83-8

January 28, 1983
Re: Financial Code Section 1590
Trust Deed Pools
No Action Letter
Dear Mr. ________:
This is in reference to your letters dated November 8 and December 10, 1982 in which you requested an interpretative opinion on whether your client’s proposed transaction, described in the following paragraphs, is entitled to the exemption as set forth in Financial Code Section 1590. Your request has been treated as a request for a no action letter.
The proposed transaction, as described in your letters, would be as follows: Your client, a commercial finance company, is organized as a California corporation and deals in commercial equipment lease financing and direct commercial loans. Some of the lease transactions and all of the direct loans are secured by junior deeds of trust on improved California real estate. At the time your client makes a loan to a borrower, it obtains a promissory note and a deed of trust. The deed of trust names another corporation as trustee and your client as beneficiary.
Your client now wishes to establish trust deed pools whereby all of its direct loans and its equipment leases which are secured by deeds of trust will be sold to the pools. At that time, your client would rerecord the deeds of trust to designate that it, the beneficiary, is the trustee for the participants in “Trust Deed Mortgage Pool No. 1.” Participations in the pool would be sold to California residents meeting prescribed suitability criteria pursuant to a permit issued by the California Department of Corporations.
You indicate in your letters that If the Section 1590 exemption is not available for the Trust Deed Mortgage Pool No. 1, then, as an alternative, the assignment of the trust deed must be in favor of each participant in the pool as to their undivided interests and not to the pool as beneficiary. In this alternative, the deeds of trust will be rerecorded to reflect the change of beneficiary from your client to each participant in the pool in accordance with his undivided interests.
Financial Code Section 1590 provides an express exemption to Financial Code Section 106 and the licensing requirements of a trust company under Financial Code Section 350 et seq. Section 1590 allows any person or corporation to act as a trustee under a deed of trust given solely for the purpose of securing obligations for the repayment of money other than corporate bonds.
It appears from your letters that your client, when it rerecords the deeds of trust to designate that it will be the trustee for the pool, would, at that point in time, be conducting a trust business similar to the operation and administration of a common trust fund. Since only banks with trust powers or trust companies in California are authorized to conduct a trust business and to operate and administer a common trust fund, such activity by an entity other than the above would not be entitled to the exemption in Financial Code Section 1590 but would, in fact, constitute the conduct of trust business in violation of Financial Code Sections 106, 350 et seq. and 3390.
Nevertheless, we believe that the alternative expressed in your letters, whereby the assignment of the trust deed would be in favor of each of the participants in the pool as to their respective undivided interests, would fall within Section 1590 and would not constitute the operation of a banking or trust business as defined in California Financial Code Sections 102, 105, and 106. Therefore, no application would be necessary to establish a trust company if the second alternative, as described in your letters, is followed.
We suggest that the deed of trust assignment expressly negate the possibility of the creation of trust relationship other than in the context of the trust relationship created by the deed of trust.
We make no determination, recommendation, or endorsement at the time on the propriety of the proposed application with the Department of Corporations.
We trust that this has answered your inquiry. Should you have any further questions, please do not hesitate to contact us
Very truly yours,
HAROLD D. DOYLE
Acting Superintendent of Banks
By
LOREN P. HANSEN
Counsel
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