1780-1785

HEALTH AND SAFETY CODE
SECTION 1780-1785




1780.  The department shall issue a permit to accept deposits when
it has done all of the following:
   (a) Determined that the application is adequate.
   (b) Determined that the proposed continuing care retirement
community financial and marketing studies are acceptable.
   (c) Reviewed and approved the deposit agreements.
   (d) Reviewed and approved the deposit escrow account agreement.



1780.2.  (a) A deposit may be paid in one or several payments, at or
after the time the parties enter into the deposit agreement.
   A deposit shall be paid by cash or cash equivalent, jointly
payable to the applicant and the escrow agent or depository.
Possession and control of any deposit agreement shall be transferred
to the escrow agent at the time the deposit is paid.
   (b) A processing fee may be added to the deposit.
   (1) The processing fee shall not exceed 1 percent of the amount of
the average entrance fee or five hundred dollars ($500), whichever
is greater.
   (2) A nonrefundable processing fee may be paid directly to the
applicant without being placed in the deposit escrow account.
   (c) Payments made by a depositor for upgrades or modifications to
the living unit shall not be placed in escrow with deposits. The
applicant shall provide written refund policies to the depositor
before accepting any payments for modifications or upgrades.
   (d) The applicant shall furnish to the department within the first
10 days of each calendar month a list of all residents who have made
payments for modifications or upgrades, the amounts each resident
has paid, the date of each payment, and the unit to be modified or
upgraded for each resident.
   (e) All payments for modifications or upgrades shall be refunded
to the depositor with interest if the applicant does not receive a
certificate of authority for the proposed continuing care retirement
community or expansion.
   (f) The department may record a lien against the continuing care
retirement community property, or any portion of the continuing care
retirement community property, to secure the applicant's obligations
to refund the depositor's payments made for modifications or
upgrades. Any lien created under this section shall be to protect
depositors and shall be governed by Section 1793.15.



1780.4.  (a) All deposit agreements between the applicant and the
depositor shall be in writing and shall contain all information
required by this section.
   (b) All deposit agreement forms shall be approved by the
department prior to their use.
   (c) The requirements of this chapter and Chapter 3.2 (commencing
with Section 1569) shall be the bases for approval of the forms by
the department.
   (d) All text in deposit agreement forms shall be printed in at
least 10-point typeface.
   (e) The deposit agreement form shall provide all of the following:
   (1) An estimated date for commencement of construction of the
proposed continuing care retirement community or, if applicable, each
phase not to exceed 36 months from the date the permit to accept
deposits is issued.
   (2) A statement to the effect that the applicant will notify
depositors of any material change in the application.
   (3) The identity of the specific unit reserved and the total
deposit for that unit.
   (4) Processing fee terms and conditions, including:
   (A) The amount.
   (B) A statement explaining the applicant's policy regarding refund
or retention of the processing fee in the event of death of the
depositor or voluntary cancellation by the depositor.
   (C) Notice that the processing fee shall be refunded within 30
days if the applicant does not accept the depositor for residency, or
the applicant fails to construct the continuing care retirement
community before the estimated date of completion and the department
determines that there is no satisfactory cause for the delay.
   (5) Requirements for payment of the deposit by the depositor.
   (6) A statement informing the depositor that their deposit
payments will be converted to an entrance fee payment at the time the
continuing care contract is executed.
   (7) A statement informing the depositor that deposits shall be
refunded within 30 calendar days of the depositor's nonacceptance for
residency or notice to the applicant of the death of the depositor.
   (8) A statement informing the depositor that all deposits shall be
refunded to the depositors if the continuing care retirement
community is not constructed by the estimated date of completion and
the department determines that there is no satisfactory cause for the
delay.
   (9) A statement informing the depositor that a refund of the
deposit within 10 calendar days of notice of cancellation by the
depositor. The deposit agreement shall state that depositors who have
deposited more than one thousand dollars ($1,000) or 5 percent of
the entrance fee, whichever is greater, and who have been notified
that construction of the proposed continuing care retirement
community has commenced, will not be entitled to a refund of their
deposit until the provisional certificate of authority is issued or
after one of the following occurs:
   (A) Another depositor has reserved the canceling depositor's
specific residential unit and paid the necessary deposit.
   (B) The depositor no longer meets financial or health requirements
for admission.
   (C) The applicant fails to meet the requirements of Section 1786
or 1786.2.
   (10) A statement to depositors that specifies when funds may be
released from escrow to the applicant and explains that thereafter
the depositor's funds will not have escrow protection.
   (11) A statement advising the depositor whether interest will be
paid to the depositor on deposits placed in the deposit escrow
account.
   (f) If cash equivalents are to be accepted in lieu of cash, all of
the following shall also be included in the deposit agreement:
   (1) A statement that cash equivalents that may be accepted as
deposits shall be either certificates of deposit or United States
securities with maturities of five years or less.
   (2) A statement that the instruments will be held by the escrow
agent in the form in which they were delivered and assigned by the
depositor until they are replaced by cash or converted to cash.
   (3) A statement that the depositor will be required to assign the
instruments to a neutral third-party escrow agent. If the bank or
entity that issued the instruments refuses to allow this assignment,
the escrow agent shall not accept the instruments. These instruments
shall be reassigned to the depositor if the depositor terminates the
deposit agreement before the instruments mature. If the depositor
terminates the deposit agreement after the instruments mature, the
depositor shall receive a cash refund of the portion of the deposit
represented by the matured instruments.
   (4) A statement that any amount by which the face value of the
deposited instruments exceeds the required deposit shall be deemed
part of the deposit and shall be applied against the depositor's
obligations under the deposit agreement.
   (5) A statement that the instruments shall be converted to, or
replaced with, cash prior to the department's authorization for the
release of deposits to the applicant. The depositor shall be advised
that if the depositor does not substitute cash in the amount equal to
the deposit, the applicant may do either of the following:
   (A) Direct the escrow agent to sell, redeem, or otherwise convert
the instruments to cash and to treat the proceeds in the same manner
as it treats cash deposits under the deposit agreement. The costs of
any such sale, redemption, or conversion, including, without
limitation, transaction fees and any early withdrawal penalties, may
be charged to the depositor and paid out of the cash or other
instruments received from the depositor in escrow. If there is a
shortfall, the depositor may be immediately obligated to pay the
shortfall by check jointly payable to the applicant and the escrow
agent.
   (B) Terminate the deposit agreement. In this event, the escrow
agent shall reassign the property to the depositor and refund all
cash in escrow within the time periods specified in the deposit
agreement.
   (g) A statement that deposits will be invested in instruments
guaranteed by the federal government or an agency of the federal
government, or in investment funds secured by federally guaranteed
instruments.
   (h) A statement that no funds deposited in a deposit escrow
account shall be subject to any liens, judgments, garnishments, or
creditor's claims against the applicant, the proposed continuing care
retirement community property, or the continuing care retirement
community. The deposit agreement shall also provide that deposits may
not be subject to any liens or charges by the escrow agent, except
that cash equivalent deposits may be subject to transactions fees,
commissions, prepayment penalties, and other fees incurred in
connection with these deposits.
   (i) A schedule of projected monthly care fees estimated to be
charged to residents for each of the first five years of the
continuing care retirement community's existence shall be attached to
each deposit agreement. This schedule shall contain a conspicuous
statement in at least 10-point boldface type that the projected fees
are an estimate only and may be changed without notice.



1781.  (a) All deposits, excluding processing fees, shall be placed
in an escrow account. All terms governing the deposit escrow account
shall be approved in advance by the department.
   (b) The deposit escrow account shall be established by an escrow
agent and all deposits shall be deposited in a depository located in
California and approved by the department. The department's approval
of the depository shall be based, in part, upon its ability to ensure
the safety of funds and properties entrusted to it and its
qualifications to perform the obligations of the depository pursuant
to the deposit escrow account agreement and this chapter. The
depository may be the same entity as the escrow agent. All deposits
shall be kept and maintained in a segregated account without any
commingling with other funds, including any funds or accounts owned
by the applicant.
   (c) If the escrow agent is a title company, it shall meet the
following requirements:
   (1) A Standard and Poors rating of "A" or better or a comparable
rating from a comparable rating service.
   (2) Licensure in good standing with the Department of Insurance.
   (3) Tangible net equity as required by the Department of
Insurance.
   (4) Reserves as required by the Department of Insurance.
   (d) All deposits shall remain in escrow until the department has
authorized release of the deposits, as provided in Section 1783.3.
   (e) Deposits shall be invested in instruments guaranteed by the
federal government or an agency of the federal government, or in
investment funds secured by federally guaranteed instruments.
   (f) No funds deposited in a deposit escrow account shall be
subject to any liens, judgments, garnishments, or creditor's claims
against the applicant or the continuing care retirement community.
The deposit agreement shall also provide that deposits may not be
subject to any liens or charges by the escrow agent except that cash
equivalent deposits may be subject to transaction fees, commissions,
prepayment penalties, and other fees incurred in connection with
those deposits.


1781.2.  (a) All deposits shall be delivered to the escrow agent and
deposited into the deposit escrow account within five business days
after receipt by the applicant. The deposit escrow account shall be
accounted for in a separate escrow account.
   (b) The applicant shall provide, with all deposits delivered to
the escrow holder, a copy of the executed deposit agreement, a copy
of the receipt given to the depositor, a summary of all deposits made
on that date, and any other materials required by the escrow holder.



1781.4.  The deposit escrow account agreement between the applicant
and the escrow agent shall include all of the following:
   (a) The amount of the processing fee.
   (b) A provision requiring that all deposits shall be placed into
the deposit escrow account upon delivery.
   (c) A provision requiring that monthly progress reports be sent by
the escrow agent directly to the department, beginning the month
after the deposit escrow account is opened and continuing through the
month funds are released from escrow. These reports shall be
prepared every month that there are any funds in the account and
shall show each of the following in separate columns:
   (1) The name and address of each depositor or resident.
   (2) The designation of the living unit being provided.
   (3) Any processing fee which is deposited into escrow.
   (4) The total deposit required for the unit.
   (5) The total entrance fee for the unit.
   (6) Twenty percent of the total entrance fee.
   (7) Each deposit payment made by or on behalf of the depositor and
any refunds paid to the depositor.
   (8) The unpaid balance for each depositor's deposit.
   (9) The unpaid balance for each depositor's entrance fee.
   (10) The current balance in the deposit escrow account for each
depositor and the collective balance.
   (11) The dollar amount, type, and maturity date of any cash
equivalent paid by each depositor.
   (d) A provision for investment of escrow account funds in a manner
consistent with Section 1781.
   (e) A provision for refunds to depositors in the manner specified
by Section 1783.2.
   (f) A provision regarding the payment of interest earned on the
funds held in escrow in the manner specified in the applicant's
deposit agreement.
   (g) Release of deposit escrow account funds in the manner
specified in Section 1783.3, including to whom payment of interest
earned on the funds will be made.
   (h) Representations by the escrow agent that it is not, and shall
not be during the term of the deposit escrow account, a lender to the
applicant or for the proposed continuing care retirement community,
or a fiduciary for any lender or bondholder for that continuing care
retirement community, unless approved by the department.
   (i) If cash equivalents may be accepted as a deposit in lieu of
cash, the deposit escrow account agreement shall also include all of
the following:
   (1) Authorization for the escrow agent to convert instruments to
cash when they mature. The escrow agent may notify all financial
institutions whose securities are held by the escrow agent that all
interest and other payments due upon these instruments shall be paid
to the escrow agent. The escrow agent shall collect, hold, invest,
and disburse these funds as provided under the escrow agreement.
   (2) Authorization for the escrow agent to deliver the instruments
in its possession and release funds from escrow according to written
directions from the applicant, consistent with the terms provided in
the applicant's deposit escrow account agreement. The escrow agent
shall distribute cash and other property to an individual depositor
only upon either of the following occurrences:
   (A) The depositor's written request to receive monthly payments of
interest accrued on his or her deposits.
   (B) Receipt of notice from the applicant to pay a refund to the
depositor.
   (3) A provision that the escrow agent shall maintain, at all
times, adequate records showing the beneficial ownership of the
instruments.
   (4) A provision that the escrow agent shall have no responsibility
or authority to initiate any transfer of the instruments or conduct
any other transaction without specific written instructions from the
applicant.
   (5) A provision authorizing, instructing, and directing the escrow
agent to do all of the following:
   (A) Redeem and roll over matured investments into money market
accounts or other department approved instruments with the escrow
agent or an outside financial institution.
   (B) Collect and receive interest, principal, and other things of
value in connection with the instruments.
   (C) Sign for the depositors any declarations, affidavits,
certificates, and other documents that may be required to collect or
receive payments or distributions with respect to the instruments.



1781.6.  All changes to a deposit agreement or deposit escrow
account agreement form shall be submitted to, and approved by, the
department before use by the applicant.



1781.8.  (a) Deposits held in escrow shall be placed in an interest
bearing account or invested as provided under subdivision (e) of
Section 1781.
   (b) Interest, income, and other gains derived from deposits held
in a deposit escrow account may not be released or distributed from
the deposit escrow account except upon written approval of the
department.
   (c) Approval by the department for the release of earnings
generated from funds held in escrow shall be based upon an assessment
that funds remaining in the deposit escrow account will be
sufficient to pay refunds and any interest promised to all
depositors, as well as administrative costs owed to the escrow agent.
   (d) When released by the department, interest earned by the funds
in the deposit escrow account shall be distributed in accordance with
the terms of the deposit agreement.



1781.10.  No deposit or any other asset held in a deposit escrow
account, shall be encumbered or used as collateral for any obligation
of the applicant or any other person, unless the applicant obtains
prior written approval from the department for the encumbrance or use
as collateral. The department shall not approve any encumbrance or
use as collateral under this section unless the encumbrance or use as
collateral is expressly subordinated to the rights of depositors
under this chapter to refunds of their deposits.



1782.  (a) An applicant shall not begin construction on any phase of
a continuing care retirement community without first obtaining a
written acknowledgment from the department that all of the following
prerequisites have been met:
   (1) A completed application has been submitted to the department.
   (2) A permit to accept deposits has been issued to the applicant
or, in the case of continuing care retirement community renovation
projects, the department has issued a written approval of the
applicant's application.
   (3) For new continuing care retirement communities, or
construction projects adding new units to an existing continuing care
retirement community, deposits equal to at least 10 percent of each
depositor's applicable entrance fee have been placed into escrow for
each phase for at least 50 percent of the number of residential
living units to be constructed.
   (b) Applicants shall notify depositors in writing when
construction is commenced.
   (c) For purposes of this chapter only, construction shall not
include site preparation, demolition, or the construction of model
units.


1783.  (a) (1) An applicant proposing to convert an existing
building to continuing care use shall comply with all the application
requirements in Section 1779.4 identified by the department as
necessary for the department to assess the feasibility of the
proposed continuing care retirement community or conversion.
   (2) If the proposed continuing care retirement community is
already occupied and only a portion of the existing residential units
will be converted into continuing care units, the department may
modify the presale requirements of paragraph (3) of subdivision (a)
of Section 1782 and paragraph (2) of subdivision (a) of Section
1783.3.
   (b) Any applicant proposing to convert an existing building into
continuing care units shall indicate the portion of the facility to
be used for continuing care contract services. The continuing care
allocation specified by the applicant shall be reflected in all
financial and marketing studies and shall be used to determine the
applicant's compliance with the percentage requirements stated in
paragraph (3) of subdivision (a) of Section 1782 and paragraph (2) of
subdivision (a) of Section 1783.3.



1783.2.  (a) An escrow agent shall refund to the depositor all
amounts required by the depositor's deposit agreement upon receiving
written notice from the applicant that a depositor has canceled the
deposit agreement. Refunds required by this subdivision shall be paid
to the depositor within 10 days after the depositor gives notice of
cancellation to the applicant.
   (b) Depositors who have deposited more than one thousand dollars
($1,000) or 5 percent of the entrance fee, whichever is greater, and
who have been notified that construction of the proposed continuing
care retirement community has commenced, shall not be entitled to a
refund of their deposit until any of the following occurs:
   (1) The continuing care retirement community is opened for
operation.
   (2) Another depositor has reserved the canceling depositor's
specific residential unit and paid the necessary deposit.
   (3) The depositor no longer meets financial or health requirements
for admission.



1783.3.  (a) In order to seek a release of escrowed funds, the
applicant shall petition in writing to the department and certify to
each of the following:
   (1) The construction of the proposed continuing care retirement
community or phase is at least 50 percent completed.
   (2) At least 10 percent of the total of each applicable entrance
fee has been received and placed in escrow for at least 60 percent of
the total number of residential living units. Any unit for which a
refund is pending may not be counted toward that 60-percent
requirement.
   (3) Deposits made with cash equivalents have been either converted
into, or substituted with, cash or held for transfer to the
provider. A cash equivalent deposit may be held for transfer to the
provider, if all of the following conditions exist:
   (A) Conversion of the cash equivalent instrument would result in a
penalty or other substantial detriment to the depositor.
   (B) The provider and the depositor have a written agreement
stating that the cash equivalent will be transferred to the provider,
without conversion into cash, when the deposit escrow is released to
the provider under this section.
   (C) The depositor is credited the amount equal to the value of the
cash equivalent.
   (4) The applicant's average performance over any six-month period
substantially equals or exceeds its financial and marketing
projections approved by the department, for that period.
   (5) The applicant has received a commitment for any permanent
mortgage loan or other long-term financing.
   (b) The department shall instruct the escrow agent to release to
the applicant all deposits in the deposit escrow account when all of
the following requirements have been met:
   (1) The department has confirmed the information provided by the
applicant pursuant to subdivision (a).
   (2) The department, in consultation with the Continuing Care
Advisory Committee, has determined that there has been substantial
compliance with projected annual financial statements that served as
a basis for issuance of the permit to accept deposits.
   (3) The applicant has complied with all applicable licensing
requirements in a timely manner.
   (4) The applicant has obtained a commitment for any permanent
mortgage loan or other long-term financing that is satisfactory to
the department.
   (5) The applicant has complied with any additional reasonable
requirements for release of funds placed in the deposit escrow
accounts, established by the department under Section 1785.
   (c) The escrow agent shall release the funds held in escrow to the
applicant only when the department has instructed it to do so in
writing.
   (d) When an application describes different phases of construction
that will be completed and commence operating at different times,
the department may apply the 50 percent construction completion
requirement to any one or group of phases requested by the applicant,
provided the phase or group of phases is shown in the applicant's
projections to be economically viable.




1784.  (a) If construction of the proposed continuing care
retirement community, or applicable phase, has not commenced within
36 months from the date the permit to accept deposits is issued, an
applicant may request an extension of the permit to accept deposits.
The request for extension shall be made to the department in writing
and shall include the reasons why construction of the proposed
continuing care retirement community was not commenced within the
required 36-month period. The request for extension shall also state
the new estimated date for commencement of construction.
   (b) In response to a request for an extension, the department may
do one of the following:
   (1) If the department determines there is satisfactory cause for
the delay in commencement of construction of the proposed continuing
care retirement community or applicable phase, the department may
extend the permit to accept deposits for up to one year.
   (2) If the department determines that there is no satisfactory
cause for the delay, the department may instruct the escrow agent to
refund to depositors all deposits held in escrow, plus any interest
due under the terms of the deposit subscription agreements, and
require the applicant to file a new application and application fee.
The applicant shall also refund all processing fees paid by the
depositors.
   (c) Within 10 calendar days the applicant shall notify each
depositor of the department's approval or denial of the extension, of
any expiration of the permit to accept deposits and of any right to
a refund of their deposits.


1785.  (a) If, at any time prior to issuance of a certificate of
authority, the applicant's average performance over any six-month
period does not substantially equal or exceed the applicant's
projections for that period, the department, after consultation and
upon consideration of the recommendations of the Continuing Care
Advisory Committee, may take any of the following actions:
   (1) Cancel the permit to accept deposits and require that all
funds in escrow be returned to depositors immediately.
   (2) Increase the required percentages of construction completed,
units reserved, or entrance fees to be deposited as required under
Sections 1782, 1783.3, 1786, and 1786.2.
   (3) Increase the reserve requirements under this chapter.
   (b) Prior to taking any actions specified in subdivision (a), the
department shall give the applicant an opportunity to submit a
feasibility study from a consultant in the area of continuing care,
approved by the department, to determine whether in his or her
opinion the proposed continuing care retirement community is still
viable, and if so, to submit a plan of correction. The department, in
consultation with the committee, shall determine if the plan is
acceptable.
   (c) In making its determination, the department shall take into
consideration the overall performance of the proposed continuing care
retirement community to date.
   (d) If deposits have been released from escrow, the department may
further require the applicant to reopen the escrow as a condition of
receiving any further entrance fee payments from depositors or
residents.
   (e) The department may require the applicant to notify all
depositors and, if applicable, all residents, of any actions required
by the department under this section.