Senate BillChaptered/SignedHealth and Safety
SB 686: Housing programs: financing.
What SB 686 does, verified December 7, 2025
The bill aims to amend a specific section of the health and safety code to relate to housing. It requires the department of housing and community development to allow property owners to take out additional debt to finance rehabilitation or new affordable housing projects. The bill also revises the definition of "extracted equity" to include debt used for reimbursement of borrower advances for predevelopment costs, capital improvements, and operating deficits. This change would provide more flexibility for property owners to access financing for housing projects. The bill is intended to support the development of housing and provide housing assistance and home loans.
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Last action: Chaptered by Secretary of State. Chapter 523, Statutes of 2025. (2025-10-10)Alert me
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| Oct. 10, 2025 | Chaptered by Secretary of State. Chapter 523, Statutes of 2025. |
| Oct. 10, 2025 | Approved by the Governor. |
| Sep. 22, 2025 | Enrolled and presented to the Governor at 2 p.m. |
| Sep. 11, 2025 | Assembly amendments concurred in. (Ayes 40. Noes 0. Page 2927.) Ordered to engrossing and enrolling. |
| Sep. 09, 2025 | Ordered to special consent calendar. |
Latest bill textChaptered version, October 10, 2025 · 769 words
Senate Bill No. 686
CHAPTER 523
An act to amend Section 50406.4 of the Health and Safety Code, relating to housing.
[ Approved by Governor October 10, 2025. Filed with Secretary of State October 10, 2025. ]
LEGISLATIVE COUNSEL'S DIGEST
SB 686, Reyes. Housing programs: financing.
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.
The people of the State of California do enact as follows:
SECTION 1.
Section 50406.4 of the Health and Safety Code, as added by Section 48 of Chapter 22 of the Statutes of 2025, is amended to read:50406.4.
Notwithstanding any other law, and to the extent permitted under federal law and the California Constitution, the department shall allow an owner of a property subject to a regulatory agreement with the department to take out additional debt on the development to finance, with the department’s approval, rehabilitation of the property or investment in new affordable housing, if all of the following conditions are met:(a) (1) All hard debt, including the additional debt, is underwritten with a debt-service coverage ratio of at a minimum 1.15 and is demonstrated to project positive cash flow for 15 consecutive years.
(2) For the purposes of this subdivision, “hard debt” means debt that must be repaid via an amortizing payment or at a specified maturity date.
(b) Any new debt is subordinate to the department’s lien and regulatory agreement, as applicable, unless the department reasonably determines that subordination of the department’s lien is necessary for the feasibility of a project and to fund reasonable rehabilitation or improvements, including soft costs.
(c) (1) Any extracted equity is any of the following:
(A) With the department’s approval, contributed to other projects that will increase or improve the supply of deed-restricted affordable housing serving low-income households in the state.
(B) Utilized in the purchase of a limited partner interest of a tax credit investor in the project, provided that the amount used to purchase that interest shall be subject to the guidelines adopted pursuant to subdivision (h) of 50560.
(C) Utilized in the payment of any unpaid deferred developer fee for the project pursuant to any applicable department regulations.
(D) Applied toward payment for necessary repairs and rehabilitation of the project.
(E) Utilized for the establishment or replenishment of department-approved project reserves.
(F) Utilized for reimbursement of borrower advances for predevelopment costs, unreimbursed capital improvements, and unreimbursed operating deficits.
(G) Utilized for any other purposes approved by the department.
(2) For the purposes of this subdivision, “extracted equity” means distributed funds that are financed with debt that is secured by a department-regulated property and is not used for any of the following purposes:
(A) Approved project rehabilitation work.
(B) To pay off existing debt.
(C) Replenishment of reserves.
(D) Other department-approved project specific uses.
(d) The department’s regulatory agreement remains in place for the project for its remaining term. If equity is extracted for purposes of paragraph (1) of subdivision (c), the department’s regulatory agreement will be recorded in a senior position.
(e) The department continues to be entitled to receive monitoring fees to ensure compliance with the existing regulatory agreement.
Text of SB 686 as chaptered, from the official record. Connect Plus keeps every version and highlights what changed.Compare versions