BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 771 (Butler)
As Amended June 20, 2011
Hearing Date: July 5, 2011
Fiscal: No
Urgency: No
BCP
SUBJECT
Common Interest Developments: Requests for Documents: Fees
DESCRIPTION
This bill would require a common interest development to provide
an estimate of the fees that it will assess for providing the
documents required for the sale of a unit and to distinguish
these fees from any other fees, fines, or assessments associated
with the sale.
BACKGROUND
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 a common area property.
The Davis-Stirling Common Interest Development Act provides the
legal framework under which common interest developments are
established and operate. In addition to the requirements of the
Act, each CID is governed according to the recorded
declarations, bylaws, and operating rules of the association.
These documents are referred to collectively as the governing
documents of the association.
In addition to the standard residential property disclosures,
purchasers of separate interests within a CID must receive
copies of the governing documents, certain financial reports,
amount of the association's current regular and special
assessments and fees, unresolved notices of violation, and
related information. Since those documents are generally in the
association's possession, existing law allows the seller of the
property to request copies of those documents and requires the
(more)
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association to provide them within 10 days. Current law
requires those disclosures to be delivered to the purchaser as
soon as practicable before transfer of title, or the execution
of a real property sales contract.
This bill would add disclosure, if requested, of the minutes of
the association's regular meetings over the previous 12 months
to that list of documents. This bill would additionally require
a common interest development to provide an estimate of the fees
that it will assess for providing the documents required for the
sale of a unit, distinguish these fees from any other fees,
fines, or assessments associated with the sale, and make related
changes.
This bill was approved by the Senate Transportation and Housing
Committee on June 28, 2011.
CHANGES TO EXISTING LAW
1. Existing law requires certain transferors of real property,
manufactured homes, mobilehomes, and residential stock
cooperatives, consisting of one to four units, to provide
detailed disclosures to the transferee of the property. (Civ.
Code Sec. 1102 et seq.)
Existing law , the Davis-Stirling Common Interest Development
Act, defines and regulates common interest developments (CIDs)
and requires the following to be provided to a prospective
purchaser as soon as practicable before transfer of title to
the separate interest: (1) a copy of the governing documents;
(2) a statement regarding the enforceability of a restriction
restricting occupancy on the basis of age, as specified; (3) a
copy of the association's most recent financial documents, as
specified; (4) a true written statement regarding the amount
of fees and assessments, any unpaid assessments, and any
monetary fines or penalties; (5) a copy or summary of any
prior disciplinary notice sent to the owner for an alleged
violation that remains unresolved; (6) a copy of the
preliminary list of defects; (7) a copy of the latest
information regarding defects; and (8) any change in
assessments and which have been approved but not become due
and payable as of the date of disclosure. (Civ. Code Sec. 1368
(a).)
This bill would additionally require, if requested by the
prospective purchaser, disclosure of a copy of the minutes of
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regular meetings of the association's board of directors,
conducted over the previous 12 months, that were approved by
the associations' board of directors.
2. Existing law provides that, within 10 days of the mailing
or delivery of the request, the association shall provide the
owner with a copy of the 8 items described above. Those items
may be maintained in an electronic form and, if so, requesting
parties shall have the option of receiving them
electronically. Existing law authorizes the association to
charge a reasonable fee based upon the association's actual
cost to procure, prepare, and reproduce the requested items.
This bill would revise that requirement by:
requiring the association to provide a written or
electronic estimate of the fees that will be assessed for
providing the requested documents;
permiting documents be posted on the association's
Internet Web site;
allowing the association to collect a reasonable fee
based upon the association's actual cost for the
procurement, preparation, reproduction and delivery of the
requested documents;
prohibiting the charging of an additional fee for
electronic delivery of the documents;
requiring fees for the above documents to be
distinguished from other fees, fines, or assessments billed
as part of the sales transactions.
providing that delivery of the documents shall not be
withheld for any reason not subject to any condition except
payment of the allowable fee.
allowing an association to contract with any person or
entity to facilitate compliance with the above requirements
on behalf of the association; and
allowing the association to provide those documents to a
recipient authorized by the owner, and require the
association to also provide those recipients with a copy of
the form specified below at the time the required documents
are delivered.
This bill would require the form for billing disclosures
required by the above section to be substantially similar to
the included statutory form. That form lists each of the
documents and requires the association to check "included," or
"not available or not applicable."
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COMMENT
1. Stated need for the bill
According to the author:
Under the Davis-Stirling Act (Civil Code Section 1368),
sellers of residential real property in common interest
developments (CIDs) are required to provide basic
information about the structure, operation and management of
the homeowners association (HOA) that operates the CID. This
information can only come from the HOA. The law requires the
Non-Profit HOA to provide the specified documents and
materials within a designated timeframe and limits the
requesting party's cost for such services to "reasonable
fees" based upon the HOA's actual costs. It has been
documented that 3rd party companies and agents are charging
fees as high as $1000 for this service where the costs
previously assessed were only $75 to $250 when provided
directly by the HOA. Additionally, the 3rd party companies
and agents are not required to disclose upfront the fees
associated with providing the required documents. This has
created difficulties when closing these real estate
transactions. Civil Code Section 1368 does not address the
use by HOAs of third party companies or agents.
2. Fees charged for copies of documents
As noted above, the seller of a property within a common
interest development is required to provide copies of specified
documents to the prospective purchaser. Since those documents
are generally in the possession of the association, existing law
allows the seller to submit a request for those documents and
gives the association 10 days to respond. The association is
statutorily allowed to charge "a reasonable fee for this service
based upon the association's actual cost to procure, prepare,
and reproduce the requested items." (Civ. Code Sec. 1368 (b).)
The Court of Appeals, Fourth Appellate District, held that the
restriction on fees an association may charge does not apply to
agents hired by the association. Specifically, the court held:
ÝA]n association's "costs" for purposes of the statute
include "the fees and profit the vendor charges for its
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services." As the court noted in Brown, the statutory
language prevents associations from charging inflated fees
for documents and for transfer of title and using those fees
for other purposes; it does not constrain the amount a
managing agent may charge for these services. "Competitive
forces, not the statute, will constrain the vendors' fees
and charges." This is no different with respect to section
1368, and plaintiffs' arguments to the contrary are entirely
unpersuasive. Indeed, there is no way we could logically
reach a different conclusion without contradicting Brown,
and as its holding stands on firm ground both logically and
legally, we decline to do so. (Berryman v. Merit Property
Management, Inc. (2007) 152 Cal. App. 4th 1544, 1552.)
(citations omitted.)
As a result, court have held that existing law arguably does not
restrict the charges that an agent of the association may charge
for providing the statutorily required documents. This bill
seeks to respond to concerns about the significant amounts
charged by third party companies hired by an association to
perform that service by, among other things: requiring an
estimate of fees to be provided upon receipt of a written
request, requiring the fees for documents to be distinguished
from other fees.
In support of the problem, the California Association of
Realtors (CAR), provided the Committee with examples of fees
charged for providing those documents pursuant to Section 1368 -
the fees ranged from $250 to $1049. CAR additionally provided
the committee with various settlement statements showing those
charges, which were typically paid mostly by the seller
(although in some instances were split between the seller and
purchaser). Although not directly addressing the amount that
may be charged, this bill would require the association to
provide a written estimate of the cost that could arguably act
to reduce costs by adding transparency to the fees that are
charged.
Staff notes that the May 23, 2011 version of the bill would have
allowed an association to contract with any person or entity to
facilitate compliance with the disclosure requirements but
subjected that person or entity to the "same standards of the
association." The June 20, 2011 amendments (which addressed the
concerns of the opposition) continue to allow the association to
contract for these services but strike the language subjecting
that third party to the same standards of the association. (For
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reference, those standards, as amended by this bill, allow the
association to collect a reasonable fee based on the
association's actual cost for the procurement, preparation,
reproduction, and delivery of the required documents.)
3. Form for billing disclosures
To facilitate disclosure to sellers regarding the charges for
providing the documents under Section 1368, this bill would
codify a statutory form that lists each of the documents and
allows the association, or third party, to check whether the
document is included or not available/not applicable. Although
the form would be codified, the bill provides that the billing
disclosures shall be in substantially the following form, thus
allowing for customization, as needed.
4. Remaining changes relating to the documents
This bill would make a number of other changes relating to the
production of documents, including prohibiting additional fees
from being charged for electronic delivery, allowing documents
to be posted on the association's website, and requiring the
association to provide a recipient authorized by the owner
(likely the prospective purchaser) with a copy of the completed
statutory form discussed in Comment 3.
While those disclosures would appear to further facilitate
transparency, and hopefully enable associations to put as much
information as possible on their website (which could reduce
costs and allow a prospective purchaser to do his or her own
research), the bill would not directly prohibit the charging of
unreasonable fees by these third parties.
5. Author's amendments
The author agreed to the following technical, clarifying
amendments in the Senate Transportation & Housing Committee:
Amendments:
1) On page 4, lines 4-5 strike "regular meetings" and
insert:
meetings, excluding meetings held in executive session,
2) On page 4 line 13 after "provide" insert:
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, on the form described in Section 1368.2,
3) On page 8 line 13 strike "regular meetings" and insert:
meetings, excluding meetings held in executive session,
4) On page 8 line 21 after "provide" insert:
, on the form described in Section 1368.2,
5) Update chaptering out amendments, if necessary, to
address a conflict with
SB 150 (Correa)
Support : None Known
Opposition : None Known
HISTORY
Source : California Association of Realtors
Related Pending Legislation : SB 150 (Correa), would provide that
an owner of a separate interest in a common interest development
shall not be subject to a provision in a governing document that
prohibits the rental or leasing of his or her unit, unless that
provision was effective prior to the date the owner acquired
title. This is bill is in engrossing and enrollment.
Prior Legislation : None Known
Prior Vote :
Senate Transportation & Housing Committee (Ayes 7, Noes 0)
Assembly Floor (Ayes 76, Noes 0)
Assembly Judiciary Committee (Ayes 9, Noes 0)
Assembly Housing & Community Development Committee (Ayes 7, Noes
0)
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