BILL ANALYSIS                                                                                                                                                                                                    Ó






                             SENATE JUDICIARY COMMITTEE
                             Senator Noreen Evans, Chair
                              2011-2012 Regular Session


          AB 1838 (Calderon)
          As Amended May 7, 2012
          Hearing Date: July 3, 2012
          Fiscal: No
          Urgency: No
          BCP  
                    

                                        SUBJECT
                                           
                 Common Interest Developments:  Association Records

                                      DESCRIPTION  

          This bill would prohibit a homeowners association in a common 
          interest development from charging a cancelation fee for 
          providing certain documents if: (1) the request was canceled in 
          writing by the same party that placed the order and the work has 
          not been performed; or (2) the request was canceled in writing 
          and the work that had been performed on the order was 
          compensated.

          This bill would require the existing required disclosure form 
          that identifies the fees that will be charged for the production 
          of certain documents relating to a homeowners association must 
          be in at least 10-point font.

                                      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 (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 
          homeowners association.  These documents are referred to 
          collectively as the governing documents of the association.

          In addition to the standard residential property disclosures, 
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          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 
          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.  

          In response to concerns about the fees being charged by third 
          parties for production of those documents, AB 771 (Butler, 
          Chapter 206, Statutes of 2011) required a CID 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 
          those fees from any other fees, fines, or assessments associated 
          with the sale. This bill would revise those criteria by 
          additionally prohibiting a cancellation fee from being charged 
          if either:  a request was cancelled in writing and work has not 
          yet been performed, or, the request was cancelled in writing and 
          any work that had been performed on the order was compensated.  
          This bill would also require the billing disclosure to be in at 
          least 10-point type.

          This bill was approved by the Senate Transportation and Housing 
          Committee on June 26, 2012 by a vote of 9-0.

                                CHANGES TO EXISTING LAW
           
           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 on 
          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 
                                                                      



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          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; (8) any change 
          in assessments that have been approved but not become due and 
          payable as of the date of disclosure; (9) if there is a 
          provision prohibiting rental or leasing of the separate 
          interest; and (10) a copy of the minutes of the meeting of the 
          association's board of directors, as specified. (Civ. Code Sec. 
          1368 (a).)

           Existing law  requires an association, upon written request, to 
          provide the above documents to the owner of a separate interest 
          in the CID, or any other recipient authorized by the owner, 
          within 10 days of the mailing or delivery of the request.  The 
          association must, also upon receiving that request, provide the 
          owner or recipient with a prescribed form that contains a 
          written or electronic estimate of the fees that will be assessed 
          for providing the requested documents.  (Civ. Code Sec. 1368 
          (b)(1).)

           Existing law  allows the association to collect a reasonable fee 
          based upon the association's actual costs for procuring, 
          preparing, reproducing, and delivering the requested documents, 
          and specifies that no additional fees may be charged by the 
          association for the electronic delivery of the documents 
          requested.  (Civ. Code Sec. 1368 (b)(1)-(2).)

           Existing law  requires any fees charged for the above documents 
          to be distinguished from other fees, fines, or assessments 
          billed as part of the transfer or sales transaction.  Existing 
          law provides that delivery of the required documents shall not 
          be withheld for any reason or subject to any condition except 
          payment of the fee.  (Civ. Code Sec. 1368 (b)(3).) 

           Existing law  allows an association to contract with any person 
          or entity to facilitate compliance with the above requirements 
          on behalf of the association.  (Civ. Code Sec. 1368 (b)(4).) 

           Existing law  provides a statutory billing disclosure form that 
          lists the charges for each of the required documents, and 
          requires that this form be provided, upon receipt of a written 
          request, to the requester or designated recipient in order to 
          provide an estimate of the fees that will be assessed for 
          providing the requested documents.  The association must also 
                                                                      



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          provide a recipient of the documents with a completed form at 
          the time the required documents are delivered.  (Civ. Code Secs. 
          1368.2, 1368(b)(1),(5).)

           This bill  would prohibit the charging of a cancellation fee if 
          either of the following applies: (1) the request was cancelled 
          in writing by the same party that placed the order and work had 
          not yet been performed on the order, and (2) the request was 
          cancelled in writing and any work that had been performed on the 
          order was compensated.

           This bill  would also require the statutory billing disclosure to 
          be in at least 10-point font.

                                        COMMENT
           
          1.   Stated need for the bill  

          According to the author, this bill seeks to address issues with 
          document preparation companies charging cancellation fees and 
          using a font size for billing documents that is too small. 

          2.   Cancellation fees  

          As noted above, the seller of a property within a common 
          interest development (CID) is required to provide copies of 
          specified documents to the prospective purchaser.  Since those 
          documents are generally in the possession of the homeowner's 
          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 based upon the association's actual cost for the 
          procurement, preparation, reproduction, and delivery of the 
          documents requested."  (Civ. Code Sec. 1368 (b)(1).)  In 
          response to concerns that third-party companies hired by 
          associations to perform that these document production services 
          were charging significant amounts, AB 771 (Butler, Chapter 206, 
          Statutes of 2011), among other things, required an estimate to 
          be provided of the fees that will be assessed for providing the 
          documents. 

          This bill seeks to further respond to reported issues with the 
          production of those documents by prohibiting a cancellation fee 
          if: (1) a request was cancelled in writing by the same party 
          that placed the order an work had not yet been performed on the 
          order; or (2) the request was canceled in writing and any work 
                                                                      



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          that had been performed under the order was compensated.  
          Associa, in support, contends: "Cancellation fees should be 
          prohibited where no work has been performed.  Last year, this 
          was not an issue and this year, it became an issue.  Thus, it is 
          appropriate to address this issue."

          From a policy standpoint, it appears reasonable to prohibit the 
          charging of a cancellation fee if no work has been done on an 
          order for documents, or, the work already performed had been 
          compensated.  Considering that real estate transactions can 
          easily fall through in the present real estate market, it 
          appears appropriate to enact some further protections against 
          the charging of unnecessary fees in those circumstances.

          Staff also notes that the author's amendment discussed in 
          Comment 4 would further protect sellers who cancel document 
          orders by requiring a refund of fees paid for the order (for the 
          portion of the work not yet performed), thus, ensuring that the 
          third party cannot keep a fee paid to them unless actual work 
          has been done. 

          3.    Font size  

          To facilitate disclosure to sellers regarding charges for 
          providing the documents, AB 771 codified 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 is codified, AB 771 
          provided that the billing disclosures shall be in substantially 
          the following form, thus allowing for customization, as needed.  


          This bill would additionally require that form to be in at least 
          10-point type.  Associa, in support, asserts that this change 
          will "makeÝ] it much easier to read the new statutory disclosure 
          form that is required to be provided to the buyer prior to 
          transfer of title." 

          4.   Author's amendment agreed to in Senate Transportation & 
          Housing  

          The author accepted the following amendment in the Senate 
          Transportation & Housing Committee to additionally require: (1) 
          a refund of the fee collected if a request for documents was 
          cancelled in writing and work had not yet been performed; and 
          (2) when work has been performed, a refund of the share of the 
                                                                      



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          fee that represents the portion of the work not performed.  
           
               Author's amendment:  

               1) On page 4, line 25 after "(3)" and insert: (A)

               2) On page 4, line 27, strike out "(A)" and insert: (i)

               3) On page 4, line 30, strike out "(B)" and insert: (ii)

               4) On page 4, line 32, insert:

          (B) The association shall refund all fees collected pursuant to 
          paragraph (1) if the request was canceled in writing and work 
          had not yet been performed on the order.
          (C) If the request was canceled in writing, the association 
          shall refund the share of fees collected pursuant to paragraph 
          (1) that represents the portion of the work not performed on the 
          order.  
           

          Support  :  Associa; Community Associations Institute; California 
          Association of Realtors; Executive Council of Homeowners

           Opposition  :  None Known

                                       HISTORY
           
           Source  :  Author

           Related Pending Legislation  :  None Known 

           Prior Legislation  :  AB 771 (Butler, Chapter 206, Statutes of 
          2011) See Background and Comments 2 and 3.

           Prior Vote  :

          Assembly Judiciary Committee (Ayes 10, Noes 0)
          Assembly Floor (Ayes 74, Noes 1)
          Senate Transportation & Housing Committee (Ayes 9, Noes 0)

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