BILL ANALYSIS                                                                                                                                                                                                    Ó


          |SENATE RULES COMMITTEE            |                       AB 1024|
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                                    THIRD READING

          Bill No:  AB 1024
          Author:   Torres (D)
          Amended:  7/8/13 in Senate
          Vote:     21

          AYES:  DeSaulnier, Gaines, Beall, Galgiani, Hueso, Lara, Liu,  
            Pavley, Roth, Wyland
          NO VOTE RECORDED:  Cannella

           SENATE JUDICIARY COMMITTEE  :  5-1, 7/2/13
          AYES:  Walters, Anderson, Jackson, Leno, Monning
          NOES:  Corbett
          NO VOTE RECORDED:  Evans

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8
          ASSEMBLY FLOOR  :  73-0, 5/16/13 - See last page for vote

           SUBJECT  :    Cooperative housing

           SOURCE  :     California Center for Cooperative Development

           DIGEST  :    This bill exempts a stock cooperative or community  
          apartment project from the Subdivided Lands Law (SLL) under  
          specified conditions and allows a stock cooperative or limited  
          equity housing cooperative to be sold or leased subject to a  
          blanket encumbrance under specified conditions.

           ANALYSIS  :    Cooperative housing members own a share in a  


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          corporation that owns or controls the building(s) 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.  

          Limited-equity cooperatives limit the resale value of shares.   
          Generally targeted at low- and moderate-income people (in the  
          80-120% of median-income range), the purpose of limited-equity  
          cooperatives is to prevent speculation, encourage long-term  
          residency, and preserve the affordable character of the  
          cooperative for a wide variety of future residents.

          SLL generally requires a person who proposes to subdivide a  
          property into five or more parcels for purpose of sale or lease  
          to obtain a public report from the Bureau of Real Estate (BRE)  
          before the subdivider may market the lots or units.  SLL is  
          intended to ensure that prospective buyers receive disclosure of  
          pertinent information about the subdivision and that developers  
          complete improvements or arrange for their completion.  SLL  
          contains a number of exemptions, including exemptions for  
          various forms of common ownership.  For example, a  
          limited-equity housing cooperative for which a public agency has  
          provided the land or financed or subsidized at least 50% of the  
          total construction or development cost or $100,000, whichever is  
          less, is exempt from the public reporting requirement if the  
          regulatory agreements provides assurances for completion of the  
          common areas and facilities and ensures that every prospective  
          purchaser receives prior to sale a membership information report  
          that contains full disclosure of the financial obligations and  
          responsibilities of cooperative membership, rules regarding the  
          resale of shares, the financing of the cooperative, occupancy  
          restrictions, management arrangements, and any other information  
          pertinent to the benefits, risks, and obligations of cooperative  

          SLL also generally prohibits the sale or lease of lots or  
          parcels within a subdivision if the lots or parcels are subject  
          to a "blanket encumbrance," which is a mortgage secured by the  
          entire property or more than one lot or parcel.  This  
          prohibition does not apply if the encumbrance contains a release  



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          clause that unconditionally allows a purchaser to obtain legal  
          title free and clear of the blanket encumbrance upon compliance  
          with the terms and conditions of the purchase or lease.  The  
          prohibition also does not apply if all of the following criteria  
          are met, or if the Commissioner of Real Estate (Commissioner)  
          provides an alternative requirement which he or she deems  
          acceptable to protect the interest of the purchaser:

           1. The purchaser deposits the purchase price, or an amount that  
             the Commissioner determines is sufficient to protect a  
             purchaser, into an escrow account.  

           2. The title to the subdivision is held in a trust that the  
             Commissioner determines is acceptable until a release can be  

           3. A bond is issued to the State of California and furnished to  
             the Commissioner that provides for the return of the moneys  
             paid or advanced by any purchaser. 

           4. The purchaser signs a notice making them aware of the  
             blanket encumbrance and its effect.

          Cooperative housing developments also fall under the  
          Davis-Stirling Common Interest Development Act (Davis-Stirling  
          Act), which governs all common interest developments (CIDs).   
          The Act requires that a board of directors govern a CID and,  
          when elections are held for the board of directors, specifies  
          various election procedures, including use of secret ballots and  
          the appointment of an inspector of elections.  

          This bill:  

           1. Provides that, notwithstanding prohibitions in the  
             Subdivided Lands Act, an individual interest in a stock  
             cooperative or a limited equity housing cooperative may be  
             sold or leased subject to a blanket encumbrance if all of the  
             following conditions are met:

                   The notice required pursuant to Civil Code Section  
                1133 is provided to every prospective purchaser or lessee  
                of the interest and is included in every purchase or lease  



                                                                    AB 1024

                   The property subject to the sale has obtained a public  
                report from the BRE that accounts for the blanket  
                encumbrance; and 

                   The governing documents for the association require  
                the association to create within one year of the sale of  
                at least 50% of the individual interests in the stock  
                cooperative or limited-equity housing 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 or a lesser amount acceptable to the  

           1. Provides that a limited-equity housing cooperative or a  
             workforce housing cooperative trust shall be exempt from the  
             requirements of the Subdivided Lands Act if, alone or in any  
             combination with other specified entities, a state or  
             federally chartered credit union or a state or federally  
             certified community development financial institution  
             directly finances or subsidizes at least 50% of the total  
             construction or development cost or $100,000, whichever is  
             less, of the housing cooperative.

           2. Provides that a director shall not be required to be elected  
             pursuant to the Davis-Stirling Act if the governing documents  
             of a CID, including a housing cooperative, provide that one  
             member from each separate interest is a director.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes

           SUPPORT  :   (Verified  8/13/13)

          California Center for Cooperative Development (source)
          Bay Area Community Land Trust
          East Bay Cooperative Housing California
          San Francisco Community Land Trust
          Sustainable Economies Law Center
          Walnut House Cooperative

           ARGUMENTS IN SUPPORT  :    The author writes:

            Existing law prohibits a recording of a blanket encumbrance on  



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            a cooperative unless specified requirements are met.  As a  
            result it is very hard to finance a cooperative because  
            lenders are not interested in lending on individual units in  
            the cooperative.  This bill allows [an interest in a stock  
            cooperative or limited equity housing cooperative to be sold  
            with] a blanket encumbrance [subject to certain conditions,  
            including the preparation of] . . . a public report [and the  
            establishment of] . . . a reserve.     

            In some cases the bylaws of the governing documents of a  
            cooperative require the members to all sit on the board of  
            directors.  The state law governing CIDs [Common Interest  
            Developments] requires the homeowners association [to] hold an  
            election for the board of director[s].  This is unnecessary if  
            all members are automatically board members.  This bill states  
            that if the bylaws require all members to be board members in  
            a CID then you are not required to hold an election.

           ASSEMBLY FLOOR  :  73-0, 5/16/13
          AYES:  Achadjian, Alejo, Ammiano, Atkins, Bigelow, Bloom,  
            Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,  
            Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,  
            Cooley, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,  
            Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell,  
            Gray, Hagman, Hall, Harkey, Roger Hernández, Jones,  
            Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein,  
            Mansoor, Medina, Mitchell, Mullin, Muratsuchi, Nazarian,  
            Nestande, Olsen, Pan, Patterson, Perea, V. Manuel Pérez,  
            Quirk, Quirk-Silva, Rendon, Salas, Skinner, Ting, Torres,  
            Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada,  
            John A. Pérez
          NO VOTE RECORDED:  Allen, Grove, Holden, Melendez, Morrell,  
            Stone, Vacancy

          JA:k  8/13/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

                                   ****  END  ****



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