When must the Mortgage Loan Disclosure Statement be delivered?

Under B&P §10240(a), within THREE BUSINESS DAYS after receipt of a completed written loan application, or before the borrower becomes obligated on the note, WHICHEVER IS EARLIER. The statement must contain all information required by §10241 and must be personally signed by the borrower and by the broker negotiating the loan or a licensee acting for the broker. An exact copy goes to the borrower at the time of execution, and the broker retains a true and correct signed copy on file for THREE YEARS.

Is there an exception for federally regulated mortgage loans?

Yes, above a threshold. Under §10240(c), in a federally regulated residential mortgage loan transaction where the principal loan amount exceeds the levels in §10245 — $30,000 or more for a bona fide first trust deed loan, $20,000 or more for a bona fide junior lien loan — the broker satisfies §10240 if the borrower receives a RESPA good faith estimate showing the broker's license number and a clear, conspicuous statement that it is not a loan commitment; all applicable Truth in Lending Act disclosures; and, if the loan has a balloon payment provision, the §10241(h) disclosure, the balloon disclosure required by Fannie Mae or Freddie Mac, or a Commissioner-approved alternative satisfying Truth in Lending. The borrower must also acknowledge receipt in writing before becoming obligated, and the broker retains those records three years.

What is the Arranger of Credit disclosure?

A separate disclosure under Civil Code §§2956–2957, required in the purchase of a dwelling for not more than four families where there is an arranger of credit and the purchase includes an extension of credit BY THE VENDOR — that is, seller carryback financing. The arranger and the vendor disclose to the purchaser, and the arranger and the purchaser disclose to the vendor, each as to information within their knowledge. Content includes the terms of senior encumbrances, a refinancing warning, and negative amortization disclosure where applicable.

Mortgage Loan Disclosure Statement: B&P §10240

TL;DR

When a California real estate broker negotiates a loan secured by a lien on real property, Business and Professions Code §10240 requires delivery of a MORTGAGE LOAN DISCLOSURE STATEMENT (MLDS) to the borrower. The timing rule is the most tested element: the statement must be delivered WITHIN THREE BUSINESS DAYS after receipt of a completed written loan application OR BEFORE THE BORROWER BECOMES OBLIGATED ON THE NOTE, WHICHEVER IS EARLIER. It must contain all the information required by §10241, must be personally signed by the borrower and by the broker (or a licensee acting for the broker), an exact copy must be delivered to the borrower at the time of execution, and the broker must retain a true and correct copy on file FOR THREE YEARS. Section 10240(c) provides a federal alternative: in a federally regulated residential mortgage loan transaction where the principal amount exceeds the levels in §10245, the broker satisfies §10240 if the borrower receives a RESPA good faith estimate bearing the broker's license number and a clear statement that it is not a loan commitment, all applicable Truth in Lending Act disclosures, and — if the loan has a balloon payment — the §10241(h) balloon disclosure, the balloon disclosure required for that loan by Fannie Mae or Freddie Mac, or an alternative disclosure determined by the Commissioner to satisfy Truth in Lending requirements. A SEPARATE and often-confused disclosure applies to seller carryback financing: the ARRANGER OF CREDIT disclosure under Civil Code §§2956–2957, required in the purchase of a dwelling for not more than four families where the purchase includes an extension of credit by the vendor. The two regimes are partly mutually exclusive — Civil Code §2958 provides that no arranger disclosure is required to a purchaser entitled to a Truth in Lending, RESPA, or §10240 disclosure.

When the MLDS is required

Section 10240(a) applies to every real estate broker ACTING WITHIN THE MEANING OF §10131(d) — the subdivision that describes soliciting borrowers or lenders for, or negotiating, loans secured by real property. When such a broker negotiates a loan to be secured directly or collaterally by a lien on real property, the broker must cause a written statement to be delivered to the borrower containing all the information required by §10241.

The trigger is not the closing and it is not the funding. It is the EARLIER of two events: three business days after receipt of a completed written loan application, or the moment before the borrower becomes obligated on the note. A broker who waits until signing to hand over the MLDS has already violated the statute if the completed application came in more than three business days earlier. For the licensing framework that defines who may perform these activities in the first place, see our guide to DRE licensing structure and requirements.

Execution, delivery, and retention

Section 10240(a) imposes three mechanical requirements that are easy exam points and easy audit findings.

Personal signature. The statement must be personally signed by the BORROWER and by the real estate broker negotiating the loan, or by a real estate licensee acting for the broker in negotiating the loan.

Copy at execution. When so executed, an EXACT COPY must be delivered to the borrower at the time of its execution. The borrower does not leave without a copy.

Three-year retention. The broker negotiating the loan must retain on file for a period of THREE YEARS a true and correct copy of the statement as signed by the borrower.

Section 10240(a) closes with a further prohibition that is easy to overlook: NO REAL ESTATE LICENSEE MAY PERMIT THE STATEMENT TO BE SIGNED BY A BORROWER IF ANY INFORMATION REQUIRED BY §10241 IS OMITTED. An incomplete MLDS presented for signature is itself a violation, independent of the timing rule.

The Commissioner has published approved forms for this disclosure. Under Commissioner's Regulation 2840, Forms RE 882 and RE 883 contain approved format and content for the disclosure statement required by §10240(a) and §10241. A separate approved form, RE 885, addresses nontraditional and subprime mortgage products. Using the approved form is the safest path to compliance, though the statute speaks in terms of required content rather than a mandated form.

The §10240(c) federal alternative

Section 10240(c) recognizes that federally regulated residential mortgage lending already carries a substantial disclosure package, and allows that package to substitute for the MLDS in defined circumstances. In a federally regulated residential mortgage loan transaction in which the principal loan amount EXCEEDS THE PRINCIPAL LOAN LEVELS SET FORTH IN §10245, a broker satisfies §10240 if the borrower receives all three of the following:

A good faith estimate that satisfies the Real Estate Settlement Procedures Act of 1974, that sets forth the broker's real estate license number, and that carries a clear and conspicuous statement on its face that the good faith estimate does not constitute a loan commitment.

All applicable Truth in Lending Act disclosures.

The balloon disclosure, if the loan contains a balloon payment provision — and here the statute offers three routes: the disclosure described in §10241(h), the balloon disclosure required for that loan by FANNIE MAE OR FREDDIE MAC, or an alternative disclosure determined by the Commissioner to satisfy the requirements of the Truth in Lending Act.

Section 10240(c) also carries its own paperwork discipline. Before becoming obligated on the loan, the borrower must ACKNOWLEDGE IN WRITING receipt of the good faith estimate and all applicable Truth in Lending disclosures, and the broker must retain on file for THREE YEARS a true and correct copy of the signed acknowledgment together with copies of the good faith estimate and the Truth in Lending disclosures as acknowledged. The federal alternative therefore relieves the broker of the MLDS form, not of the duty to document delivery.

One point of practical currency deserves care. The statute is written in terms of the RESPA "good faith estimate." Federal disclosure requirements for most closed-end consumer mortgage transactions were later consolidated, with the good faith estimate and early Truth in Lending disclosure replaced by the Loan Estimate under the integrated federal mortgage disclosure rules. The California statutory text still refers to the good faith estimate, so on the exam answer from the statute; in practice, the federal document a borrower actually receives in a covered transaction will typically be the Loan Estimate. Note also that §10240(c) is a threshold provision — it applies only above the §10245 loan levels, so smaller loans remain squarely within the ordinary MLDS requirement. Those levels are $30,000 OR MORE for a bona fide loan secured by a FIRST TRUST DEED and $20,000 OR MORE for a bona fide loan secured by a JUNIOR LIEN. Read §10245 carefully: it exempts the rest of Article 7 above those amounts but expressly preserves §10240 (along with §§10240.3, 10242.5, and 10242.6), which is precisely why §10240(c) supplies an ALTERNATIVE route to compliance rather than an outright exemption.

The Arranger of Credit disclosure is a different statute

Seller carryback financing triggers a distinct disclosure that is frequently and incorrectly folded into the MLDS. It lives in the Civil Code, not the Business and Professions Code.

Under Civil Code §2956, in a transaction for the purchase of a DWELLING FOR NOT MORE THAN FOUR FAMILIES in which there is an ARRANGER OF CREDIT, and which includes an extension of credit BY THE VENDOR, a written disclosure regarding that credit transaction must be made: to the purchaser, by the arranger of credit and the vendor as to information within the vendor's knowledge; and to the vendor, by the arranger of credit and the purchaser as to information within the purchaser's knowledge. If more than one arranger is involved, the arranger who obtained the purchaser's offer makes the disclosure unless the parties designate another person in writing. Civil Code §2957 supplies the definitional framework, including the definition of an all-inclusive trust deed.

The required content is substantive and consumer-protective. It includes, among other items, the principal terms and conditions of each recorded encumbrance senior to the financing being arranged — original balance, current balance, periodic payment, any balloon payment, interest rate and variation provisions, maturity date, and whether there is a current default; a warning that refinancing required by lack of full amortization might be difficult or impossible in the conventional mortgage marketplace; and, where negative amortization is possible, a clear disclosure of that fact and an explanation of its potential effect. Because seller carrybacks often sit behind existing senior liens, the interaction with default and trustee sale procedure matters; see our guide to nonjudicial foreclosure and the trustee's sale.

How §10240 and §2956 fit together

The two disclosures are related but not cumulative, and the relationship runs through Civil Code §2958. That section provides that a disclosure is NOT REQUIRED under the arranger-of-credit article to a purchaser when that purchaser is entitled to receive a disclosure pursuant to the federal Truth in Lending Act, the Real Estate Settlement Procedures Act, or SECTION 10240 OF THE BUSINESS AND PROFESSIONS CODE. It also excuses disclosure to a vendor entitled to receive certain disclosures under B&P §§10232.4 and 10232.5 or under specified Corporations Code provisions.

So the correct mental model is: §10240 governs the broker-negotiated loan and produces the MLDS; §2956 governs seller carryback financing arranged by an arranger of credit and produces the arranger disclosure; and §2958 prevents double-disclosure by excusing the arranger disclosure to a purchaser who is already entitled to a TILA, RESPA, or §10240 statement. Saying that "the MLDS covers seller carryback arranger disclosure" states the relationship backwards — the MLDS does not supply the arranger disclosure; its availability is what EXCUSES it. A related Commissioner's Regulation, Regulation 2903, addresses disclosure by a person acting in a transaction both as agent in a sale, lease, or exchange and as an arranger of financing — the dual-role situation that most often puts a licensee squarely inside this article.

Frequently Asked Questions

When must the Mortgage Loan Disclosure Statement be delivered?: Under B&P §10240(a), within THREE BUSINESS DAYS after receipt of a completed written loan application, or before the borrower becomes obligated on the note, WHICHEVER IS EARLIER. The statement must contain all information required by §10241 and must be personally signed by the borrower and by the broker negotiating the loan or a licensee acting for the broker. An exact copy goes to the borrower at the time of execution, and the broker retains a true and correct signed copy on file for THREE YEARS.
Who has to give an MLDS?: Every real estate broker acting within the meaning of B&P §10131(d) who negotiates a loan to be secured directly or collaterally by a lien on real property. Section 10131(d) covers soliciting borrowers or lenders for, or negotiating, loans secured by real property. The disclosure may be signed by the broker or by a real estate licensee acting for the broker in negotiating the loan, but the obligation attaches to the broker negotiating the loan.
Is there an exception for federally regulated mortgage loans?: Yes, above a threshold. Under §10240(c), in a federally regulated residential mortgage loan transaction where the principal loan amount exceeds the levels in §10245 — $30,000 or more for a bona fide first trust deed loan, $20,000 or more for a bona fide junior lien loan — the broker satisfies §10240 if the borrower receives a RESPA good faith estimate showing the broker's license number and a clear, conspicuous statement that it is not a loan commitment; all applicable Truth in Lending Act disclosures; and, if the loan has a balloon payment provision, the §10241(h) disclosure, the balloon disclosure required by Fannie Mae or Freddie Mac, or a Commissioner-approved alternative satisfying Truth in Lending. The borrower must also acknowledge receipt in writing before becoming obligated, and the broker retains those records three years.
What is the Arranger of Credit disclosure?: A separate disclosure under Civil Code §§2956–2957, required in the purchase of a dwelling for not more than four families where there is an arranger of credit and the purchase includes an extension of credit BY THE VENDOR — that is, seller carryback financing. The arranger and the vendor disclose to the purchaser, and the arranger and the purchaser disclose to the vendor, each as to information within their knowledge. Content includes the terms of senior encumbrances, a refinancing warning, and negative amortization disclosure where applicable.
Does the MLDS satisfy the Arranger of Credit requirement?: Not by supplying it — by excusing it. Civil Code §2958 provides that a disclosure is not required under the arranger-of-credit article to a purchaser who is entitled to receive a disclosure under the federal Truth in Lending Act, RESPA, or Section 10240 of the Business and Professions Code. The MLDS does not contain the arranger disclosure; rather, a purchaser's entitlement to a §10240 statement relieves the arranger obligation as to that purchaser. The two are distinct statutes serving distinct transactions.
Which forms does the Commissioner approve for the MLDS?: Under Commissioner's Regulation 2840, Forms RE 882 and RE 883 contain approved format and content for the disclosure statement required by §10240(a) and §10241. Form RE 885, under Regulation 2842, addresses nontraditional and subprime mortgage products. The statute requires specified content rather than a particular form, but using the Commissioner's approved form is the most reliable route to compliance and the easiest to defend in a DRE audit.

Bottom Line

B&P §10240 requires a broker negotiating a loan secured by a lien on real property to deliver a MORTGAGE LOAN DISCLOSURE STATEMENT containing the information required by §10241, WITHIN THREE BUSINESS DAYS of a completed written loan application or before the borrower becomes obligated on the note, WHICHEVER IS EARLIER. It must be personally signed by borrower and broker or the broker's licensee, an exact copy delivered at execution, and a signed copy retained THREE YEARS. Under §10240(c), a federally regulated residential mortgage loan above the §10245 principal levels may instead be covered by a RESPA good faith estimate bearing the broker's license number and a not-a-commitment statement, all TILA disclosures, and — where the loan has a balloon payment — the §10241(h) disclosure, the Fannie Mae or Freddie Mac balloon disclosure, or a Commissioner-approved alternative satisfying TILA, with written borrower acknowledgment before obligation and three-year retention — noting that federal disclosure has since been consolidated into the Loan Estimate even though the California text still says good faith estimate. Seller carryback financing is governed by a DIFFERENT statute: the ARRANGER OF CREDIT disclosure under Civil Code §§2956–2957, for the purchase of a dwelling for not more than four families involving an extension of credit by the vendor. The two regimes connect through Civil Code §2958, which excuses the arranger disclosure to a purchaser already entitled to a TILA, RESPA, or §10240 disclosure. For the exam, keep them separate: §10240 is the broker-negotiated loan disclosure; §2956 is the seller carryback disclosure; §2958 prevents duplication. For related topics, see our guides to DRE licensing structure, nonjudicial foreclosure, and the Commissioner's disciplinary process.

Source: California Business and Professions Code §10240 — Mortgage Loan Disclosure Statement (full text) · California Civil Code §2958 — Exemption from Arranger of Credit Disclosure · Cal. B&P Code §10240 — annotated text and subdivisions