1. (a) Individual households occupying assisted units in cooperatives or in rental housing developments shall not be entitled to Deferred Payment Loans. Such loans may be made to cooperatives or rental sponsors for the benefit of eligible households as follows:

   1. (1) The loan shall have a term of twenty years and shall bear simple interest at seven percent (7%) per annum, with payments of principal and interest to be deferred except where repayment is required pursuant to this Section and Section 7574;
   2. (2) The cooperative or rental sponsor agrees to execute a Promissory Note evidencing the loan and a Deed of Trust on the property securing the Note. The Deed of Trust shall be recorded as a lien against the property;
   3. (3) The proceeds of the loan shall be utilized to reduce the housing costs of eligible households in assisted units in the cooperative or rental housing development, subject to the limits and requirements set forth in Section 7570;

2. (b) The cooperative or rental sponsor shall enter into a regulatory agreement with the Department that includes but is not limited to, the following provisions:

   1. (1) The type and number of assisted units to be occupied by eligible households during the term of the loan;
   2. (2) The manner in which the loan shall result in reduced housing costs or rents for eligible households and long-term rights to occupancy;
   3. (3) The cooperative or rental sponsor shall not sell, transfer, convey, or encumber its interest or any portion thereof in the property without the prior written approval of the Department;
   4. (4) The term of the regulatory agreement shall not be less than 20 years; but shall not exceed 20 years from the date of completion of construction or rehabilitation.
   5. (5) The Deferred Payment Loan and all accrued interest thereon shall be forgiven twenty years after the date of execution of the regulatory agreement provided that the cooperative or rental sponsor has substantially complied with the provisions thereof.

Note: Authority cited: Section 50697(d), Health and Safety Code. Reference: Sections 50696 and 50697(d), Health and Safety Code.