75-1

75-1

Los Angeles Office

February 14, 1975

ATTENTION:

Gentlemen:

This has reference to your inquiry as to whether it is permissible for a state licensed bank in California to pledge its real property as security for its borrowings.

We are in agreement with your opinion that Section 750(d) of the Financial Code of California permits a bank to encumber real property owned by it, however, it is the present position of this department that this section does not exempt any such encumbrance from the conditions on which a bank may borrow as set forth in Sections 1201 and 1202 of the Financial Code.

“Temporary purposes” as used in Section 1202 has been defined as a period not longer than one year. Therefore, any borrowing by a bank that involved the hypothecation of its real property would be limited to one year.

With regard to your observance that other banks have been permitted to carry deeds of trust obligations as liabilities on their books, we believe that you will find that these represent purchase money deeds of trust for the unpaid balance owed on real property purchased by the banks.

It is true that under certain circumstances this department has not objected to this practice because the bank would have no legal obligation to pay the balance due should it decide to abandon the real property purchased.

If you have any further questions on this matter, please feel free to contact us.

Yours very truly,
JOHN H. SHERMAN
Chief Deputy Superintendent of Banks
By

J. L. TAUFER
Deputy Superintendent of Banks
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