The line between real property transactions and securities transactions is not always clear.  California Corporations Code Section 25100(p) provides an exemption for a promissory note secured by a lien on real property provided it is neither: (a) one of a series of notes of equal priority secured by interests in the same real property; or (b) a note in which beneficial interests are sold to more than one person or entity.  However, the fact that a secured note may be exempt under Section 25100(p) will only take you so far.

In Stromberg v. Harder, 2015 U.S. Dist. LEXIS 142584 (N.D. Cal. Oct. 20, 2015), the defendant in my view went too far by arguing that Section 25100 “exempts ‘real property investments’ from classification as ‘securities’ that require a permit”.  The exemption found in Section 25100(p) exempts a secured promissory note from the requirement that its offer and sale in this state must be qualified under Section 25110, 25120 or 25130.  Section 25100(p), however, is not an exemption from the antifraud provisions of the Corporate Securities Law.

It should be noted, however, that despite the fact that Section 25018 defines “security” to include, among other things, “any note”, California courts have not always found that notes are securities under the California Corporate Securities Law.  See Marsh & Volk, Practice Under the California Securities Law § 5.19[3] (note to readers: I serve as Practice Editor to this treatise).