BILL ANALYSIS Ó AB 771 Page 1 ASSEMBLY THIRD READING AB 771 (Butler) As Amended May 10, 2011 Majority vote HOUSING 7-0 JUDICIARY 9-0 ----------------------------------------------------------------- |Ayes:|Torres, Atkins, Bradford, |Ayes:|Feuer, Wagner, Atkins, | | |Cedillo, Hueso, Jeffries, | |Dickinson, Huber, | | |Miller | |Huffman, Jones, Monning, | | | | |Wieckowski | ----------------------------------------------------------------- SUMMARY : Allows a homeowners association (HOA) to charge a reasonable fee for the procurement, preparation, reproduction, or delivery of the documents required to be provided to a prospective buyer before the transfer of title or execution of a sales contract and creates a disclosure form that a seller must provide to a buyer including the cost of each disclosure document. Specifically, this bill : 1)Requires a seller to provide a copy of the last 12 months of approved HOA board minutes to a prospective buyer. 2)Adds a form listing documents a seller of a separate interest must provide to a prospective buyer as soon as practicable before transfer of title of the separate interest or execution of the sales contract. 3)Provides that the disclosure documents that are required to be provided to the prospective buyer before the transfer of title or execution of the sales contract may be made available electronically or posted on the HOA Web site and must be accessible to a seller or any other recipient authorized by the owner. 4)Prohibits an HOA from charging additional fees for the electronic delivery of the documents required to be provided to a prospective buyer before the transfer of title or execution of a sales contract. 5)Provides that documents required to be provided under this section, must be distinguished from other fees, fines or AB 771 Page 2 assessments billed as part of the sales transaction. 6)Provides that delivery of the documents required by this section shall not be conditioned upon or required to be combined with any other documents, items or services. 7)Provides that an HOA may contract with any person or entity to procure, prepare reproduce, and deliver the documents required to be provided to a prospective buyer before the transfer of title or execution of a sales contract. FISCAL EFFECT : None COMMENTS : There are over 50,000 Community Interest Developments (CIDs) in the state that range in size from three to 27,000 units. CIDs make up over 4.9 million housing units which represents approximately one quarter of the state's housing stock. CIDs include condominiums, community apartment projects, 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 the separate ownership interests and the management of common property and enforcement of restrictions by a HOA. CIDs are governed by the Davis-Stirling Act as well as the governing documents of the association including bylaws, declaration, and operating rules. An owner in a CID is required to provide a prospective purchaser with specified documents listed in Civil Code Section 1368 as soon as practicable before the transfer of title or the execution of a real property sales contract to a prospective buyer. Sellers, who do not have current documents to provide to a prospective buyer, can request the documents from the HOA which has 10 days to provide copies to the seller. In some CIDs, the HOA contracts with a management company or other agent to collect the documents, reproduce them and provide them to the seller. Existing law provides the HOA may only charge a reasonable fee based on the actual cost of to procure, prepare and reproduce the items for the owner. In the recent case of Berryman v. Merit Property Management (2007) 152 Cal Capp 4th 1544, the court determined that an agent of the HOA was not subject to the provision requiring that AB 771 Page 3 the HOA charge only the actual cost to procure, prepare and reproduce the documents for the owner. The court determined that although an HOA is prohibited by charging above the actual costs and making a profit, a managing agent is not. The sponsor of this bill, California Association of Realtors, is concerned that a prospective buyer may be charged for documents, fees or assessments that are not required by Civil Code Section 1368. The purpose of this bill is to provide greater transparency for the seller who is providing the documents and the prospective buyer about what fees they will be charged for the disclosure documents required by Civil Code Section 1368 by adding a disclosure form that both the seller and the prospective buyer will receive. This bill allows an HOA to continue to contract with a managing agent to procure, prepare, reproduce and delivery the documents required by the seller while attempting to provide greater transparency to the seller and prospective buyer. By adding a disclosure form, which details the documents and the associated fees, and providing it to the prospective buyer at the time of sale, the sponsor believes there will be less opportunity for a third party management agent to pass on costs not directly related to the procurement, preparation, production and delivery of disclosure documents. Another issue that the sponsor is attempting to address in this bill, is to separate out the fees charged for delivering the documents required by Civil Code Section 1368 from other fees or assessments that a purchaser may pay during the sales transaction. This bill attempts to resolve this issue by specifying that the form listing the disclosure documents must be provided to a buyer separate from any other fees or assessments. Analysis Prepared by : Lisa Engel / H. & C.D. / (916) 319-2085 FN: 0000575 AB 771 Page 4