BILL ANALYSIS Ó AB 569 Page 1 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 AB 569 Page 2 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 AB 569 Page 3