BILL NUMBER: AB 2020	CHAPTERED
	BILL TEXT

	CHAPTER  665
	FILED WITH SECRETARY OF STATE  SEPTEMBER 30, 2008
	APPROVED BY GOVERNOR  SEPTEMBER 30, 2008
	PASSED THE SENATE  AUGUST 20, 2008
	PASSED THE ASSEMBLY  AUGUST 29, 2008
	AMENDED IN SENATE  AUGUST 14, 2008
	AMENDED IN SENATE  AUGUST 4, 2008
	AMENDED IN SENATE  JULY 2, 2008
	AMENDED IN ASSEMBLY  MAY 7, 2008
	AMENDED IN ASSEMBLY  APRIL 16, 2008

INTRODUCED BY   Assembly Member Fuentes

                        FEBRUARY 15, 2008

   An act to amend, repeal, and add Section 1675 of the Civil Code,
relating to residential property.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 2020, Fuentes. Residential property contracts: liquidated
damages.
   Existing law provides that a provision in a contract to purchase
and sell residential property that provides that all or any part of a
payment made by the buyer shall constitute liquidated damages to the
seller upon the buyer's failure to complete the purchase of the
property is valid to the extent that payment in the form of cash or
check, including a postdated check, is actually made if the provision
meets specified requirements. In certain circumstances involving the
sale of an attached residential condominium unit located within a
structure of 10 or more residential condominium units, as specified,
the seller is required to perform an accounting of its costs and
revenues, as specified. Existing law also provides for what must be
taken into account when determining the reasonableness of an amount
actually paid as liquidated damages in the event of a buyer's default
in one of those sales.
   Until July 1, 2014, this bill would require the seller to perform
an accounting in certain circumstances involving the sale of an
attached residential condominium located within a structure of 20 or
more residential condominium units, standing over 8 stories high,
that is high-density infill development, as specified, when the
purchase price is greater than $1,000,000. The bill would provide for
the annual adjustment of that minimum purchase price. The bill would
also require the seller to give notice to the buyer of those
provisions, as specified. This bill would also provide for what must
be taken into account when determining the reasonableness of an
amount actually paid as liquidated damages in the event of a buyer's
default in one of those sales. The bill would also make technical,
nonsubstantive changes to those provisions.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

   SECTION 1.  Section 1675 of the Civil Code is amended to read:
   1675.  (a) As used in this section, "residential property" means
real property primarily consisting of a dwelling that meets both of
the following requirements:
   (1) The dwelling contains not more than four residential units.
   (2) At the time the contract to purchase and sell the property is
made, the buyer intends to occupy the dwelling or one of its units as
his or her residence.
   (b) A provision in a contract to purchase and sell residential
property that provides that all or any part of a payment made by the
buyer shall constitute liquidated damages to the seller upon the
buyer's failure to complete the purchase of the property is valid to
the extent that payment in the form of cash or check, including a
postdated check, is actually made if the provision satisfies the
requirements of Sections 1677 and 1678 and either subdivision (c) or
(d) of this section.
   (c) If the amount actually paid pursuant to the liquidated damages
provision does not exceed 3 percent of the purchase price, the
provision is valid to the extent that payment is actually made unless
the buyer establishes that the amount is unreasonable as liquidated
damages.
   (d) If the amount actually paid pursuant to the liquidated damages
provision exceeds 3 percent of the purchase price, the provision is
invalid unless the party seeking to uphold the provision establishes
that the amount actually paid is reasonable as liquidated damages.
   (e) For the purposes of subdivisions (c) and (d), the
reasonableness of an amount actually paid as liquidated damages shall
be determined by taking into account both of the following:
   (1) The circumstances existing at the time the contract was made.
   (2) The price and other terms and circumstances of any subsequent
sale or contract to sell and purchase the same property if the sale
or contract is made within six months of the buyer's default.
   (f) (1) Notwithstanding either subdivision (c) or (d), for the
initial sale of newly constructed attached condominium units, as
defined pursuant to Section 783 that involves the sale of an attached
residential condominium unit located within a structure of 10 or
more residential condominium units and the amount actually paid to
the seller pursuant to the liquidated damages provision exceeds 3
percent of the purchase price of the residential unit in the
transaction both of the following shall occur in the event of a buyer'
s default:
   (A) The seller shall perform an accounting of its costs and
revenues related to and fairly allocable to the construction and sale
of the residential unit within 60 calendar days after the final
close of escrow of the sale of the unit within the structure.
   (B) The accounting shall include any and all costs and revenues
related to the construction and sale of the residential property and
any delay caused by the buyer's default. The seller shall make
reasonable efforts to mitigate any damages arising from the default.
The seller shall refund to the buyer any amounts previously retained
as liquidated damages in excess of the greater of either 3 percent of
the originally agreed-upon purchase price of the residential
property or the amount of the seller's losses resulting from the
buyer's default, as calculated by the accounting.
   (2) The refund shall be sent to the buyer's last known address
within 90 days after the final close of escrow of the sale or lease
of all the residential condominium units within the structure.
   (3) If the amount retained by the seller after the accounting does
not exceed 3 percent of the purchase price, the amount is valid
unless the buyer establishes that the amount is unreasonable as
liquidated damages pursuant to subdivision (e).
   (4) Subdivision (d) shall not apply to any dispute regarding the
reasonableness of any amount retained as liquidated damages pursuant
to this subdivision.
   (5) Notwithstanding the time periods regarding the performance of
the accounting set forth in paragraph (1), if a new qualified buyer
has entered into a contract to purchase the residential property in
question, the seller shall perform the accounting within 60 calendar
days after a new qualified buyer has entered into a contract to
purchase.
   (6) As used in this subdivision, "structure" means either of the
following:
   (A) Improvements constructed on a common foundation.
   (B) Improvements constructed by the same owner that must be
constructed concurrently due to the design characteristics of the
improvements or physical characteristics of the property on which the
improvements are located.
   (7) As used in this subdivision, "new qualified buyer" means a
buyer who either:
   (A) Has been issued a loan commitment, which satisfies the
purchase agreement loan contingency requirement, by an institutional
lender to obtain a loan for an amount equal to the purchase price
less any downpayment possessed by the buyer.
   (B) Has contracted to pay a purchase price that is greater than or
equal to the purchase price to be paid by the original buyer.
   (g) (1) (A) Notwithstanding subdivision (c), (d), or (f), for the
initial sale of newly constructed attached condominium units, as
defined pursuant to Section 783, that involves the sale of an
attached residential condominium unit described in subparagraph (B),
and the amount actually paid to the seller pursuant to the liquidated
damages provision exceeds 6 percent of the purchase price of the
residential unit in the transaction, then both of the following shall
occur in the event of a buyer's default:
   (i) The seller shall perform an accounting of its costs and
revenues related to and fairly allocable to the construction and sale
of the residential unit within 60 calendar days after the final
close of escrow of the sale of the unit within the structure.
   (ii) The accounting shall include any and all costs and revenues
related to the construction and sale of the residential property and
any delay caused by the buyer's default. The seller shall make
reasonable efforts to mitigate any damages arising from the default.
The seller shall refund to the buyer any amounts previously retained
as liquidated damages in excess of the greater of either 6 percent of
the originally agreed-upon purchase price of the residential
property or the amount of the seller's losses resulting from the
buyer's default, as calculated by the accounting.
   (B) This subdivision applies to an attached residential
condominium unit for which both of the following are true:
   (i) The unit is located within a structure of 20 or more
residential condominium units, standing over eight stories high, that
is high-density infill development, as defined in paragraph (10) of
subdivision (a) of Section 21159.24 of the Public Resources Code, and
that is located in a city, county, or city and county with a
population density of 1,900 residents per square mile or greater, as
evidenced by the 2000 United States census.
   (ii) The purchase price of the unit was more than one million
dollars ($1,000,000).
   (2) The refund shall be sent to the buyer's last known address
within 90 days after the final close of escrow of the sale or lease
of all the residential condominium units within the structure.
   (3) If the amount retained by the seller after the accounting does
not exceed 6 percent of the purchase price, the amount is valid
unless the buyer establishes that the amount is unreasonable as
liquidated damages pursuant to subdivision (e).
   (4) Subdivision (d) shall not apply to any dispute regarding the
reasonableness of any amount retained as liquidated damages pursuant
to this subdivision.
   (5) Notwithstanding the time periods regarding the performance of
the accounting set forth in paragraph (1), if a new qualified buyer
has entered into a contract to purchase the residential property in
question, the seller shall perform the accounting within 60 calendar
days after a new qualified buyer has entered into a contract to
purchase.
   (6) As used in this subdivision, "structure" means either of the
following:
   (A) Improvements constructed on a common foundation.
   (B) Improvements constructed by the same owner that must be
constructed concurrently due to the design characteristics of the
improvements or physical characteristics of the property on which the
improvements are located.
   (7) As used in this subdivision, "new qualified buyer" means a
buyer who either:
   (A) Has been issued a loan commitment, which satisfies the
purchase agreement loan contingency requirement, by an institutional
lender to obtain a loan for an amount equal to the purchase price
less any downpayment possessed by the buyer.
   (B) Has contracted to pay a purchase price that is greater than or
equal to the purchase price to be paid by the original buyer.
   (8) Commencing on July 1, 2010, and annually on each July 1
thereafter, the dollar amount of the minimum purchase price specified
in paragraph (1) shall be adjusted. The Real Estate Commissioner
shall determine the amount of the adjustment based on the change in
the median price of a single family home in California, as determined
by the most recent data available from the Federal Housing Finance
Board. Upon determining the amount of the adjustment, the Real Estate
Commissioner shall publish the current dollar amount of the minimum
purchase price on the Internet Web site of the Department of Real
Estate.
   (9) Prior to the execution of a contract for sale of a residential
condominium unit subject to this subdivision, the seller shall
provide to the buyer the following notice, in at least 12-point type:

   "Important Notice Regarding Your Deposit: Under California law, in
a contract for the initial sale of a newly constructed attached
condominium unit in a building over eight stories tall, containing 20
or more residential units, and located in a high-density infill
development in a city, county, or city and county with 1,900
residents or more per square mile, where the price is more than one
million dollars ($1,000,000), as adjusted by the Department of Real
Estate, liquidated damages of 6 percent of the purchase price are
presumed valid if the buyer defaults, unless the buyer establishes
that the amount is unreasonable."

   If the seller fails to provide this notice to the buyer prior to
the execution of the contract, the amount of any liquidated damages
shall be subject to subdivisions (c) and (d).
   (h) This section shall become inoperative on July 1, 2014, and, as
of January 1, 2015, is repealed, unless a later enacted statute,
that becomes operative on or before January 1, 2015, deletes or
extends the dates on which it becomes inoperative and is repealed.
  SEC. 2.  Section 1675 is added to the Civil Code, to read:
   1675.  (a) As used in this section, "residential property" means
real property primarily consisting of a dwelling that meets both of
the following requirements:
   (1) The dwelling contains not more than four residential units.
   (2) At the time the contract to purchase and sell the property is
made, the buyer intends to occupy the dwelling or one of its units as
his or her residence.
   (b) A provision in a contract to purchase and sell residential
property that provides that all or any part of a payment made by the
buyer shall constitute liquidated damages to the seller upon the
buyer's failure to complete the purchase of the property is valid to
the extent that payment in the form of cash or check, including a
postdated check, is actually made if the provision satisfies the
requirements of Sections 1677 and 1678 and either subdivision (c) or
(d) of this section.
   (c) If the amount actually paid pursuant to the liquidated damages
provision does not exceed 3 percent of the purchase price, the
provision is valid to the extent that payment is actually made unless
the buyer establishes that the amount is unreasonable as liquidated
damages.
   (d) If the amount actually paid pursuant to the liquidated damages
provision exceeds 3 percent of the purchase price, the provision is
invalid unless the party seeking to uphold the provision establishes
that the amount actually paid is reasonable as liquidated damages.
   (e) For the purposes of subdivisions (c) and (d), the
reasonableness of an amount actually paid as liquidated damages shall
be determined by taking into account both of the following:
   (1) The circumstances existing at the time the contract was made.
   (2) The price and other terms and circumstances of any subsequent
sale or contract to sell and purchase the same property if the sale
or contract is made within six months of the buyer's default.
   (f) (1) Notwithstanding either subdivision (c) or (d), for the
initial sale of newly constructed attached condominium units, as
defined pursuant to Section 783, that involves the sale of an
attached residential condominium unit located within a structure of
10 or more residential condominium units and the amount actually paid
to the seller pursuant to the liquidated damages provision exceeds 3
percent of the purchase price of the residential unit in the
transaction both of the following shall occur in the event of a buyer'
s default:
   (A) The seller shall perform an accounting of its costs and
revenues related to and fairly allocable to the construction and sale
of the residential unit within 60 calendar days after the final
close of escrow of the sale of the unit within the structure.
   (B) The accounting shall include any and all costs and revenues
related to the construction and sale of the residential property and
any delay caused by the buyer's default. The seller shall make
reasonable efforts to mitigate any damages arising from the default.
The seller shall refund to the buyer any amounts previously retained
as liquidated damages in excess of the greater of either 3 percent of
the originally agreed-upon purchase price of the residential
property or the amount of the seller's losses resulting from the
buyer's default, as calculated by the accounting.
   (2) The refund shall be sent to the buyer's last known address
within 90 days after the final close of escrow of the sale or lease
of all the residential condominium units within the structure.
   (3) If the amount retained by the seller after the accounting does
not exceed 3 percent of the purchase price, the amount is valid
unless the buyer establishes that the amount is unreasonable as
liquidated damages pursuant to subdivision (e).
   (4) Subdivision (d) shall not apply to any dispute regarding the
reasonableness of any amount retained as liquidated damages pursuant
to this subdivision.
   (5) Notwithstanding the time periods regarding the performance of
the accounting set forth in paragraph (1), if a new qualified buyer
has entered into a contract to purchase the residential property in
question, the seller shall perform the accounting within 60 calendar
days after a new qualified buyer has entered into a contract to
purchase.
   (6) As used in this subdivision, "structure" means either of the
following:
   (A) Improvements constructed on a common foundation.
   (B) Improvements constructed by the same owner that must be
constructed concurrently due to the design characteristics of the
improvements or physical characteristics of the property on which the
improvements are located.
   (7) As used in this subdivision, "new qualified buyer" means a
buyer who either:
   (A) Has been issued a loan commitment, which satisfies the
purchase agreement loan contingency requirement, by an institutional
lender to obtain a loan for an amount equal to the purchase price
less any downpayment possessed by the buyer.
   (B) Has contracted to pay a purchase price that is greater than or
equal to the purchase price to be paid by the original buyer.
   (g) This section shall become operative on July 1, 2014.