SB 686 California Senate · 2025-2026 Regular Session

Housing programs: financing.

Summary

Existing law, the Zenovich-Moscone-Chacon Housing and Home Finance Act, among other things, establishes the Department of Housing and Community Development and requires it to administer various programs intended to promote the development of housing and to provide housing assistance and home loans. Existing law sets forth various general powers of the department in implementing these programs, including authorizing the department to enter into long-term contracts or agreements of up to 30 years for the purpose of servicing loans or grants or enforcing regulatory agreements or other security documents. Existing law requires the department, subject to certain conditions, to allow property owners subject to a regulatory agreement with the department to take out additional debt on the development in order to finance, with the department's approval, the rehabilitation of the property or investment in new affordable housing. Under existing law, one of those conditions is that any extracted equity is required to meet at least one of several conditions, as specified. Existing law defines "extracted equity" for these purposes to mean debt added to a department-regulated property that is not used in prescribed ways. This bill would, additionally, require the department to allow property owners to take out additional debt, as described above, if any extracted equity is utilized for reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits. The bill would revise the definition of "extracted equity" to mean debt distributed funds that are financed with debt that is secured by a department-regulated property and is not used in prescribed ways.

Issues: ✓ Housing

Bill status signed all 5 stages cleared

Introduction

Feb 2025

Committee Review

Aug 2025

Senate Passage

May 2025

Assembly Passage

Aug 2025

Signed into Law

Oct 2025

Introduced Feb 21, 2025 Signed Oct 10, 2025

Maddy AI version diff · 4 comparisons

What changed between versions

07/07/25 - Amended Assembly → 09/16/25 - Enrolled · 6 edits · Sep 16, 2025

MODERATE

SB 686 was dramatically narrowed between the Amended Assembly version and the Enrolled version. The original bill contained six sections covering loan restructuring authority, rent increase provisions, regulatory agreement requirements, a new definition of capitalized operating reserves, and No Place Like Home Program definitions. The enrolled version retains only Section 50406.4, which allows property owners to take out additional debt on department-regulated properties for rehabilitation or affordable housing investment. This represents a major reduction in the bill's scope from a comprehensive housing finance restructuring framework to a single provision on additional debt access.

SCOPE

Section 50560 was removed entirely. This section had authorized the department to approve loan extensions, reinstatements, subordinations, payoffs, equity extractions, and tax credit investments under multiple rental housing finance programs, along with detailed procedural requirements for guideline adoption.

Section 50561 was removed entirely. This section contained extensive rent increase provisions for restructured developments, including specific income-based rent caps (30% of 60% AMI for lower income units, 30% of 35% AMI for very low income units), annual rent increase limits for existing tenants (5% or 10% per year), tenant notification requirements, and relocation benefit provisions.

Section 50562 was removed entirely. This section had governed the creation and terms of new or amended regulatory agreements following loan restructuring, including requirements for tenant selection standards, rent restrictions, inspections, financial reporting, and equity sharing with the department.

Section 5849.2 of the Welfare and Institutions Code was removed. This section had provided definitions for the No Place Like Home Program, including 'at risk of chronic homelessness,' 'capitalized operating reserves,' 'chronically homeless,' and other program-specific terms.

DEFINITION

Section 50058.8 was removed. This section had defined 'capitalized operating reserves' as capitalized funds for assisted units to cover potential or projected operating deficits over time, including operations, supportive services, and rent subsidies.

In the retained Section 50406.4, the definition of 'extracted equity' was slightly revised. The old version defined it as 'debt added to distributed funds that are financed with debt that is secured by a department-regulated property.' The enrolled version defines it as 'distributed funds that are financed with debt that is secured by a department-regulated property,' removing the phrase 'debt added to' at the beginning.

02/21/25 - Introduced → 07/07/25 - Amended Assembly · 7 edits · Jul 7, 2025

MODERATE

The Assembly amendment adds a new section (50406.4) that explicitly requires the housing department to allow property owners to take out additional debt on regulated properties for rehabilitation or new affordable housing investment, with specific financial conditions including a 1.15 minimum debt-service coverage ratio and 15-year positive cash flow projection. It also revises the definition of 'extracted equity,' adds reimbursement of borrower advances for predevelopment costs and unreimbursed deficits as an eligible use, and ties the useful-life requirement to the regulatory agreement term rather than the loan term.

SCOPE

New Section 50406.4 requires the department to allow property owners subject to a regulatory agreement to take out additional debt to finance rehabilitation or investment in new affordable housing, subject to conditions including a minimum 1.15 debt-service coverage ratio, 15-year positive cash flow projection, and subordination of new debt to the department's lien unless feasibility requires otherwise.

DEFINITION

The definition of 'extracted equity' is revised from 'debt added to a department-regulated property that is not used in prescribed ways' to 'debt distributed funds that are financed with debt that is secured by a department-regulated property and is not used for approved project rehabilitation work, to pay off existing debt, replenishment of reserves, or other department-approved project specific uses.'

ELIGIBILITY

A new eligible use for extracted equity is added: reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits.

REQUIREMENT

Section 50560(d) now requires the project's potential remaining useful life to equal or exceed the term of the department's regulatory agreement (previously the term of the restructured loan), which could be a longer period and is a more restrictive condition for approval.

Section 50560(e) removes the 'recent' qualifier from capital improvements and operating deficits eligible for reimbursement through subordination, broadening the scope of reimbursable costs. Also removes 'modest' from the size/scope/cost standard for additional senior debt.

FISCAL

Section 50561(a) changes the monitoring fee trigger from fees incurred 'in years that the loan is extended' to fees incurred 'from the date of the recordation of the loan or regulatory documents,' potentially extending the period over which monitoring fees are collected.

ENFORCEMENT

Section 50562(a) adds authority for the department to add another regulatory agreement if it determines necessary, and adds provisions allowing the department to waive requirements for occupancy reports, financial audits, operating income use, and reserve use if the department loan is paid off, with the waiver rescindable at the department's sole determination.

Floor votes · Senate May 29, 2025 · Assembly Aug 28, 2025

How they voted

38–0

Passed · 2 other

Total votes 40

May 29, 2025

D Democratic30

28 Yea 2

93% Yea

R Republican10

10 Yea

100% Yea

Vote distribution

All Yea All Nay Mixed No data

Full legislative history

Actions timeline

Total actions

Key actions

Committee

Amendments

Oct 10, 2025

Signed into law

Approved by the Governor.

legislature

Sep 11, 2025

Upper · Passed

Assembly amendments concurred in. (Ayes 40. Noes 0. Page 2927.) Ordered to engrossing and enrolling.

upper

Aug 28, 2025

Introduced

In Senate. Concurrence in Assembly amendments pending.

upper

Aug 28, 2025

Lower · Passed

Read third time. Passed. (Ayes 74. Noes 0. Page 2777.) Ordered to the Senate.

lower

Aug 20, 2025

Lower · Passed

From committee: Do pass. Ordered to consent calendar. (Ayes 15. Noes 0.) (August 20).

lower

Jul 16, 2025

Lower · Passed

From committee: Do pass and re-refer to Com. on APPR. with recommendation: To consent calendar. (Ayes 12. Noes 0.) (July 16). Re-referred to Com. on APPR.

lower

Jul 7, 2025

Lower · Passed

From committee with author's amendments. Read second time and amended. Re-referred to Com. on H. & C.D.

lower

Jun 5, 2025

Committee

Referred to Com. on H. & C.D.

lower

May 29, 2025

Upper · Passed

Read third time. Passed. (Ayes 38. Noes 0. Page 1328.) Ordered to the Assembly.

upper

May 23, 2025

Upper · Passed

From committee: Do pass. (Ayes 6. Noes 0. Page 1209.) (May 23).

upper

Apr 2, 2025

Upper · Passed

From committee: Do pass and re-refer to Com. on APPR. with recommendation: To consent calendar. (Ayes 11. Noes 0. Page 609.) (April 1). Re-referred to Com. on APPR.

upper

Mar 5, 2025

Committee

Referred to Com. on HOUSING.

upper

Feb 21, 2025

Introduced

Introduced. To Com. on RLS. for assignment. To print.

upper

1 primary · 3 co-sponsors