California Private Money Lending:
Licensing, Compliance & Documents

By Anthony Geraci, Managing Partner & CEO, Geraci LLP  |  September 2025

California is the largest private money lending market in the United States. More private money loans are originated in California than any other state, driven by high property values, an active fix-and-flip market, and a large concentration of private lending operations based in Southern California. But California also has one of the most complex regulatory frameworks for private lenders in the country.

After two decades of advising private money lenders in California, I can tell you that the compliance landscape here trips up even experienced operators. This guide covers the essential requirements every private money lender needs to understand when originating loans in California.

Related: Compliance Guide 2026  |  Usury Laws by State  |  Complete Guide to Loan Documents

Licensing: DRE vs. DFPI

The first decision every California private money lender must make is which license to operate under. Both the DRE (Department of Real Estate) and DFPI (Department of Financial Protection and Innovation) provide pathways for originating private money loans, but they come with different requirements, capabilities, and limitations.

DRE Real Estate Broker License. This is the most common license for California private money lenders. A DRE-licensed broker can originate loans, arrange loans between borrowers and investors, service loans, and pool investor funds (subject to restrictions). The DRE license provides a usury exemption under California's constitutional usury provision (Article XV). Key requirements include the Mortgage Loan Disclosure Statement (MLDS), which must be provided to both borrower and lender/investor before funding.

DFPI Finance Lender License (CFL). The California Finance Lender license is issued by the DFPI and provides broader authority in some areas. CFL licensees can make loans using their own funds or institutional capital without the investor-count restrictions that apply to DRE brokers. The CFL license also provides a usury exemption. CFL licensees are subject to regular examination by the DFPI and must file annual reports.

Many larger California private money lenders hold both licenses, using the DRE license for broker-arranged transactions and the CFL license for balance-sheet lending. The choice between licenses depends on your business model, capital source, and growth plans.

California Usury Law and the Business-Purpose Exemption

Article XV of the California Constitution sets a general usury cap of 10% for loans from unlicensed lenders. This is one of the strictest usury provisions in the country. However, the following lenders are exempt from this cap: DRE-licensed real estate brokers, DFPI-licensed finance lenders, banks and credit unions, and insurance companies.

Since virtually all professional private money lenders in California hold a DRE or DFPI license, the 10% constitutional cap rarely applies to legitimate private lending operations. The exemption applies to business-purpose loans originated by licensed lenders — which covers the vast majority of private money lending activity in the state.

However, unlicensed individuals who make private loans in California (often called "trust deed investors" who fund loans directly without a broker) are subject to the 10% cap. If you're an individual making direct loans secured by real estate in California without a license, you must ensure your interest rate doesn't exceed this limit.

Required California Disclosures

California imposes disclosure requirements that go beyond federal mandates. Key disclosures for private money lenders include:

Mortgage Loan Disclosure Statement (MLDS). DRE-regulated lenders must provide the MLDS (Form RE 882 for borrowers, Form RE 883 for lenders/purchasers) before the loan closes. This disclosure includes all material terms of the loan, including interest rate, fees, payment schedule, balloon payment information, and broker compensation. Failure to provide the MLDS is one of the most common compliance violations in California private lending.

Late charge limitations. California Civil Code Section 2954.4 limits late charges on loans secured by residential property (1-4 units) to the greater of $5 or 6% of the installment due. This applies regardless of what the loan documents state.

Prepayment penalty restrictions. For loans secured by owner-occupied residential property, California limits prepayment penalties. For business-purpose loans secured by non-owner-occupied investment property, prepayment penalties are generally enforceable as agreed between the parties.

Balloon payment disclosure. California law requires specific disclosure language for balloon payment loans, including a warning that the borrower may be required to pay a large sum at maturity. Most private money loans include balloon payments, making this disclosure relevant to virtually every transaction.

Document Requirements for California Private Money Loans

California uses a deed of trust as its primary security instrument. Private money loans in California typically require the following document package: a promissory note (secured by the deed of trust), a deed of trust (recorded with the county recorder in the county where the property is located), a loan agreement (setting forth the complete terms and conditions), a personal guaranty (if the borrower is an entity), the Mortgage Loan Disclosure Statement (MLDS), applicable California-specific disclosures and compliance riders, and for fix-and-flip or construction loans, draw agreements and scope of work exhibits.

Automate Loan Docs generates all required California documents automatically, including the state-specific disclosures, compliance riders, and provisions that reflect current California law. The platform's compliance engine is maintained by the attorneys at Geraci LLP, whose team has been advising California private money lenders with over 30 years of combined experience.