(a)  Financial assistance pursuant to Section 50775 may be provided directly by the department or through a governmental agency or mortgage lender certified by the department to participate in the program authorized by Section 50775. The mortgage lender may be a bank or trust company, mortgage banker, federal-chartered or state-chartered savings and loan association, or other financial institution, including a credit union, deemed capable by the department, pursuant to regulations adopted in accordance with the provisions of Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, of providing services or mortgage loans in conjunction with dwelling units, mobilehomes, or shares in stock cooperatives for which the financial assistance is provided.

(b)  The department, governmental agency, or mortgage lender shall enter into a contract with each recipient of financial assistance under Section 50775, requiring the recipient, upon sale or transfer of the dwelling unit, mobilehome, or share for which the assistance was provided, to pay to the department an amount proportionate to the percentage of the initial purchase price which was paid with financial assistance provided under Section 50775. The contract may provide that the department shall not receive less than the amount of assistance provided under Section 50775. However, if the recipient has made improvements to the dwelling unit or mobilehome, as the case may be, the increase in the fair market value of the unit or mobilehome arising from the improvement shall be added to the fair market value of the recipient’s share in that unit or mobilehome immediately before these improvements are made, to determine the recipient’s relative financial participation for the purpose of calculating the amount to be paid to the department. Improvements which may be added to the purchase price for this purpose shall be defined by regulations of the department, adopted in accordance with Chapter 3.5 (commencing with Section 11430) of Part 1 of Division 3 of Title 2 of the Government Code, and shall be limited to substantial repairs, renovations, or additions undertaken with respect to the dwelling unit or mobilehome assisted, which increase the value of the dwelling unit or mobilehome, or which bring that dwelling unit or mobilehome into conformance with local or state building or housing standards.

(c)  Any contract pursuant to this section may permit the recipient of financial assistance to terminate the contract upon payment to the department of the amount which would be owed the department if the dwelling unit, mobilehome or share were sold at fair market value at the time of the repayment. These contracts, subject to regulations adopted by the department, may also permit partial repayments prior to sale or transfer.

(d)  Contracts pursuant to this section shall require payment of the full amount of property taxes, insurance, and costs of normal maintenance by the household receiving assistance pursuant to Section 50775, and compliance with restrictions on occupancy, including owner-occupancy, as required by the department. Every contract required by this section shall be secured by a deed of trust, security, or other interest determined adequate by the department to protect the interests of the state. These deeds of trust, security, or other instruments shall be recorded in the office of the county recorder of the county in which the dwelling unit is located.

(e)  The contract shall require the recipient of financial assistance to comply with all terms and conditions of, and to make all payments required by, any instrument secured by the dwelling unit.

(f)  (1)  The department may set aside or use funds that are made available pursuant to this chapter for the purposes of curing or averting a default on the terms of any loan or other obligation by the recipient of financial assistance, or bidding at any foreclosure sale, where the default or foreclosure sale would jeopardize the department’s security in the dwelling unit assisted pursuant to this chapter.

(2)  The department may set aside or use funds made available pursuant to this chapter to repair or maintain any dwelling unit assisted pursuant to this chapter which was acquired to protect the department’s security interest in the dwelling unit.

(3)  The payment or advance of funds by the department pursuant to this subdivision shall be exclusively within the department’s discretion, and no person shall be deemed to have any entitlement to the payment or advance of those funds. The amount of any funds expended by the department for purposes of curing or averting a default shall be added to any loan amount secured by the deed of trust and shall be payable to the department upon demand.

(Amended by Stats. 1992, Ch. 1022, Sec. 3. Effective January 1, 1993.)