(a) For purposes of this section:
(1) “Beneficiary” means a “beneficiary” as defined in paragraph (3) of subdivision (a) of Section 5102 of the Commercial Code.
(2) “Customer” means an “applicant” as defined in paragraph (2) of subdivision (a) of Section 5102 of the Commercial Code.
(3) “Letter of credit” means a “letter of credit” as defined in paragraph (10) of subdivision (a) of Section 5102 of the Commercial Code whether or not the engagement is governed by Division 5 (commencing with Section 5101) of the Commercial Code.
(b) No letter of credit shall be enforceable by any party thereto in a loan transaction in which all of the following circumstances exist:
(1) The customer is a natural person.
(2) The letter of credit is issued to the beneficiary to avoid a default of the existing loan.
(3) The existing loan is secured by a purchase money deed of trust or purchase money mortgage on real property containing one to four residential units, at least one of which is owned and occupied, or was intended at the time the existing loan was made, to be occupied by the customer.
(4) The letter of credit is issued after the effective date of this section.
(Amended by Stats. 1996, Ch. 176, Sec. 3. Effective January 1, 1997.)