85-8

June 28, 1985

Re: Request for Opinion — Trust Business
Dear Mr. ________:
This is in reply to your letter of March 6, 1985.
You have requested an opinion from this Department as to whether certain trust activities constitute doing a “trust business” in California within the meaning of California Financial Code Section 106 (“F.C. Section 106”). If the proposed activities do constitute “trust business”, then your inquiry extends to whether or not the proposed activities are exempt by Financial Code Section 1590 (“F.C. Section 1590”).
Your letter states that your client is a California corporation which proposes to purchase certain subdivision trust activities from a California trust company. The proposed activities were described and numbered in sequence. For purposes of ease of discussion, the activities described by you will be dealt with in the following order:
1. The subdivision trustee would act as trustee under a deed of trust and would also be the named beneficiary. The beneficial interest under the deed of trust would be held by the trustee for the benefit of the developer. (“T.D. Method”)
2. The subdivision trustee would hold title to read property which is the subject of a land sales contract. (“L.S.C. Method”)
3. The subdivision trustee would hold title to real property which is the subject of a long-term ground lease with an option to buy. (“L/O Method”)
Additionally, on March 18, 1985, Mr. ________ represented during a telephone conversation that the trustor under the T.D. Method would be the purchaser of the real property. This method is the usual trust deed arrangement whereby the purchaser receives title to the real property, then conveys title to a trustee who holds that title for the beneficiary as security for payment of the purchase price.
It is our opinion that all of the proposed activities would constitute doing a “trust business” within the meaning of F.C. Section 106. “Trust business” is defined in F.C. Section 106 as “. . . the business of acting as executor, administrator, guardian or conservator of the estates, assignee, receiver, depositary or trustee under the appointment of any court, or by authority of any law of this or any other state or of the United States, or as trustee for any purpose permitted by law.”
Based upon the facts set forth in your letter, the relationships to be created are those of a trust. In each of the three methods, the title to real property would be conveyed to your client to be held in trust, your client would be acting as trustee, and would receive a fee from the developer for acting as trustee. It is well settled that a business is an enterprise carried on profit. Your client would act as trustee for profit and, therefore, such activities would constitute the doing of a “trust business” within the meaning of F.C. Section 106.
Because the proposed activities constitute “trust business”, it is necessary to deal with the question of whether or not those activities have been exempted from the licensing requirements of the Financial Code, Division 1, Chapter 12 (“F.C. Sections 1500-1591”) by F.C. Section 1590. F.C. Section 1590, states as follows: “Nothing in this chapter shall make it unlawful for any person or corporation to engage in the business of receiving and holding money in escrow or of acting as trustee under deeds of trust given solely for the purpose of securing obligations for the repayment of money other than corporate bonds.”
1. T.D. Method .
Under the T.D. Method, the trustee would serve in that capacity pursuant to a note secured by deed of trust. Further, the deed of trust would be given to secure the payment of money, the purchase price. The type of trust business described in the first portion of the T.D. Method is exactly that described in F.C. Section 1590. It is, therefore, our opinion that the business of acting as trustee under a deed of trust given as security for the payment of the purchase price is exempt from the doing of a “trust business” by F.C. Section 1690.
However, the T.D. Method as described in your letter does not conclude with the usual trust deed relationship, but instead contains an additional provision. The subdivision trustee would hold, as beneficiary under the deed of trust, that interest for the benefit of the developer. This second arrangement is a separate trust. This second trust is not created to facilitate a security device but is present only for the convenience of the developer.
Further, the functions of the trustee are limited only by the provisions of the agreement creating the trust relationship. Because the second trust is not necessary to facilitate a security device with real property as the security and because the duties of the trustee are limited only by the instrument or action creating the trust, it does not appear that the Legislature intended to exempt such a trust.
Consequently, it is our opinion that a subdivision trustee who holds beneficial interest under a deed of trust for the benefit of another entity and receives a fee is not exempt from the doing of “trust business” by F.C. Section 1590.
2. L.S.C. Method.
The proposed activity described in the L.S.C. Method is similar to that described in the T.D. Method, in that the transaction concerns the purchase and conveyance of real property. The major difference between the two methods is that in the L.S.C. Method, a trust deed is not created and title is not immediately conveyed to the purchaser. Under a land sale contract, typically, the purchaser receives immediate right of possession and equitable title, the seller retains legal title to the real property as security for payment of the installments due, and legal title is conveyed to the purchaser when the purchase price is paid in full. In your proposal a trust would be created. The trustee would hold title to the property, the trustor would be the developer instead of the purchaser, and both the purchaser and the developer would be beneficiaries.
A land sale contract is a security device and its functions have many of the attributes and limitations of other security devices. Tucker v. Lassen Savings and Loan Associations (1974) 12 C.2d 629; Elliott v. McCombs (1941) 17 C.2d 23. A land sale contract is a security device with its purpose to retain legal title to real property as security for the payment of purchase price. Under the L.S.C. Method, your client would serve as trustee and hold title to real property as security for the payment of a purchase price. The duties of the trustee consist of conveying title to the purchaser when the payments are made in full. The activities and duties of the trustee under this method are very similar to that of a trustee under a deed of trust.
Further, statutory and case authority provide the following similarities between the treatment of a purchaser under a land sale contract (“Purchaser”) and the purchaser who receives legal title pursuant to a grant deed and then conveys that title to a trustee as security for repayment of purchase money (“Trustor”):
A. The Purchaser is not a tenant and unlawful detainer proceedings are not authorized. Civil Code Section 1161, Goetz v. Hanks (1968) 261 Cal.App. 615.
B. The anti-deficiency provisions of C.C.P. Section 580(b) are applicable to a land sale contract and a Purchaser cannot be held to pay back installments owed in the event of default. Code of Civil Procedure Section 580(b).
C. The Purchaser has a right to reinstate in the event of default even if the contract provided that timely payment was of the essence. McFadden v. Walker (1971) 5 C.3d 809.
D. The defaulting Purchaser may have the right to insist on a judicial sale of the property after his default. Ward v. Union Bond & Trust Co. (1957 9th Circ) 243 F.2d 476.
The fundamental rule of statutory construction is that courts should ascertain the intent of the Legislature from the reading of a statute as a whole so as to effect its purpose. Rice v. Superior Court (1982) 136 Cal.App.3d 81.
Although the Legislature did not specifically include trusts to facilitate land sales contracts in F.C. Section 1590, it is the apparent legislative intent of that statute to exempt a certain type of function of a trustee. The function exempted is one in which the trustee has little or no discretion and which he serves incident to a device securing the payment or repayment of money with real property.
It is our understanding that because of the similarity of the rights afforded purchasers under a land sale contract to the rights granted purchasers who execute a purchase money deed of trust to secure the repayment of funds, and because of the similarity of the trustee’s activities, a trustee of a trust established to facilitate a land sale contract is closely analogous to a trustee under a deed of trust in this state. It is, therefore, our opinion that the Legislature intended to exempt the activities of a trustee under a trust established to facilitate a land sale contract from the doing of a “trust business” by enacting F.C. Section 1590.
3. L/O Method.
The activity described in the L/O Method, acting as trustee holding title to real property which is subject to lease with option to purchase, differs from the previously discussed proposed methods in several material respects. The lease is not a security device and there is no obligation secured by it. No equitable title passes to the purchaser, who remains a tenant rather than an equitable owner. The purchaser or tenant is not a trustor, beneficiary, or other party to the trust. There is no obligation created for the repayment of funds or payment of purchase price. The features necessary for exemption under F.C. Section 1590 are simply not present.
In order to be exempted by F.C. Section 1590, two requirements must be met. First, the trustee must serve in that position pursuant to a security device, with real property as the security. Second, the security device must have as its sole purpose the payment or repayment of money. Neither of these two features is present in the proposed L/O Method.
It is, therefore, our opinion that the business of acting as a trustee which holds title to real property which is the subject of lease with option to purchase is not exempted by F.C. Section 1590 from the licensing requirements of F.C. Sections 1500-1591.
The above opinion is based upon the facts set forth in your letter as well as the further information supplied by ________. This opinion is limited thereto, and any change in the above factors or structuring of the trusts would make this opinion inoperative.
If you have any further questions in regard to this matter, please do not hesitate to contact.
Very truly yours,

LOUIS CARTER
Superintendent of Banks
By
JOHN R. PASTO
Counsel

March 6, 1985
John Pasto, Esq.
Re: Request for Opinion –Inapplicability of Provisions of Chapter 12 of the California
Financial Code (§51500 et seq.) to Subdivision Trust
Dear Mr. Pasto:
This firm represents a California corporation (“Purchaser”) which desires to purchase certain subdivision trust activities from a California trust company which is affiliated with or is a subsidiary of a federal savings and loan association (the “S&L”). These trust activities (more fully described below) are presently conducted by an operating division of the S&L. Purchaser anticipates that the trust activities will either be purchased directly from the S&L, or a corporate subsidiary of the S&L will be formed having as its sole assets such subdivision trust activities and Purchaser will purchase the stock of that corporation.
The subdivision trust activities consist of the holding of title to real property as trustee for the benefit of developers, to facilitate the transfer of real property interests to various purchasers under the following three scenarios: (1) the subdivision trustee holds title to real property which is the subject of a land sales contract; (2) the subdivision trustee holds title to real property which is the subject of a long term ground lease with an option to buy; and (3) the subdivision trustee acts as trustee under a deed of trust and is the named beneficiary but holds that interest for benefit of the developer. In each of the circumstances outlined above, the trust relationship is established solely to facilitate a form of secured land sales transaction, and the subdivision trustee exercises little or no discretion in correction with its duties thereunder. For performing its duties, the trustee receives a fee from the developer.
Request is hereby made that an advisory opinion be rendered that, under the facts and circumstances outlined in this letter, the described subdivision trust activities do not constitute a “trust business” within the meaning and purpose of Chapter 12 (§§1500 et seq.) of the California Financial Code, that such chapter does not apply to or govern the conduct of such subdivision trust activity, and no qualification or approval pursuant to Chapter 12 is required prior to the transfer of such subdivision trust activities from the S&L to Purchaser. As support for such opinion, we draw your attention to California Financial Code §1590, which states as follows:
“Nothing in this Chapter shall make it unlawful for any person or corporation to engage in the business of receiving and holding money in escrow, or of acting as trustee under deeds of trust given solely for the purpose of securing obligations for the repayment of money other than corporate bonds.” (Emphasis added.)
Please inform the undersigned if you require any additional facts in rendering such opinion.
Sincerely,