BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 899
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          ASSEMBLY THIRD READING
          AB 899 (Torres)
          As Amended  April 1, 2009
          Majority vote 

           HOUSING             4-2                                         
           
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          |Ayes:|Torres, Eng, Ma, Saldana  |     |                          |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Harkey, Fletcher          |     |                          |
          |     |                          |     |                          |
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           SUMMARY  :   Makes several changes to the Davis-Stirling Common  
          Interest Development Act (Act) governing common interest  
          developments (CID).   Specifically,  this bill  :  

          1)Creates the Disclosure Documents Index.

          2)Requires the Disclosure Documents Index to be distributed to  
            the members of a homeowners association (association) in a CID  
            annually.

          3)Requires the Assessment and Reserve Funding Disclosure Summary  
            to specify the assumed long-term before-tax interest rate  
            earned on reserve funds per year.

          4)Requires the Assessment and Reserve Funding Disclosure Summary  
            to specify the assumed long-term inflation rate applied to  
            major component repair and replacement costs per year. 

           FISCAL EFFECT  :   None 

           COMMENTS  :  There are over 41,000 CIDs in the state that range in  
          size from three to 27,000 units.  CIDs make up over four million  
          total housing units which represents approximately one quarter  
          of the state's housing stock.  In the 1990s, over 60% of all  
          residential construction starts in the state were CIDs.  CIDs  
          include condominiums, community apartment projects, and housing  
          cooperatives and planned unit developments.  They are  
          characterized by a separate ownership of dwelling space coupled  
          with an undivided interest in a common property, restricted by  
          covenants and conditions that limit the use of common area, and  








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          the separate ownership interests and the management of common  
          property and enforcement of restrictions by an association.   
          CIDs are governed by the Act as well as the governing documents  
          of the association including the bylaws, declaration, and  
          operating rules.  Except when CIDs are first developed, no state  
          agency provides ongoing oversight to these communities.  

          Associations are required to distribute to the members various  
          disclosure documents including, but not limited to, a pro forma  
          operating budget, assessment and reserve funding summary,  
          assessment collection policy; and, disclosure of an owner's  
          rights to alternative dispute resolution.  The disclosure  
          documents that are required to be distributed to the owners are  
          scattered in multiple code sections throughout the Act. 

          Associations are also required to complete a reserve study of  
          the major components of the CID at least every three years.  The  
          major components are defined as components in the development  
          that the association is required to maintain or replace with a  
          service life of 30 years or less.  The board is required to  
          review the reserve study annually and determine whether  
          deterioration of the major components over the past year warrant  
          adjustment of the reserve funding.  If the board determines that  
          an adjustment is required the regular special assessments can be  
          adjusted to reflect the increase necessary to meet funding  
          goals.  Existing law requires the association to distribute an  
          Assessment and Reserve Funding Disclosure Summary that includes  
          current regular assessment per ownership interest, the  
          additional special or regular assessments that have been  
          approved by the board and or members, and an assessment by the  
          board of directors as to whether or not the current projected  
          reserve account balances will be sufficient to meet the  
          association's obligations.   The purpose of the Assessment and  
          Reserve Funding Disclosure Summary is to give the association a  
          sense of what is needed to fund the reserves necessary to  
          maintain the community. 

          The purpose of this bill is to provide clarity and transparency  
          for association boards of directors and owners of separate  
          interests relative to the many disclosures required within the  
          Act.  AB 899 would create an index of the disclosure documents  
          in the Act and would further require the index to be distributed  
          to the owners of each separate interest.  Additionally, this  
          bill would require that the Assessment and Reserve Funding  








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          Summary specify the annual interest rate earned on the reserve  
          funds per year and the assumed long-term inflation rate to be  
          applied to major component repair and replacement costs each  
          year.  


          Analysis Prepared by  :    Lisa Engel / H. & C.D. / (916) 319-2085  




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