BILL ANALYSIS                                                                                                                                                                                                    






           SENATE TRANSPORTATION & HOUSING COMMITTEE       BILL NO: SB 1128
          SENATOR ALAN LOWENTHAL, CHAIRMAN               AUTHOR:  DeSaulnier
                                                         VERSION: 4/7/10
          Analysis by: Mark Stivers                      FISCAL:  no
          Hearing date: April 13, 2010







          SUBJECT:

          Common interest developments: transfer fees

          DESCRIPTION:

          This bill allows a non-profit entity that provides services to a  
          common interest development under a declaration of trust, if it  
          received transfer fees prior to January 1, 2004, to continue to  
          charge transfer fees to the purchasers of units within the  
          common interested development to which it provides services.   
          The bill also clarifies that such entities are subject to the  
          open records provisions of the Davis-Stirling Act.

          ANALYSIS:

          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  




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          to residents of the common interest development.  The  
          Davis-Stirling Act generally precludes an association or a CSO  
          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  
            development.

           The CSO was established and received a transfer fee prior to  
            January 1, 2004, and after January 1, 2006, it 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,  
          which the foundation uses to pay for infrastructure and  
          facilities costs in lieu of increased assessments or monthly  
          dues on the residents. 

          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, the 4th District Court of  
          Appeal in Southern California ruled in the case of Golden Rain  
          Foundation v. Franz, that a similar foundation affiliated with  
          Leisure World of Seal Beach was required to make financial  
          documents available to residents because the Seal Beach Golden  




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          Rain Foundation was an association rather than a CSO for  
          purposes of the Davis Stirling Act.  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  allows a non-profit entity that provides services to a  
          common interest development under a declaration of trust, if it  
          received transfer fees prior to January 1, 2004, to continue to  
          charge transfer fees to the purchasers of units within the  
          common interested development to which it provides services.   
          The bill also clarifies that such entities are subject to the  
          section of the Davis-Stirling Act requiring associations and  
          CSOs to make association records available to members for  
          inspection and copying. 

          COMMENTS:

           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 Rossmoor.  The recent  
            appellate court decision from Southern California raised  
            concerns for the Golden Rain Foundation of Walnut Creek that a  
            court might not find it to be a community service organization  
            under current law.  If the court deemed the foundation to be  
            an association and not a community service organization, the  
            foundation would no longer be able to charge a transfer fee,  
            which would threaten the stability of Rossmoor's  
            infrastructure and facilities funding. The only way to  
            maintain funding and services would 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 whether the  
            foundation is an association or a CSO generally.  Just to be  
            safe, the bill clarifies that an entity operating under a  
            declaration of trust to a CID must make its records available  
            to members, regardless of whether a court determines the  
            entity to be an association, a CSO, or something else.  

           3.All for one and one for all  .  Though legally unrelated, three  




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            Golden Rain Foundations exist in California that are all  
            similar in structure: one each 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.  Under the terms  
            of the amended bill, all three entities, even Laguna Woods,  
            are allowed to charge transfer fees because they "received" a  
            fee prior to January 1, 2004.

          POSITIONS:  (Communicated to the Committee before noon on  
          Wednesday,
                     April 7, 2010)

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