A loan is "table funded" when at settlement it is contemporaneously assigned to the person that provides the funds. Is table funding an illegal business practice under the California Finance Lenders Law? The Fourth District Court of Appeal has its doubts:
Preciado premises these claims on an assertion table funding is an illegal business practice in California; however, she cites no specific authority for this assertion and instead refers generally to the California Finance Lenders Law (Fin. Code, § 22000 et seq.). We have found no provision in this statutory scheme prohibiting table funding.
Preciado v. Aurora Loan Servicing LLC, 2017 Cal. App. Unpub. LEXIS 780. Although this is an unpublished decision that cannot be cited by courts or parties, I agree that the CFLL imposes no statutory bar on table funding.
The Department of Business Oversight, however has adopted a rule, 10 CCR § 1460, that provides:
Loans made by a finance company under Financial Code sections 22340 and 22600 shall meet all of the following requirements:
(a) The finance company shall approve the loan but may utilize criteria established by an institutional investor.
(b) The finance company shall be the lender or creditor on the promissory note and the beneficiary on the deed of trust securing the loan.
(c) The finance company shall provide funding for the loan from sources exclusive of any funding advances received from an institutional investor committed to purchasing the note.
Although some have argued to the contrary, this rule would seem to apply only to real estate secured loans. It is, after all, entitled "Real Estate Secured Loans: Sale to Institutional Investors". Further, paragraph (b) refers to a deed of trust securing the loan. Finally, legislative history supports this interpretation. See Court Of Appeal Holds “May” Does Not Mean “May Only” and Courts Tackle Meaning of “May” Under the Finance Lenders Law. See also White & Whitley Grp., LLC v. Wilson, 2016 Cal. App. Unpub. LEXIS 1409; Braden v. BH Fin. Servs., 2013 U.S. Dist. LEXIS 156578, 2013 WL 5913794; and Le v. Sunlan Corp., 2013 U.S. Dist. LEXIS 150352, 2013 WL 5701393. Further, the Department of Business Oversight appears to recognize that the ban on table funding is limited to real estate secured loans:
For purposes of Financial Code Sections 22340 and 22600, when selling loans secured by real property to institutional investors, the applicant agrees that the source of funds will be exclusive of any funding advances from an institutional investor committed to purchasing the note. The practice commonly known as “table funding” is not permitted under the California Finance Lenders Law.
10 CCR § 1422(c).