BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  SB 1128|
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                                 THIRD READING


          Bill No:  SB 1128
          Author:   DeSaulnier (D)
          Amended:  4/7/10
          Vote:     21

           
           SENATE TRANSPORTATION & HOUSING COMMITTEE  :  8-0, 4/13/10
          AYES:  Lowenthal, Huff, Ashburn, DeSaulnier, Kehoe,  
            Oropeza, Pavley, Simitian
          NO VOTE RECORDED:  Harman


           SUBJECT  :    Common interest developments transfer fees

           SOURCE :     Golden Rain Foundation of Walnut Creek


           DIGEST  :    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  
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          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 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:

          1. 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.

          2. 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  







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          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 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. 

           FISCAL EFFECT :    Appropriation:  No   Fiscal Com.:  No    
          Local:  No

           SUPPORT  :   (Verified  4/13/10)

          Golden Rain Foundation of Walnut Creek (source)
          Rossmoor Walnut Creek
          Presidents of Rossmoor Walnut Creek Mutuals


           ARGUMENTS IN SUPPORT  :    According to the author's office,  







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          by allowing the Golden Rain Foundation of Walnut Creek to  
          continue to charge a one-time transfer fee to residents,  
          this bill ensures 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 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. 


          JJA:do  4/15/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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