California Legislature—2013–14 Regular Session

Assembly Bill No. 1024

Introduced by Assembly Member Torres

February 22, 2013

An act to amend Sections 11000.1, 11003.4, 11013.1, and 11013.2 of, and to add Section 11013.6 to, the Business and Professions Code, to add Section 5146 to the Civil Code, and to amend Section 66426 of the Government Code, relating to land use.

LEGISLATIVE COUNSEL’S DIGEST

AB 1024, as introduced, Torres. Real property: divided lands.

(1) Existing law generally governs real estate transactions, including transactions involving subdivided lands. Existing law requires any person who intends to offer subdivided lands within California for sale or lease to file with the Department of Real Estate an application for a public report, consisting of a completed questionnaire and a notice of intention that includes, among other things, a statement of the proposed uses for which the proposed subdivision will be offered. Existing law provides a person who has made an offer to purchase an interest in an undivided-interest subdivision, as specified, the right to rescind any contract resulting from the acceptance of that offer until midnight of the 3rd calendar day following the day on which the prospective purchaser executed the offer to purchase. Existing law makes a violation of these provisions a crime.

Existing law exempts from the definition of “subdivided lands” and “subdivision” the creation or proposed creation of undivided interests in land if the offering and sale of the undivided interests have been expressly qualified by a permit from the Commissioner of Corporations.

This bill would revise the above-described exemption to apply to the offering and sale of undivided interests in a stock cooperative or community apartment project that is exempt from specified securities requirements, as well as to the offering and sale of undivided interests in a common interest development that has been so expressly qualified.

(2) Existing law exempts a limited-equity housing cooperative or a workforce housing cooperative trust from provisions of existing law governing subdivided land transactions that are applicable to stock cooperatives if the limited-equity housing cooperative or workforce housing cooperative trust complies with specified conditions.

This bill would revise the conditions for the exemption to, among other things, require that every party that executes a regulatory agreement with the cooperative satisfy itself that the rights of the cooperative members are provided adequate protection, as specified. By expanding the applicability of a crime, this bill would impose a state-mandated local program.

(3) Existing law prohibits the sale or lease of lots or parcels within a subdivision that is subject to a blanket encumbrance unless the encumbrance includes a specified release clause or certain conditions are met.

This bill would authorize the sale or lease of an individual interest in a defined stock cooperative or limited housing cooperative that is subject to a blanket encumbrance if a specified condition is met.

(4) The Davis-Stirling Common Interest Development Act establishes procedures for elections.

This bill would exempt a stock cooperative with bylaws that provide that all members and shareholders automatically become directors of the homeowners’ association from the procedures applicable to the election of directors of the homeowners’ association.

(5) The existing Subdivision Map Act requires a tentative and final map for all subdivisions creating 5 or more parcels, 5 or more condominiums, as defined, a community apartment project containing 5 or more parcels, or for the conversion of a dwelling to a stock cooperative containing 5 or more dwelling units, except as specified.

This bill would delete from the above-described requirement a community apartment project containing 5 or more parcels and the conversion of a dwelling to a stock cooperative containing 5 or more dwelling units.

(6) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

Section 11000.1 of the Business and Professions
Code is amended to read:

11000.1.  

(a) “Subdivided lands” and “subdivision,” as defined
by Sections 11000 and 11004.5, also include improved or
unimproved land or lands, a lot or lots, or a parcel or parcels, of
any size, in which, for the purpose of sale or lease or financing,
whether immediate or future, five or more undivided interests are
created or are proposed to be created.

(b) This section does not apply to the creation or proposed
creation of undivided interests in land if any one of the following
conditions exists:

(1) The undivided interests are held or to be held by persons
related one to the other by blood or marriage.

(2) The undivided interests are to be purchased and owned solely
by persons who present evidence satisfactory to the Real Estate
Commissioner that they are knowledgeable and experienced
investors who comprehend the nature and extent of the risks
involved in the ownership of these interests. The Real Estate
Commissioner shall grant an exemption from this part if the
undivided interests are to be purchased by no more than 10 persons,
each of whom furnishes a signed statement to the commissioner
that he or she (A) is fully informed concerning the real property
to be acquired and his or her interest in that property including the
risks involved in ownership of undivided interests, (B) is
purchasing the interest or interests for his or her own account and
with no present intention to resell or otherwise dispose of the
interest for value, and (C) expressly waives protections afforded
to a purchaser by this part.

(3) The undivided interests are created as the result of a
foreclosure sale.

(4) The undivided interests are created by a valid order or decree
of a court.

(5) The offering and sale of the undivided interests begin delete have end delete begin insert in a
stock cooperative or community apartment project is exempt from
the requirements of Section 25110 of the Corporations Code
pursuant to subdivision (f) of Section 25102 of that code. end insert

begin insert (6) end insert begin insert   end insert begin insert The offering and sale of undivided interests in a common
interest development end insert begin insert have end insert been expressly qualified by the issuance
of a permit from the Commissioner of Corporations pursuant to
the Corporate Securities Law of 1968 (Division 1 (commencing
with Section 25000) of Title 4 of the Corporations Code).

SEC. 2.  

Section 11003.4 of the Business and Professions Code
is amended to read:

11003.4.  

(a) A “limited-equity housing cooperative” or a
“workforce housing cooperative trust” is a corporation that meets
the criteria of Section 11003.2 and that also meets the criteria of
Sections 817 and 817.1 of the Civil Code, as applicable. Except
as provided in subdivision (b), a limited-equity housing or
workforce housing cooperative trust shall be subject to all the
requirements of this chapter pertaining to stock cooperatives.

(b) A limited-equity housing cooperative or a workforce housing
cooperative trust shall be exempt from the requirements of this
chapter if the limited-equity housing cooperative or workforce
housing cooperative trust complies with all the following
conditions:

(1) The United States Department of Housing and Urban
Development, the United States Department of Agriculture, the
National Consumers Cooperative Bank, the California Housing
Finance Agency, the Public Employees’ Retirement System
(PERS), the State Teachers’ Retirement System (STRS), the
Department of Housing and Community Development, begin delete or end delete the
Federal Home Loan Bank System or any of its member institutions,
begin delete alone or in any combination with each other, or with end delete begin insert a state or
federally chartered credit union, a state or federally certified
community development financial institution, or end insert the city, county,
school district, or redevelopment agency in which the cooperative
is located, begin insert alone or in any combination with each other, end insert directly
finances or subsidizes at least 50 percent of the total construction
or development cost or one hundred thousand dollars ($100,000),
whichever is less; or the real property to be occupied by the
cooperative was sold or leased by the Department of
Transportation, other state agency, a city, a county, or a school
district for the development of the cooperative and has a regulatory
agreement approved by the Department of Housing and Community
Development for the term of the permanent financing,
notwithstanding the source of the permanent subsidy or financing.

(2) No more than 20 percent of the total development cost of a
limited-equity mobilehome park, and no more than 10 percent of
the total development cost of other limited-equity housing
cooperatives, is provided by purchasers of membership shares.

(3) A regulatory agreement that covers the cooperative for a
term of at least as long as the duration of the permanent financing
or subsidy, notwithstanding the source of the permanent subsidy
or financing has been duly executed between the recipient of the
financing and either (A) one of the federal or state agencies
specified in paragraph (1) or (B) a local public agency that is
providing financing for the project under a regulatory agreement
meeting standards of the Department of Housing and Community
Development. The regulatory agreement shall make provision for
at least all of the following:

(A) Assurances for completion of the common areas and
facilities to be owned or leased by the limited-equity housing
cooperative, unless a construction agreement between the same
parties contains written assurances for completion.

(B) Governing instruments for the organization and operation
of the housing cooperative by the members.

(C) The ongoing fiscal management of the project by the
cooperative, including an adequate budget, reserves, and provisions
for maintenance and management.

(D) Distribution of a membership information report to any
prospective purchaser of a membership share, prior to purchase
of that share. The membership information report shall contain
full disclosure of the financial obligations and responsibilities of
cooperative membership, the resale of shares, the financing of the
cooperative including any arrangements made with any partners,
membership share accounts, occupancy restrictions, management
arrangements, and any other information pertinent to the benefits,
risks, and obligations of cooperative ownership.

(4)  begin delete The federal, state, or local public agency end delete begin insert Every party end insert begin insert end insert that
executes the regulatory agreement shall satisfy itself that the
bylaws, articles of incorporation, occupancy agreement,
subscription agreement, any lease of the regulated premises, any
arrangement with partners, and arrangement for membership share
accounts provide adequate protection of the rights of cooperative
members.

(5)  begin delete The federal or state agency end delete begin insert Every provider of financing or
subsidies end insert shall receive from the attorney for the recipient of the
financing or subsidy a legal opinion that the cooperative meets the
requirements of Section 817 of the Civil Code and the exemption
provided by this section.

(c) Any limited-equity cooperative, or workforce housing
cooperative trust that meets the requirements for exemption
pursuant to subdivision (b) may elect to be subject to all provisions
of this chapter.

(d) The developer of the cooperative shall notify the begin delete Department end delete
begin insert Bureau end insert of Real Estate, on a form provided by the department, that
an exemption is claimed under this section. The begin delete Department end delete begin insert Bureau end insert
of Real Estate shall retain this form for at least four years for
statistical purposes.

SEC. 3.  

Section 11013.1 of the Business and Professions Code
is amended to read:

11013.1.  

It shall be unlawful, except as provided in Section
11013.2 begin insert or 11013.3 end insert , for the owner, subdivider, or agent to sell or
lease lots or parcels within a subdivision that is subject to a blanket
encumbrance unless there exists in begin delete such end delete begin insert the end insert blanket encumbrance
or other supplementary agreement a provision, hereinafter referred
to as a release clause, which by its terms shall unconditionally
provide that the purchaser or lessee of a lot or parcel can obtain
legal title or other interest contracted for, free and clear of begin delete such end delete
begin insert the end insert blanket encumbrance, upon compliance with the terms and
conditions of the purchase or lease.

SEC. 4.  

Section 11013.2 of the Business and Professions Code
is amended to read:

11013.2.  

begin delete Should there not exist in end delete begin insert If end insert begin insert end insert the blanket encumbrance
or supplementary agreement begin insert does not include end insert a release clause as
set forth in Section 11013.1, then it shall be unlawful for the owner,
subdivider, or agent to sell or lease lots or parcels within begin delete such end delete begin insert the end insert
subdivision unless one of the following conditions is complied
with:

(a) The entire sum of money paid or advanced by the purchaser
or lessee of begin delete any such end delete begin insert the end insert lot or parcel, or begin delete such end delete begin insert a end insert portion thereof as
the commissioner shall determine is sufficient to protect the interest
of the purchaser or lessee, shall be deposited into an escrow
depository acceptable to the commissioner until begin delete either (1) a end delete begin insert any
of the following occur: end insert

begin insert (1) end insert begin insert   end insert begin insert A end insert proper release is obtained from begin delete such end delete begin insert the end insert blanket
begin delete encumbrance; or (2) either end delete begin insert encumbrance. end insert

begin insert (2) end insert begin insert   end insert begin insert Either end insert the owner, subdivider, or agent or the purchaser or
lessee may default under their contract of sale or lease and there
is a determination as to the disposition of begin delete such moneys; or (3) the end delete
begin insert the moneys. end insert

begin insert (3) end insert begin insert   end insert begin insert The end insert owner, subdivider, or agent orders the return of begin delete such end delete
begin insert the end insert moneys to begin delete such end delete begin insert this end insert purchaser or lessee.

(b) The title to the subdivision is to be held in trust under an
agreement of trust acceptable to the commissioner until a proper
release from begin delete such end delete begin insert the end insert blanket encumbrance is obtained.

(c) A bond to the State of California is furnished to the
commissioner for the benefit and protection of purchasers or lessees
of begin delete such end delete begin insert the end insert lots or parcels, in begin delete such end delete begin insert an end insert amount and subject to begin delete such end delete
begin insert the end insert terms as may be approved by the commissioner, which shall
provide for the return of the moneys paid or advanced by any
purchaser or lessee, for or on account of the purchase or lease of
begin delete any such end delete begin insert the end insert lot or parcel if a proper release from begin delete such end delete begin insert the end insert blanket
encumbrance is not obtained; provided, however, that if it should
be determined that begin delete such end delete begin insert the end insert purchaser or lessee, by reason of
default or otherwise, is not entitled to the return of begin delete such end delete begin insert the end insert
moneys, or any portion thereof, then begin delete such end delete begin insert the end insert bond shall be
exonerated to the extent of the amount of begin delete such end delete begin insert the end insert moneys to which
begin delete such end delete begin insert the end insert purchaser or lessee is not entitled.

(d) There is conformance to begin delete such other end delete begin insert another end insert alternative
requirement or method begin delete which end delete begin insert that end insert the commissioner may deem
acceptable to carry into effect the intent and provisions of this part.

begin insert

(e) The sale or lease subject to the blanket encumbrance is
described in Section 11013.3.

end insert

SEC. 5.  

Section 11013.6 is added to the Business and
Professions Code, to read:

11013.6.  

Notwithstanding Sections 11013.1 and 11013.2, an
individual interest in a stock cooperative, as defined in Section
11003.2, or a limited equity housing cooperative, as defined in
Section 817 of the Civil Code, may be sold or leased subject to a
blanket encumbrance if any of the following conditions are met:

(a) The property subject to the sale has obtained a public report
from the Bureau of Real Estate.

(b) The notice required pursuant to Section 1133 of the Civil
Code is provided to every prospective purchaser of the interest
and is included in every purchase contract.

(c) The governing documents of a homeowners association for
a stock cooperative require the association to create within one
year of the sale of at least 50 percent of the individual interest in
the stock cooperative and maintain during the term of the blanket
encumbrance a financing reserve amount equal to at least three
months of the amount of the debt service payments due on the
blanket encumbrance.

(d) Every purchaser of an individual interest in the stock
cooperative is an excluded purchaser, as defined in Section
260.102.13 of Title 10 of the California Code of Regulations.

SEC. 6.  

Section 5146 is added to the Civil Code, to read:

5146.  

Except for Section 5145, the provisions of this article
applicable to the election of directors of a homeowners’ association
shall not apply to a stock cooperative with bylaws that provide
that all members and shareholders automatically become directors
of the homeowners’ association.

SEC. 7.  

Section 66426 of the Government Code is amended
to read:

66426.  

A tentative and final map shall be required for all
subdivisions creating five or more parcels begin delete , end delete begin insert or end insert five or more
condominiums begin insert , end insert as defined in Section 783 of the Civil Code, begin delete a
community apartment project containing five or more parcels, or
for the conversion of a dwelling to a stock cooperative containing
five or more dwelling units, end delete except where any one of the following
occurs:

(a) The land before division contains less than five acres, each
parcel created by the division abuts upon a maintained public street
or highway, and no dedications or improvements are required by
the legislative body.

(b) Each parcel created by the division has a gross area of 20
acres or more and has an approved access to a maintained public
street or highway.

(c) The land consists of a parcel or parcels of land having
approved access to a public street or highway, which comprises
part of a tract of land zoned for industrial or commercial
development, and which has the approval of the governing body
as to street alignments and widths.

(d) Each parcel created by the division has a gross area of not
less than 40 acres or is not less than a quarter of a quarter section.

(e) The land being subdivided is solely for the creation of an
environmental subdivision pursuant to Section 66418.2.

(f) A parcel map shall be required for those subdivisions
described in subdivisions (a), (b), (c), (d), and (e).

SEC. 8.  

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.