What is it?

Prop 37 is a $25B state down payment loan program for middle-class buyers of newly built homes.

If an eligible buyer provides a 3% down payment, the California Housing Finance Agency (CalHFA) will issue the buyer a second mortgage covering up to 17% of the home's purchase price, to bring the total down payment to 20%. Buyers will then obtain a traditional mortgage.

These are revenue bonds, not general obligation bonds, so the state's General Fund does not back them. Bondholders get repaid out of borrowers' loan payments, so investors (institutions and individuals who buy the bonds), not taxpayers, carry the risk if borrowers stop paying.

Who qualifies

A buyer must have lived in California for at least 1 year, earn no more than 200% of the area median income for their family size, and move into the home as their primary residence. The home must be brand new, with the buyer as the first owner, and priced at no more than 125% of the federal conforming loan limit for that county.

Construction defect lawsuits

Currently, builders can be sued for defects in new homes for 10 years after construction, but for just 4 years for rentals. Researchers at UC Berkeley's Terner Center and SPUR say this is a big reason developers build apartments instead of condos: condos were just 3% of California's new multifamily housing from 2011 to 2021, versus 38% in Canada, and insuring a condo project costs three to four times as much as a similar rental. Lawyers often approach homeowner associations about suing as the 10-year deadline nears, and the Terner Center notes that contingency fees of up to a third of a cash settlement discourage settling for repairs alone. Housing groups including the Terner Center, SPUR, and California YIMBY have recommended changing these rules.

Prop 37 changes them for homes built under its program. Builders can opt in: in exchange for taking on labor standards, they get a reformed construction defect process under the Right to Repair Act for those homes. A defect claim must name each homeowner and each alleged defect, the builder can work with homeowners directly and get a signed release once repairs are done, and a lawyer suing on contingency can take at most 30% of what homeowners win unless a judge approves more. A builder who sells a home for more than 25% above the price cap loses these reforms for that home.

Read the full annotated legal text →