BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 1128
                                                                  Page  1

          Date of Hearing:   June 30, 2010

               ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
                                 Norma Torres, Chair
                  SB 1128 (DeSaulnier) - As Amended:  April 7, 2010

           SENATE VOTE  :   33-0
           
          SUBJECT  :   Common interest developments: governance

           SUMMARY  :   Allows a non  -    profit entity providing services to a  
          common interest development  (CID)  under a declaration of trust  
          to collect an assessment fee from purchasers during a transfer  
          of title, and also  provides   requires  that  a   such  non  -    profit  
          entit  y is   ies are  subject to the open records provisions of the  
          Davis-Stirling Act. Specifically,  this bill  :   >  

          1)      Allows a   ny   non-profit entity that provides services to a  
            CID   common interest development   under a declaration of trust,  
            if it received transfer fees prior to January 1, 2004, to  
            continue to collect transfer fees from new members of the  
              common interest development   CID upon the purchase of property.  

           EXISTING LAW  >
           
          2)2)    Clarifies that   any such   a non-profit entity providing  
            services to a   common interest development   CID under a  
            declaration of trust  is  required to provide members   with  
            all   access to homeowner association (HOA) records upon the  
            member's request   ,   .   and comply with the accompanying standards  
            within the open records provisions of the Davis-Stirling Act. 
           FISCAL EFFECT  :   >
           
           
          EXISTING LAW:

          1)Defines a community service organization (CSO) as a nonprofit  
            entity, other than an   association   HOA, that is organized to  
            provide services to residents of a   the common interest  
            development   CID or to the public in addition to the residents,  
            to the extent that the facility common areas are open to the  
            public  (  (  Civil Code Section 1368 (c) (2)  (A   1   )  ).  

          2)Precludes an   association   HOA or CSO from imposing any  
            assessment, penalty, or fee in connection with a transfer of  








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            title for an individual interest except to cover the  
            association's actual costs related to the transfer  (Civil Code  
            Section 1368 (  3)  (  c) (1   3)   )  ).  

          3)Provides an exemption to the prohibition of transfer fees for  
              ;   a CSO established prior to February 20, 2003, that exists to  
            fund or perform environmental mitigation or to restore or  
            maintain wetlands or native habitat, or a CSO that was  
            established and received a transfer fee prior to January 1,  
            2004, and after January 1, 2006   (Civil Code Section 1368 (c)  
            (2) (B)  ). 
           


            4)Requires a CSO or   association   HOA to make   its   the   association    
            HOA records available to members of the  CID   (  Civil Code  
            Section 1368 (a  )).  

          FISCAL EFFECT:   None

          COMMENTS:   

          Background  :    
             A  
             common interest development (CID) is a form of real property  
          where each owner holds exclusive rights to a portion of the  
          property typically called a unit or lot, and shared rights to  
          portions of the property typically called the common area. 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  
          (the Act) provides that legal framework under which homeowner  
          associations HOAs operate. 

          Some CIDs have created affiliated entities, called "community  
          service organizations (CSO) or similar entities" to provide  
          services to residents in the CID. The   Davis-StirlingStirling   Act  
          generally precludes both   homeowners associations   HOAs and CSOs  
          from imposing any assessment, fee, or penalty in connection with  
          a transfer of title for an individual unit except to cover the  
            association   HOAs   or CSO's actual costs associated with the  
          transfer. 

          The act does, however, contain an exemption for CSOs that meet  
          the following criteria:








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          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, or

          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   Davis Stirling   Act also requires that an   association   HOA  and  
           CSO   be required to   make financial documents available to  
          individual residents.   
           
          This bill is sponsored by the Golden Rain Foundation, a  
          nonprofit corporation designated to serve as trustee of the  
          Rossmoor community in Walnut Creek. The Rossmoor community is  
          home to over 9,600 seniors, and is made up of seventeen  
          affiliated CIDs. The purpose of the Golden Rain Foundation is to  
          provide administrative service and to own and maintain major  
          infrastructure and facilities within the developments. 

          Currently, residents of Rossmoor pay a one-time transfer fee  
          upon purchasing a new unit. The foundation uses this fund of  
          transfer fees to pay for infrastructure and facilities costs,  
          rather than increasing monthly dues for residents. The  
          foundation follows the provisions of the   Davis-Stirling act   Act,  
          including those regarding transfer fees, by operating under the  
          assumption that the foundation is considered a CSO. 

          In 2008, the 4th District Court of Appeals 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 not a CSO, but an   association   HOA, and was therefore  
          subject to the open records provisions 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 it too, might be considered  
          an   association   HOA rather than a CSO, and if so, its ability to  
          charge a transfer fee could be challenged.

          Purpose of this bill:









                                                                 SB 1128
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          Current law provides an exception to the prohibition of transfer  
          fees for CSOs. This bill will expand that exception to include  
          any "non-profit entity providing services to a common interest  
          development under a declaration of trust" that received transfer  
          fees prior to January 1, 2004.  Rather than determine whether or  
          not the Golden Rain Foundation is a CSO or an   association   HOA,  
          this bill simply broadens the terms used in the   Davis-Stirling  
            Act, so that any non-profit entity providing services under a  
          declaration of trust must adhere to the open records provisions,  
          and will be allowed to continue charging transfer fees if it had  
          done so before January 1, 2004.

          By expanding this exception, this bill will allow the Golden  
          Rain Foundation of Walnut Creek to continue charging transfer  
          fees to new residents as it has done for years. Without this  
          bill, a court could potentially deem the Golden Rain Foundation  
          an   association   HOA, rather than a CSO, rendering the foundation  
          unable to charge a transfer fee. Without the ability to charge a  
          transfer fee, the Golden Rain Foundation would be forced to  
          increase monthly dues for residents on fixed incomes, seriously  
          threatening the stability of the community. 

          REGISTERED SUPPORT / OPPOSITION:

          Support 

          Golden Rain Foundation of Walnut Creek (sponsor)  
          Laguna Woods Village  
          Rossmoor Walnut Creek
          Three individual residents at Rossmoor Walnut Creek

            Opposition  

          None on file  
            >
           
           Analysis Prepared by  :    Celeste Parisi / H. & C.D. / (916)  
          319-2085