation D of the Securities and Exchange Commission (17 C.F.R. 230.501 et seq.); and
  • The transaction is not registered with the Securities and Exchange Commission pursuant to the Securities Act of 1933.

To give you some idea of the over-breadth of this new requirement, all real estate brokers and real estate investors will be potentially subject to this statute even though they never make a single loan, let alone a “hard money” loan.

Note that the Commissioner’s Release wrongly states that the statute applies to an issuer engaged in the business of purchasing, selling etc. “under the exemption” in the identified subdivisions. Obviously, these are not exemptions that pertain the business of the issuer but the nature of the security and the transaction.

The Commissioner’s Release lists the statutory filing requirements. In general, issuers will be required to name names. The statute also requires filing of disclosure documents provided to prospective purchasers. As I expect that the Department of Corporations will conclude that these are subject to the Public Records Act, there will be no more confidential private placement memoranda for the real estate industry! The statute also Delphically requires disclosure of “all state and federal licenses required to further the purposes of the investment.” Does this mean every state and local business license? I hope that issuers will have better luck in interpreting this requirement than Croesus.

For those that have been filing notices of exemption electronically with the Department, this will no longer be possible with respect to the disclosures mandated by Section 25102.2. The Department has published this form.

I predict that these new requirements will not help the Department one whit in combating abusive borrowing practices by hard money lenders. Worse yet, I believe that these requirements will needlessly waste scarce resources and divert the Department from more important and effective regulation. Please don’t blame the Department as this was the brainchild of the legislature. SB 978 (Vargas & Price), Chapter 669, Statutes of 2012. However, I do question whether the Department’s new disclosure form constitutes an illegal underground regulation because it includes requirements beyond those set forth in the statute. See Cal. Gov’t Code §§ 11340.5 and 11340.9(c).

We All Know That Noah And Utnapishtim Were Flooded Out But Were They Entitled To Just Compensation?

I’m not an eminent domain lawyer (some of my partners are very good at it) but I couldn’t let the recent Supreme Court’s decision in Arkansas Game & Fish Comm’n v. United States, 2012 U.S. LEXIS 9409 (Dec. 4, 2012) pass without comment. In an 8-0 decision, the court concluded that recurrent floods, even if of finite duration, are not categorically exempt from the Fifth Amendment’s prohibition of taking private property without just compensation. Writing for the court, Justice Ruth Bader Ginsburg found “time is a factor in determining the existence vel non of a compensable taking”. Applying this logic, Noah may have suffered a taking because the rain lasted forty days and forty nights. Utnapishtim is perhaps a closer case, he only experienced a storm of six days and nights.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Allen Matkins | Attorney Advertising

Written by:

Allen Matkins
Contact
more
less

Allen Matkins on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.