BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 569
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          Date of Hearing:   January 23, 2014

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                  Mike Gatto, Chair

                   AB 569 (Chau) - As Amended:  September 12, 2013 

          Policy Committee:                              Housing and  
          Community Development                         Vote: 7-0

          Urgency:     No                   State Mandated Local Program:  
          Yes    Reimbursable:              No

           SUMMARY  

          This bill relaxes restrictions to assist in the development and  
          financing of cooperative housing.   Specifically, this bill:  

          1)Expands the category of institutions that a limited equity  
            housing corporation (LEHC) or workforce housing cooperative  
            trust can receive financing from and still be eligible to  
            receive an exemption from the requirement to obtain a public  
            report from the Bureau of Real Estate.  State or federally  
            chartered credit unions and a certified community development  
            institution (CDFI) are added.

          2)Allows a stock cooperative or LEHC to be sold or leased,  
            subject to a blanket encumbrance if specified conditions are  
            met

          3)Exempts common interest developments (CIDs) from the election  
            provisions of the Davis Stirling Act if the governing  
            documents of the homeowner's association (HOA) provide that  
            all members of the CID are automatically members of the board  
            of directors of the HOA. 

           FISCAL EFFECT  

          Negligible fiscal impact.  

           COMMENTS  

           1)Purpose.   The author explains that in California, a  
            cooperative is created when a corporation is formed for the  
            purposes of holding title to a property, and where all or  








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            substantially all of the members or shareholders of the  
            corporation are entitled to lease a unit in the property.  The  
            author argues cooperatives lower the barrier to property  
            ownership, and create an important vehicle for the creation  
            and preservation of affordable housing.  According to the  
            author, this bill would remove one of the more significant  
            barriers to financing cooperative housing.

           2)Background  :  Nationwide, more than 1.2 million families of all  
            income levels live in homes owned and operated through  
            cooperative associations.  Cooperative members own a share in  
            a corporation that owns or controls the building and or  
            property in which they live.  Each shareholder is entitled to  
            occupy a specific unit and has a vote in the corporation.   
            Every month, shareholders pay an amount that covers their  
            proportionate share of the expense of operating the entire  
            cooperative which typically includes underlying mortgage  
            payments, property taxes, management, maintenance, insurance,  
            utilities and contributions to reserve funds.  Cooperatives  
            can be any type of housing including townhouses, apartments,  
            single family homes, student housing, senior housing or  
            mobilehome parks.  Proponents state the purpose of the  
            cooperative structure is to prevent speculation, encourage  
            long-term residency and preserve the affordable character of  
            the cooperative for future residents.
                
            3)Blanket encumbrance  .  The California Subdivided Lands Act  
            prohibits, with a few limited exceptions, the sale of  
            cooperative shares when the units are subject to a "blanket  
            encumbrance."  A blanket encumbrance is a single mortgage  
            taken out by the corporation and secured by the entire  
            property.  The prohibition on blanket encumbrances serves to  
            protect cooperative members from losing their homes and  
            investments in the event that one member of the cooperative  
            fails to make payments to the single mortgage.  However, the  
            prohibition on blanket encumbrances has the effect of banning  
            cooperatives in California, because lenders generally will not  
            lend on individual units in a cooperative. 

           4)There is no registered opposition to this bill. 
           


           Analysis Prepared by  :    Roger Dunstan / APPR. / (916) 319-2081 









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