BILL ANALYSIS                                                                                                                                                                                                    

          SENATOR ALAN LOWENTHAL, CHAIRMAN               AUTHOR:  DeSaulnier
                                                         VERSION: 2/18/10
          Analysis by: Mark Stivers                      FISCAL:  no
          Hearing date: April 6, 2010


          Common interest developments: transfer fees in the Rossmoor  
          Walnut Creek community


          This bill allows the Golden Rain Foundation of Walnut Creek to  
          continue to charge transfer fees to the purchasers of units  
          within the common interested developments to which it provides  


          A common interest development (CID) is a form of real estate  
          where each homeowner has an exclusive interest in a unit or lot  
          and a shared or undivided interest in common area property.   
          Condominiums, planned unit developments, stock cooperatives,  
          community apartments, and many resident-owned mobilehome parks  
          are all CIDs.  Each CID is governed by a homeowner association  
          according to the recorded declarations, bylaws, and operating  
          rules of the association.  The Davis-Stirling Common Interest  
          Development Act provides the legal framework under which  
          homeowner associations operate in CIDs.  
          Homeowner associations generally fund their activities through  
          monthly assessments on individual homeowners.  The assessments  
          cover not only the operating costs of the association, but also  
          maintenance reserves and services that the association provides  
          to its members.  Some
          CIDs have created affiliated entities, called "community service  
          organizations or similar entities" (CSOs), to provide services  
          to residents of the common interest development.  The  
          Davis-Stirling Act generally precludes an association or a CSO  


          SB 1128 (DESAULNIER)                                      Page 2


          from imposing any assessment, penalty, or fee in connection with  
          a transfer of title for an individual interest except to cover  
          the association's actual costs related to the transfer.  The  
          act, however, contains an exemption that grandfathers in CSOs  
          that meet either of the following criteria:

           The CSO was established prior to February 20, 2003 and exists  
            to fund or perform environmental mitigation or to restore or  
            maintain wetlands or native habitat, as required by the state  
            or local government as an express written condition of  

           The CSO was established and received a transfer fee prior to  
            January 1, 2004 and after January 1, 2006 allows a purchaser  
            to pay the transfer fee under an installment plan of at least  
            seven years. 

          The statute defines a CSO as a nonprofit entity, other than an  
          association, that is organized to provide services to residents  
          of the common interest development or to the public in addition  
          to the residents, to the extent community common areas or  
          facilities are available to the public.

          Located in Walnut Creek, Rossmoor is a senior community that is  
          home to over 9,600 seniors. The Golden Rain Foundation of Walnut  
          Creek is a nonprofit corporation designated to serve as trustee  
          under a trust agreement benefiting the seventeen affiliated  
          common interest developments in the Rossmoor community. The  
          purpose of the Foundation is to provide administrative services  
          and to own and maintain major infrastructure and facilities  
          within the developments. Currently, the residents of Rossmoor  
          pay a one-time transfer fee upon moving into the community. The  
          transfer fee is used to pay for infrastructure and facilities  
          costs in lieu of increased assessments or monthly dues on the  

          Since 2004 when the CSO provisions described above took effect,  
          the Golden Rain Foundation of Walnut Creek has considered itself  
          to be a CSO and therefore eligible to continue charging a  
          transfer fee.  In 2008, however, in the case of Golden Rain  
          Foundation v. Franz, a case involving whether or not a separate  
          but similar foundation affiliated with Leisure World of Seal  
          Beach was required to make financial documents available to  
          residents, the 4th District Court of Appeal in Southern  
          California opined that the Seal Beach Golden Rain Foundation was  
          an association rather than a CSO for purposes of the Davis  


          SB 1128 (DESAULNIER)                                      Page 3


          Stirling Act and therefore required to make financial documents  
          available to residents.  Given the similarities between the Seal  
          Beach and Walnut Creek Golden Rain Foundations, the Golden Rain  
          Foundation of Walnut Creek is now concerned that its ability to  
          charge a transfer fee could be challenged.  
          This bill  provides that the Golden Rain Foundation of Walnut  
          Creek may continue to charge transfer fees to the purchasers of  
          units within the CIDs to which it provides services if it  
          charged a transfer fee prior to January 1, 2010.  


           1.Purpose of the bill  .  According to the author, by allowing the  
            Golden Rain Foundation of Walnut Creek to continue to charge a  
            one-time transfer fee to residents, this bill will ensure the  
            continuity of services to residents of the Rossmoor Valley.   
            The recent appellate court decision from Southern California  
            raised concerns for the Golden Rain Foundation of Walnut Creek  
            that it would not be found to be a community service  
            organization under current law.  If the Foundation is  
            determined to be an association and not a community service  
            organization, it will no longer be able to charge a transfer  
            fee, which will threaten the stability of Rossmoor's  
            infrastructure and facilities funding. The only way to  
            maintain funding and services will be to shift a significant  
            burden onto individual seniors at Rossmoor in the form of  
            increased dues and assessments. 

           2.An association or a CSO  ?  The Southern California appellate  
            court decision has thrown into question whether the Golden  
            Rain Foundation of Walnut Creek is a CSO or an association.   
            This bill clarifies the Foundation's ability to continue  
            charging transfer fees without taking sides as to the status  
            of the Foundation with respect to other provisions of the  
            Davis Stirling Act.  It defines the Foundation neither as a  
            CSO nor as an association and therefore leaves that decision  
            to the courts.  

           3.All for one, and one for all  .  Though legally unrelated, there  
            are three Golden Rain Foundations in California that are all  
            similar in structure: in Walnut Creek, Seal Beach, and Laguna  
            Woods.  According to the sponsor, the Seal Beach foundation  
            applies transfer fees similar to those of Walnut Creek, and  
            the Laguna Woods foundation applied such fees early in its  
            life but has not since the mid-1990s.  In order to avoid  


          SB 1128 (DESAULNIER)                                      Page 4


            revisiting this issue in the future, the committee may wish to  
            consider broadening the bill to cover the Seal Beach  
            foundation which arguably faces the same ambiguity.

           4.Working with the Realtors  .  While it has taken no formal  
            position on the bill, the California Association of Realtors  
            has expressed acceptance of the concept of clarifying the  
            grandfathering of Rossmoor's transfer fees as well as concerns  
            over the uncodified, single-entity manner in which the bill is  
            drafted.  The author is working with the Realtors on  
            alternative language to achieve the same result in a different  
            manner and may offer such amendments in committee.  
           5.Technical amendments  .  

                 On page 2, line 6, strike "that" and insert "such"
                 On page 2, line 6, strike "development" and insert  
                 On page 2, line 7, strike "2010" and insert "2004"
                 On page 2, line 13 after "property" insert "in the  
                 On page 2, lines 13-14, strike "a community service  
               organization" and insert "an entity"

          POSITIONS:  (Communicated to the Committee before noon on  
                     March 31, 2010)

               SUPPORT:  Golden Rain Foundation of Walnut Creek (sponsor)
                         Rossmoor Walnut Creek
                         3 individual residents of Rossmoor Walnut Creek
               OPPOSED:  None received.