Bill Text: CA SB686 | 2025-2026 | Regular Session | Chaptered
Bill Title: Housing programs: financing.
Sponsorship: Slight Partisan Bill (Democrat 3-1)
Status: (Passed) 2025-10-10 - Chaptered by Secretary of State. Chapter 523, Statutes of 2025. [SB686 Detail]
Download: California-2025-SB686-Chaptered.html
Senate Bill
No. 686
CHAPTER 523
An act to amend Section 50406.4 of the Health and Safety Code, relating to housing.
[
Approved by
Governor
October 10, 2025.
Filed with
Secretary of State
October 10, 2025.
]
LEGISLATIVE COUNSEL'S DIGEST
SB 686, Reyes.
Housing programs: financing.
Existing law, the Zenovich-Moscone-Chacon Housing and Home Finance Act, among other things, establishes the Department of Housing and Community Development and requires it to administer various programs intended to promote the development of housing and to provide housing assistance and home loans. Existing law sets forth various general powers of the department in implementing these programs, including authorizing the department to enter into long-term contracts or agreements of up to 30 years for the purpose of servicing loans or grants or enforcing regulatory agreements or other security documents.
Existing law requires the department, subject to certain conditions, to allow property owners subject to a regulatory agreement with the department to take out
additional debt on the development in order to finance, with the department’s approval, the rehabilitation of the property or investment in new affordable housing. Under existing law, one of those conditions is that any extracted equity is required to meet at least one of several conditions, as specified. Existing law defines “extracted equity” for these purposes to mean debt added to a department-regulated property that is not used in prescribed ways.
This bill would, additionally, require the department to allow property owners to take out additional debt, as described above, if any extracted equity is utilized for reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits. The bill would revise the definition of “extracted equity” to mean debt distributed funds that are financed with
debt that is secured by a department-regulated property and is not used in prescribed ways.
Digest Key
Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NOBill Text
The people of the State of California do enact as follows:
SECTION 1.
Section 50406.4 of the Health and Safety Code, as added by Section 48 of Chapter 22 of the Statutes of 2025, is amended to read:50406.4.
Notwithstanding any other law, and to the extent permitted under federal law and the California Constitution, the department shall allow an owner of a property subject to a regulatory agreement with the department to take out additional debt on the development to finance, with the department’s approval, rehabilitation of the property or investment in new affordable housing, if all of the following conditions are met:(a) (1) All hard debt, including the additional debt, is underwritten with a debt-service coverage ratio of at a minimum 1.15 and is demonstrated to project positive cash flow for 15 consecutive years.
(2) For the purposes of this subdivision, “hard debt” means debt
that must be repaid via an amortizing payment or at a specified maturity date.
(b) Any new debt is subordinate to the department’s lien and regulatory agreement, as applicable, unless the department reasonably determines that subordination of the department’s lien is necessary for the feasibility of a project and to fund reasonable rehabilitation or improvements, including soft costs.
(c) (1) Any extracted equity is any of the following:
(A) With the department’s approval, contributed to other projects that will increase or improve the supply of deed-restricted affordable housing serving low-income households in the state.
(B) Utilized in the purchase of a limited partner interest of a tax credit investor in the project, provided
that the amount used to purchase that interest shall be subject to the guidelines adopted pursuant to subdivision (h) of 50560.
(C) Utilized in the payment of any unpaid deferred developer fee for the project pursuant to any applicable department regulations.
(D) Applied toward payment for necessary repairs and rehabilitation of the project.
(E) Utilized for the establishment or replenishment of department-approved project reserves.
(F) Utilized for reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits.
(G) Utilized for any other purposes approved by the department.
(2) For the purposes of this subdivision, “extracted equity” means distributed funds that are financed with debt that is secured by a department-regulated property and is not used for any of the following purposes:
(A) Approved project rehabilitation
work.
(B) To pay off existing debt.
(C) Replenishment of reserves.
(D) Other department-approved project specific uses.
(d) The department’s regulatory agreement remains in place for the project for its remaining term. If equity is extracted for purposes of paragraph (1) of subdivision (c), the department’s regulatory agreement will be recorded in a senior position.
(e) The department continues to be entitled to receive monitoring fees to ensure compliance with the existing regulatory agreement.
