Amended in Senate June 24, 2013

Amended in Assembly April 10, 2013

California Legislature—2013–14 Regular Session

Assembly BillNo. 1024

Introduced by Assembly Member Torres

February 22, 2013

An act to amend Sectionsbegin delete 11000.1, 11003.4,end deletebegin insert 11003.4 andend insert 11013.1begin delete, and 11013.2end deleteof, and to add Section 11013.6 to, the Business and Professions Code, and tobegin delete add Section 5146 toend deletebegin insert amend Section 5100 ofend insert the Civil Code, relating to land use.


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

begin delete

(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.

end delete
begin delete

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.

end delete
begin delete

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.

end delete
begin delete


end delete

begin insert(1)end insert 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.

begin delete


end delete

begin insert(2)end insert 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 specified conditions are met.

begin delete


end delete

begin insert(3)end insert 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.

begin delete


end delete

begin insert(4)end insert 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:

begin delete
P3    1


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



(a) “Subdivided lands” and “subdivision,” as defined
4by Sections 11000 and 11004.5, also include improved or
5unimproved land or lands, a lot or lots, or a parcel or parcels, of
6any size, in which, for the purpose of sale or lease or financing,
7whether immediate or future, five or more undivided interests are
8created or are proposed to be created.

9(b) This section does not apply to the creation or proposed
10creation of undivided interests in land if any one of the following
11conditions exists:

12(1) The undivided interests are held or to be held by persons
13related one to the other by blood or marriage.

14(2) The undivided interests are to be purchased and owned solely
15by persons who present evidence satisfactory to the Real Estate
16Commissioner that they are knowledgeable and experienced
17investors who comprehend the nature and extent of the risks
18involved in the ownership of these interests. The Real Estate
19Commissioner shall grant an exemption from this part if the
20undivided interests are to be purchased by no more than 10 persons,
21each of whom furnishes a signed statement to the commissioner
22that he or she (A) is fully informed concerning the real property
23to be acquired and his or her interest in that property including the
24risks involved in ownership of undivided interests, (B) is
25purchasing the interest or interests for his or her own account and
26with no present intention to resell or otherwise dispose of the
27interest for value, and (C) expressly waives protections afforded
28to a purchaser by this part.

29(3) The undivided interests are created as the result of a
30foreclosure sale.

31(4) The undivided interests are created by a valid order or decree
32of a court.

33(5) The offering and sale of the undivided interests in a stock
34cooperative or community apartment project is exempt from the
P4    1requirements of Section 25110 of the Corporations Code pursuant
2to subdivision (f) of Section 25102 of that code.

3(6) The offering and sale of undivided interests in a common
4interest development have been expressly qualified by the issuance
5of a permit from the Commissioner of Corporations pursuant to
6the Corporate Securities Law of 1968 (Division 1 (commencing
7with Section 25000) of Title 4 of the Corporations Code).

end delete

begin deleteSEC. 2.end delete
9begin insertSECTION 1.end insert  

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



(a) A “limited-equity housing cooperative” or a
12“workforce housing cooperative trust” is a corporation that meets
13the criteria of Section 11003.2 and that also meets the criteria of
14Sections 817 and 817.1 of the Civil Code, as applicable. Except
15as provided in subdivision (b), a limited-equity housing or
16workforce housing cooperative trust shall be subject to all the
17requirements of this chapter pertaining to stock cooperatives.

18(b) A limited-equity housing cooperative or a workforce housing
19cooperative trust shall be exempt from the requirements of this
20chapter if the limited-equity housing cooperative or workforce
21housing cooperative trust complies with all the following

23(1) The United States Department of Housing and Urban
24Development, the United States Department of Agriculture, the
25National Consumers Cooperative Bank, the California Housing
26Finance Agency, the Public Employees’ Retirement System
27(PERS), the State Teachers’ Retirement System (STRS), the
28Department of Housing and Community Development, the Federal
29Home Loan Bank System or any of its member institutions, a state
30or federally chartered credit union, a state or federally certified
31community development financial institution, or the city, county,
32school district, or redevelopment agency in which the cooperative
33is located, alone or in any combination with each other, directly
34finances or subsidizes at least 50 percent of the total construction
35or development cost or one hundred thousand dollars ($100,000),
36whichever is less; or the real property to be occupied by the
37cooperative was sold or leased by the Department of
38Transportation, other state agency, a city, a county, or a school
39district for the development of the cooperative and has a regulatory
40agreement approved by the Department of Housing and Community
P5    1Development for the term of the permanent financing,
2notwithstanding the source of the permanent subsidy or financing.

3(2) No more than 20 percent of the total development cost of a
4limited-equity mobilehome park, and no more than 10 percent of
5the total development cost of other limited-equity housing
6cooperatives, is provided by purchasers of membership shares.

7(3) A regulatory agreement that covers the cooperative for a
8term of at least as long as the duration of the permanent financing
9or subsidy, notwithstanding the source of the permanent subsidy
10or financingbegin insert,end insert has been duly executed between the recipient of the
11financing and either (A) one of the federal or state agencies
12specified in paragraph (1) or (B) a local public agency that is
13 providing financing for the project under a regulatory agreement
14meeting standards of the Department of Housing and Community
15Development. The regulatory agreement shall make provision for
16at least all of the following:

17(A) Assurances for completion of the common areas and
18facilities to be owned or leased by the limited-equity housing
19cooperative, unless a construction agreement between the same
20parties contains written assurances for completion.

21(B) Governing instruments for the organization and operation
22of the housing cooperative by the members.

23(C) The ongoing fiscal management of the project by the
24cooperative, including an adequate budget, reserves, and provisions
25for maintenance and management.

26(D) Distribution of a membership information report to any
27prospective purchaser of a membership share, prior to purchase
28of that share. The membership information report shall contain
29full disclosure of the financial obligations and responsibilities of
30cooperative membership, the resale of shares, the financing of the
31cooperative including any arrangements made with any partners,
32membership share accounts, occupancy restrictions, management
33arrangements, and any other information pertinent to the benefits,
34risks, and obligations of cooperative ownership.

35(4) Every party that executes the regulatory agreement shall
36satisfy itself that the bylaws, articles of incorporation, occupancy
37agreement, subscription agreement, any lease of the regulated
38premises, any arrangement with partners, and arrangement for
39membership share accounts provide adequate protection of the
40rights of cooperative members.

P6    1(5) Every provider of financing or subsidies shall receive from
2the attorney for the recipient of the financing or subsidy a legal
3opinion that the cooperative meets the requirements of Section
4817 of the Civil Code and the exemption provided by this section.

5(c) Any limited-equity cooperative, or workforce housing
6cooperative trust that meets the requirements for exemption
7pursuant to subdivision (b) may elect to be subject to all provisions
8of this chapter.

9(d) The developer of the cooperative shall notify the Bureau of
10Real Estate, on a form provided by thebegin delete departmentend deletebegin insert bureauend insert, that an
11exemption is claimed under this section. The Bureau of Real Estate
12shall retain this form for at least four years for statistical purposes.


begin deleteSEC. 3.end delete
14begin insertSEC. 2.end insert  

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



It shall be unlawful, except as provided in Section
1711013.2 orbegin delete 11013.3end deletebegin insert 11013.6end insert, for the owner, subdivider, or agent
18to sell or lease lots or parcels within a subdivision that is subject
19to a blanket encumbrance unless there exists in the blanket
20encumbrance or other supplementary agreement a provision,
21hereinafter referred to as a release clause, which by its terms shall
22unconditionally provide that the purchaser or lessee of a lot or
23parcel can obtain legal title or other interest contracted for, free
24and clear of the blanket encumbrance, upon compliance with the
25terms and conditions of the purchase or lease.

begin delete

SEC. 4.  

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



If the blanket encumbrance or supplementary
29agreement does not include a release clause as set forth in Section
3011013.1, then it shall be unlawful for the owner, subdivider, or
31agent to sell or lease lots or parcels within the subdivision unless
32one of the following conditions is complied with:

33(a) The entire sum of money paid or advanced by the purchaser
34or lessee of the lot or parcel, or a portion thereof as the
35commissioner shall determine is sufficient to protect the interest
36of the purchaser or lessee, shall be deposited into an escrow
37depository acceptable to the commissioner until any of the
38following occur:

39 (1) A proper release is obtained from the blanket encumbrance.

P7    1 (2) Either the owner, subdivider, or agent or the purchaser or
2lessee may default under their contract of sale or lease and there
3is a determination as to the disposition of the moneys.

4 (3) The owner, subdivider, or agent orders the return of the
5moneys to this purchaser or lessee.

6(b) The title to the subdivision is to be held in trust under an
7agreement of trust acceptable to the commissioner until a proper
8release from the blanket encumbrance is obtained.

9(c) A bond to the State of California is furnished to the
10commissioner for the benefit and protection of purchasers or lessees
11of the lots or parcels, in an amount and subject to the terms as may
12be approved by the commissioner, which shall provide for the
13return of the moneys paid or advanced by any purchaser or lessee,
14for or on account of the purchase or lease of the lot or parcel if a
15proper release from the blanket encumbrance is not obtained;
16provided, however, that if it should be determined that the
17purchaser or lessee, by reason of default or otherwise, is not entitled
18to the return of the moneys, or any portion thereof, then the bond
19shall be exonerated to the extent of the amount of the moneys to
20which the purchaser or lessee is not entitled.

21(d) There is conformance to another alternative requirement or
22method that the commissioner may deem acceptable to carry into
23effect the intent and provisions of this part.

24(e) The sale or lease subject to the blanket encumbrance is
25described in Section 11013.6.

end delete

begin deleteSEC. 5.end delete
27begin insertSEC. 3.end insert  

Section 11013.6 is added to the Business and
28Professions Code
, to read:



Notwithstanding Sections 11013.1 and 11013.2, an
30individual interest in a stock cooperative, as defined in Section
31begin delete 11003.2end deletebegin insert 4190 of the Civil Codeend insert, or a limited equity housing
32cooperative, as defined in Section 817 of the Civil Code, may be
33sold or leased subject to a blanket encumbrance ifbegin delete theend deletebegin insert all of the
34following conditions are met:end insert

35begin insert(a)end insertbegin insertend insertbegin insertTheend insert notice required pursuant to Section 1133 of the Civil
36Code is provided to every prospective purchaser of the interest
37and is included in every purchasebegin delete contract and any of the following
38conditions are met:end delete
begin insert contract.end insert

begin delete


end delete

P8    1begin insert(b)end insert The property subject to the sale has obtained a public report
2from the Bureau of Real Estatebegin insert that accounts for the blanket
3encumberanceend insert

begin delete

4(b) The governing documents of a homeowners association for
5a stock cooperative require the association to create within one
6year of the sale of at least 50 percent of the individual interest in
7the stock cooperative and maintain during the term of the blanket
8encumbrance a financing reserve amount equal to at least three
9months of the amount of the debt service payments due on the
10blanket encumbrance.

11(c) Every purchaser of an individual interest in the stock
12cooperative is an excluded purchaser, as defined in Section
13260.102.13 of Title 10 of the California Code of Regulations.

end delete
begin insert

14(c) The governing documents for the association require the
15association to create within one year of the sale of at least 50
16percent of the individual interests in the stock cooperative or
17limited-equity housing cooperative and maintain during the term
18of the blanket encumbrance a financing reserve amount equal to
19at least three months of the amount of the debt service payments
20due on the blanket encumbrance or a lesser amount acceptable to
21the commissioner.

end insert
begin delete22

SEC. 6.  

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



Except for Section 5145, the provisions of this article
24applicable to the election of directors of a homeowners’ association
25shall not apply to a stock cooperative with bylaws that provide
26that all members and shareholders automatically become directors
27of the homeowners’ association.

end delete
28begin insert

begin insertSEC. 4.end insert  

end insert

begin insertSection 5100 of the end insertbegin insertCivil Codeend insertbegin insert is amended to read:end insert



(a) Notwithstanding any other law or provision of the
30governing documents, elections regarding assessments legally
31requiring a vote, election and removal of directors, amendments
32to the governing documents, or the grant of exclusive use of
33common area pursuant to Section 4600 shall be held by secret
34ballot in accordance with the procedures set forth in this article.

35(b) This article also governs an election on any topic that is
36expressly identified in the operating rules as being governed by
37this article.

38(c) The provisions of this article apply to both incorporated and
39unincorporated associations, notwithstanding any contrary
40provision of the governing documents.

P9    1(d) The procedures set forth in this article shall apply to votes
2cast directly by the membership, but do not apply to votes cast by
3delegates or other elected representatives.

4(e) In the event of a conflict between this article and the
5provisions of the Nonprofit Mutual Benefit Corporation Law (Part
63 (commencing with Section 7110) of Division 2 of Title 1 of the
7Corporations Code) relating to elections, the provisions of this
8article shall prevail.

begin insert

9(f) A director shall not be required to be elected pursuant to
10this article if the governing documents provide that all members
11are directors.

end insert

begin deleteSEC. 7.end delete
13begin insertSEC. 5.end insert  

No reimbursement is required by this act pursuant to
14Section 6 of Article XIII B of the California Constitution because
15the only costs that may be incurred by a local agency or school
16district will be incurred because this act creates a new crime or
17infraction, eliminates a crime or infraction, or changes the penalty
18for a crime or infraction, within the meaning of Section 17556 of
19the Government Code, or changes the definition of a crime within
20the meaning of Section 6 of Article XIII B of the California