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, (more) AB 1838 (Calderon) Page 2 of ? 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 AB 1838 (Calderon) Page 3 of ? 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 AB 1838 (Calderon) Page 4 of ? 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 AB 1838 (Calderon) Page 5 of ? 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 AB 1838 (Calderon) Page 6 of ? 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) ************** AB 1838 (Calderon) Page 7 of ?