BILL ANALYSIS                                                                                                                                                                                                    



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          Date of Hearing:   April 29, 2009

               ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
                                 Norma Torres, Chair
                     AB 566 (Nava) - As Amended:  April 27, 2009
          
          SUBJECT  :   Mobilehome parks:  conversions.

           SUMMARY  :   Requires the subdivider to obtain a survey  
          demonstrating support of a majority of the residents in order to  
          convert a rental mobilehome park to resident ownership.

           EXISTING LAW  

          1)Requires the subdivider of a mobilehome park to another use,  
            at the time of filing a tentative or parcel map for the  
            subdivision, to also file a report on the impact of the  
            conversion upon the displaced residents of the mobilehome park  
            to be converted.  The report must address the availability of  
            adequate replacement space in other mobilehome parks 
                (Government Code 66427.4).

          2)Allows the local legislative body authorized to approve or  
            disapprove a tentative or parcel map for the conversion of a  
            mobilehome park to another use to require the subdivider to  
            take steps to mitigate any adverse impact of the conversion on  
            the ability of displaced residents to find adequate space in  
            another mobilehome park (Government Code 66427.4).

          3)Authorizes local agencies to enact more stringent measures for  
            the regulation of conversions of mobilehome parks to other  
            uses (Government Code 66427.4).

          4)Exempts the conversion of rental mobilehome parks to resident  
            ownership from the above provisions (Government Code  
            66427.4).

          5)With respect to the conversion of a rental mobilehome park to  
            resident ownership, requires the subdivider to offer existing  
            tenants the option to purchase their subdivided unit or to  
            continue residency as a tenant in the park if they decide not  
            to purchase their lot (Government Code 66427.5).

          6)Requires the subdivider of a mobilehome park to resident  
            ownership to file a report on the impact of the conversion  








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            upon residents and to make the report available to all  
            residents 15 days prior to the hearing on the tentative or  
            parcel map before the local legislative body (Government Code  
            66427.5).

          7)Requires the subdivider to conduct a survey of support of the  
            residents of the mobilehome park for a proposed conversion to  
            resident ownership that meets the following conditions:

             a)   Be conducted in accordance with an agreement between the  
               subdivider and a resident homeowners association if one  
               exists, that is independent of the subdivider;

             b)   Be obtained pursuant to a written ballot; and

             c)   Be conducted so that occupied mobilehome space must have  
               one vote (Government Code 66427.5).

          8)Requires that the results of the survey of support be  
            submitted to the local legislative body upon the filing of the  
            tentative or parcel map to be considered as part of the  
            subdivision map hearing (Government Code 66427.5).

          9)Limits the scope of the hearing of the legislative body on the  
            tentative or parcel map to the subdivider's compliance with  
            the procedures to avoid the economic displacement of  
            non-purchasing residents (Government Code 66427.5).

          10)Establishes the following method for avoiding the economic  
            displacement of non-purchasing residents:

             a)   Allows the monthly rent for non-purchasing residents who  
               are not low-income to increase from the preconversion rent  
               to market rents, as defined in an appraisal conducted in  
               accordance with nationally recognized professional  
               appraisal standards, in equal annual increases over four  
               years;

             b)   Allows the monthly rent for non-purchasing, low-income  
               residents to increase from the preconversion rent by an  
               amount equal to the average monthly increase in rent in the  
               four years immediately preceding the conversion, except  
               that in no event may the monthly rent be increased by an  
               amount greater than the average monthly percentage increase  
               in the Consumer Price Index for the most recently reported  








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               period (Government Code 66427.5).

          11)Waives the requirement for a parcel map or a tentative and  
            final map with limited exceptions n cases where at least  
            two-thirds of the owners of mobilehomes who are tenants in the  
            mobilehome park sign a petition, the language of which is  
            specified in statute, indicating their intent to purchase the  
            mobilehome park for purposes of converting it to resident  
            ownership (Government Code 66428.1).

           FISCAL EFFECT  :   Unknown

           COMMENTS  :   

           Background:
           
          According to the Senate Select Committee on Mobile and  
          Manufactured Homes (Select Committee), there are approximately  
          4,822 mobilehome parks and manufactured communities in the  
          California, with an estimated 700,000 residents living in them.   
          In the vast majority of parks, mobilehome residents own their  
          homes but rent the spaces on which their homes are installed  
          from the park on a month-to-month or long-term lease agreement.   
          According to the Select Committee, of the 4,822 parks, most are  
          privately owned by investor groups or owner/operators and an  
          estimated 150 are owned by resident organizations or non-profit  
          organizations.  Contrary to their name, mobilehomes generally  
          are not mobile.  Once installed in a park, they are rarely ever  
          moved.

          In the mid-1980s, as a result of increasing park rents for low-  
          and moderate-income residents and the closure of some parks and  
          displacement of residents, the concept of resident-owned parks,  
          where residents form a homeowners association to purchase a park  
          and convert it to a mobilehome subdivision, condominium, stock  
          co-operative, or non-profit ownership, gained popularity.   
          Between 1984 and 1996, the Legislature enacted a number of laws  
          relative to conversions to resident ownership.

           Legislative History:

           The Subdivision Map Act vests in cities and counties the power  
          to regulate and control the design and improvement of  
          subdivisions within their boundaries.









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          Conversions of mobilehome parks to other uses are considered to  
          be subdivisions pursuant to the Subdivision Map Act.  Prior to  
          1991, the Map Act required a subdivision map to be filed and  
          approved by the local jurisdiction before individual lots in a  
          park could be sold and converted to a resident-owned   
          subdivision or condominium, and allowed the local government to  
          impose its own conditions on the map.  Subsequently, resident  
          groups and conversion consultants complained that by imposing  
          "unreasonable" conditions, some local governments were actually  
          hampering conversions to resident ownership.

          In 1991, AB 1863 (Hauser), Chapter 745, exempted from  
          subdivision map requirements a conversion where two-thirds of  
          the residents were in support.  In 1995, the Legislature passed  
          SB 310 (Craven), Chapter 256, which amended Government Code (GC)  
          66427.5 to establish statewide standards for avoiding the  
          economic displacement of non-purchasing residents in the event  
          of a conversion of a park to resident ownership.  Under the  
          provisions of SB 310, rents for lower-income non-purchasing  
          households can only increase by the average monthly increase in  
          the four years preceding conversion and shall not exceed the  
          most recent increase in the Consumer Price Index.  For all other  
          non-purchasing residents, rents can increase to market levels in  
          equal amounts over four years.  By establishing a state rent  
          control formula for low-income residents who do not purchase  
          their lots, SB 310 preempted any local rent control ordinance  
          from regulating rents in a park converted to resident ownership.  
           SB 310 also specified that the scope of the local hearing on a  
          conversion to resident ownership shall be limited to the issue  
          of compliance with GC 66427.5.
           
          El Dorado Palm Springs, LTD. v. City of Palm Springs et al.:
           
          In 1993, the owner of the El Dorado Mobile Country Club, a  
          377-space mobilehome park in Palm Springs, filed a tentative  
          subdivision map as a first step to converting the park to  
          resident ownership.  The Palm Springs City Council, concerned  
          that this was a "sham" conversion to circumvent its local rent  
          control ordinance, approved the map subject to several  
          conditions, including that the effective map date would be the  
          date escrow closed on 120 lots in the park.  Under this  
          condition, the park would cease to be subject to the city's  
          mobilehome space rent control ordinance after 120 of its lots  
          had sold.  At that point, the formula for mitigating economic  
          displacement under SB 310 bill would be applicable.  








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          El Dorado's owner filed a lawsuit in superior court to compel  
          approval of the subdivision map without the conditions,  
          including the condition delaying the effective date of the map.   
          El Dorado's owner argued that the effective date of the  
          conversion was when one lot sold, and that pursuant to GC  
          66427.5, the city council did not have the power to impose more  
          stringent requirements.  The lower court denied the park owner's  
          petition, but in 2002, the 4th District Court of Appeal reversed  
          that decision, ruling in favor of the park owner. 

          The appellate court ruled that the city was limited to the scope  
          of assuring that El Dorado's owner had complied with the  
          requirements of 66427.5.  The court ruled that 66427.5 takes  
          effect as soon as one unit is sold, and therefore, its rent  
          formulas supersede a local rent control ordinance as soon as  
          that first lot is sold.  The Appellate Court opined that the  
          question of whether or not there should be more protections in  
          the statute to prevent "sham" conversions by a park owner was a  
          legislative one and not a legal one.

          The proponents of SB 310 did not foresee instances in which  
          mobilehome park owners, rather than residents, would pursue  
          conversions using the provisions of 66427.5.  Since the El  
          Dorado conversion, many more mobilehome park owners have pursued  
          this type of conversion.  This has set up a conflict between  
          park owners and park residents over the use of existing state  
          law for conversion of parks to resident ownership.

           Survey Requirement:
                     
          In an attempt to respond to the El Dorado case, in 2002, the  
          Legislature passed AB 930 (Keeley), Chapter 1143.  AB 930  
          required a subdivider to obtain a survey of support of residents  
          of the mobilehome park for a proposed conversion to resident  
          ownership.  The survey must be conducted in accordance with an  
          agreement between the subdivider and a homeowners' association  
          and must be obtained as a written ballot with each occupied  
          mobilehome space having one vote.  Once completed, results of  
          the survey must be submitted to the local agency to be  
          considered as part of the subdivision map hearing.  AB 930  
          included uncodified language stating the bill was intended to  
          assure that such conversions were "bona-fide."      

          Since the survey requirement was added to the provision of the  








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          Map Act governing conversions to resident ownership, some local  
          governments have enacted local ordinances to define "bona fide,"  
          including a requirement that a certain percentage of residents  
          indicate an interest in purchasing their lots.  Several of these  
          ordinances are the subject of pending litigation as park owners  
          have challenged the measure of resident support as evidence that  
          the conversion is bona fide. 

           Need for the Bill:
           
          The author is concerned that park owners interpret the survey  
          requirement simply as a step to be completed in the conversion  
          process rather than something that local governments can truly  
          take into consideration and use as a basis for approving or  
          denying a conversion to resident ownership.  According to the  
          author:

          "Under current State law, a 'survey' must be taken of park  
          residents before the conversion; however, park owners argue the  
          survey has no meaning.  Park owners argue that even if the  
          survey shows that 100% of the residents oppose the conversion,  
          the local agency has no option but to approve the conversion?."

          AB 566 would require the survey to demonstrate that a majority  
          of the residents of the mobilehome park support the proposed  
          conversion to resident ownership in order for the conversion to  
          proceed.  
           Arguments in Support

           Writing in support of the bill, the Golden State Manufactured  
          Home-Owners League writes:

               "?the conversion of a mobilehome park to condominiums  
               unfairly transfers a significant portion of the value of a  
               resident's home to the park owner.  Unlike conventional  
               rental housing, such as an apartment, in a mobilehome park  
               there is a shared property interest between the park owner  
               and the homeowner.  The parkowner holds title to the land.   
               The homeowner has title to the mobilehome, but also a  
               property right under California law to sell the home in  
               place, and a property right in the leasehold interest in  
               the space on which the home is located.  Each of these  
               rights is recognized and protected in California law, and  
               the homeowner has in good faith purchased their mobilehome  
               at a value that was based upon the existence of these  








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               interests. They have, in fact, paid for each of these  
               property rights in purchasing their home, and have done so  
               at a price that assumes the continuation of these rights.

               California courts are in agreement on this point: the value  
               of the mobilehome on its lot-represented by the leasehold  
               interest and the right to sell in place-is a property  
               interest that belongs to the homeowner.  See e.g. Sandpiper  
               Mobilehome Village v. City of Carpenteria, 10 Cal.App.4th  
               542 (1992). The appraisal industry agrees.  The guidelines  
               issued by the National Association of Appraisers directs  
               its members to abandon the outdated notion that mobilehomes  
               are a depreciable asset, and instead acknowledges that  
               mobilehome owners accumulate equity in their homes and this  
               equity includes the in-place value of the home.

               The conversion of a mobilehome park to condominiums  
               dramatically reorganizes the property rights of mobilehome  
               owners without any compensation.  It grants to the park  
               owner the property value that the homeowner has fairly  
               bargained and paid for.

               AB 566 would address this unfair shift by giving homeowners  
               a stake in this process. By allowing homeowners a say in  
               whether they desire to purchase the lot on which their  
               mobilehome sits allows both parties to bargain for a fair  
               price in exchange for the homeowner surrendering the  
               property interest they have lawfully purchased. Without AB  
               566, thousands of homeowners will see the investment in  
               their homes evaporate as conversions of parks proceed  
               undeterred."

           Arguments in Opposition
           
          Writing in opposition, the Western Manufactured Housing  
          Communities Association states:

               "Even though the conversion process is a fair and important  
               option for all parties involved, there is an overarching  
               reason for an increase in the number of conversions over  
               the years since El Dorado vs. City of Palm Springs.  El  
               Dorado was the seminal case that proved it was legal for  
               park owners to initiate conversions and owners have now  
               realized a mechanism to get out of the rental mobilehome  
               business.  Conversions are a symptom of a larger problem  








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               caused chiefly by the severity of local rent controls  
               imposed on parks in over 100 cities.  Over 80% of those do  
               not allow full vacancy decontrol in which rents may be  
               raised to market when a home is sold, and re-rent  
               controlled at the new base rent?

               It is no mystery that the cities where most of the  
               conversions are proposed contain the most stringent (non  
               vacancy decontrol) forms of rent control.  The cities  
               include Santa Rosa, East Palo Alto, Hayward, Goleta, Carson  
               and Palm Springs.  Ironically, stringent rent control in  
               those cities fails to achieve any of the objectives of rent  
               control such as increasing or preserving affordability,  
               increasing supply or addressing shortage.  In fact, because  
               of the artificially low space rents the home prices in the  
               parks are becoming quickly unaffordable to new residents.   
               Therefore, the economic value of artificially low rents is  
               completely captured by the tenant who was there when rent  
               control was enacted (whether or not that tenant was "low  
               income") through inflated home sales?

               Our members do not want to go out of the rental mobilehome  
               park business and would like to continue providing a  
               valuable source of rental housing in the state.  Many of  
               these properties have been in family businesses for up to  
               50 years.  However, when we discuss subdividing mobilehome  
               parks, it is imperative that legislative leaders understand  
               the economic reason why some parkowners have chosen that  
               option."

           Related legislation:

           AB 1542 (Evans, 2007) would have allowed local governments to  
          apply local rent control after the conversion of a mobilehome  
          park to resident ownership where such rent control existed prior  
          to the conversion and applied the state rent control formula  
          only in cities and counties with no local mobilehome rent  
          control.  Additionally the bill struck the language limiting the  
          scope of local hearings on conversions to the issue of  
          compliance with GC 66427.5.  AB 1542 was vetoed by the governor  
          with the following message: 

               I am greatly concerned about housing affordability and  
               homeownership for all Californians.  I understand the  
               sanctity of the home and the importance of having stability  








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               in your living situation.  This need for stability was  
               eloquently expressed by the many seniors throughout  
               California who have written to me on both sides of this  
               bill.

               I also recognize that compared to other housing issues  
               there is a uniqueness regarding mobilehomes and all the  
               varied manners of ownership, leasing, affordability, and  
               opportunity.  It is because of this uniqueness that laws  
               were enacted to create statewide standards for mobilehome  
               parks.

               The intent of current state law is to provide an  
               opportunity for home ownership to those mobilehome owners  
               who desire to own both their home and the land it rests on.  
                The law also offers protections for low-income individuals  
               against unwarranted rent increases.

               While the bill's intent is to preserve low-income housing,  
               it also extends rent control in certain circumstances to  
               mobilehome owners in much of the state no matter what their  
               income level.  It is unclear what state interest is served  
               by the extension of rent control for those who do not have  
               an economic disadvantage.  In addition, establishing two  
               statewide standards for rent control seems confusing and  
               unnecessary.

               It is clear that mobilehome issues require a comprehensive  
               approach to ensure that low income individuals and families  
               are protected, homeownership opportunities are afforded to  
               those who choose them, and stability of the home and  
               property is preserved.
                                               
               I urge the Legislature over the coming year to find a  
               solution that provides true balance for all the  
               stakeholders involved in mobilehome issues.

           Double referred  :

          The Assembly Committee on Rules referred AB 566 to Housing and  
          Community Development and Local Government Committee.  If AB 566  
          passes this committee, the bill must be referred to the Assembly  
          Committee on Local Government.

           REGISTERED SUPPORT / OPPOSITION :   








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           Support 
           
          City of Carson (sponsor)
          County of Ventura (sponsor)
          AARP California
          Bay Federal Credit Union
          CA Rural Legal Assistance Foundation
          CA State Association of Counties
          Cities of Capitola, Goleta, and Los Angeles
          Counties of Santa Cruz and Sonoma
          Executive Counsel of Homeowners
          Golden State Manufactured-Home Owners League
          Western Center on Law & Poverty
          Individual Letters (7)

           Opposition 
           
          CA Mobilehome Parkowners Alliance
          Californians for Resident Ownership
          Law Offices of Gilchrist & Rutter
          The Loftin Firm, LLP
          Western Manufactured Housing Communities Association
          Individual Letters (14)
           
          Analysis Prepared by  :    Anya Lawler / H. & C.D. / (916)  
          319-2085